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Naira redesign: What you need to know, do

President Muhammadu Buhari has said his administration will not go back on the plan of the Central Bank of Nigeria (CBN) to redesign the nation’s highest currency notes of N1,000, N500, and N200.

Buhari said this on Wednesday evening in London, UK, shortly after meeting with King Charles III at Buckingham palace.

As the government backs CBN on the naira redesign policy, there are things all Nigerians should know about the programme.

According to the various information from the CBN and the Chartered Institute of Bankers of Nigeria (CIBN), here are things to know.According to the various information from the CBN and the Chartered Institute of Bankers of Nigeria (CIBN), here are things to know.

This will help in controlling currency in circulation and tighten the money supply to address the issue of rising inflation which hit a 17-year high in September 2022.

It will address the hoarding of banknotes by members of the public with over 80% of currency in circulation outside the vaults of commercial banks.

It is designed to take care of the worsening shortage of clean and fit banknotes.

It is also meant to tackle the issue of counterfeiting of Naira notes proved by several reports.

Also, it is to minimise the incidence of terrorism and kidnapping as access to large sums of cash used for ransom will be reduced.

It is created to develop CBN’s drive to entrench a cashless economy and financial inclusion (Banking the unbanked)

Finally, it is an economic mechanism to strengthen the naira.

What you need to know

CBN will change the current N200, N500 and N1000 currency denominations to new currency notes.

The new currency notes will go into circulation on December 15, 2022.

The old Naira notes will cease to be legal tender by January 31, 2023.

Banks have been advised to keep all their deposit centres open from Monday to Saturday going forward for collections.

There are no restrictions to how much individuals or corporate entities can deposit and no bank customer shall bear any charges for cash returned/paid into their accounts during the implementation.

New cashless policy to be announced in January 2023.

What you need to do

Visit your nearest bank branch to deposit all old banknotes (N200, N500 and N1000)

If you do not have a bank account, visit the nearest bank branch of your choice to open one and deposit all old banknotes (N200, N500 and N1000).

Perform normal bank transactions with your bank app or USSD.

Source: Vanguard

ICAN lists areas of concern in Naira redesign

AT the backdrop of the implementation of the Naira redesign by the Central Bank of Nigeria, CBN, the Institute of Chartered Accountants of Nigeria (ICAN)  has listed issues such as impact on inflation and exchange rates, cost of designing and printing the new currency notes and the timing of the policy, as some of the issues the apex bank should address.

“While ICAN would soon release its position on this policy initiative, it suffices to say that the CBN should consider the views of the various stakeholders and ensure that critical issues such as the cost of designing and printing the new currency notes, the timing of the policy, the policy’s likely impact on inflation and exchange rates are satisfactorily addressed.

“Without doubt, the Naira has been in an unprecedented pressure against the US Dollars. As at date, with largely insufficient supply at official channels, the Dollar to Naira exchange rate hovers around N780 to N820 in the parallel market. This has profound implications on inflation, the sourcing of raw materials and services as well as other productive activities.

“As a nation, we must find a permanent solution to the forex crisis if we are to develop at the desired pace.

“As we mark this special day, we recognize that economies across the world are facing one of the most trying times in history. The challenges are heightened with developments such as the Russia-Ukraine war, climate change, increasing consumer prices, contractions in Gross Domestic Products, trade wars, political tensions, among others.

“At the country level, several socio-economic imbalances are biting hard on citizens. Inflation at the end of the third quarter 2022 was 2077 percent, the highest in seventeen years. This is amidst declining purchasing power of citizens. To successfully address the problems of inflation, Nigeria must adopt both short and long-term approaches as a solution.”

 

Source: Vanguard

What CBN’s interest rate hike means for Nigerians, the economy

The Central Bank of Nigeria’s Monetary Policy Committee on Tuesday raised the benchmark interest to 13 per cent. The governor of the Central Bank, Godwin Emefiele, said the action was to tame the rising inflation rate in the country.

Inflation in Africa’s most populous country soared to 16.8 percent in April, according to a report by the National Bureau of Statistics (NBS). The soaring rate was driven by fuel price increases and accelerating costs for food, including bread and cereals.

The CBN on Tuesday said that the global economic outlook remains uncertain amid rising commodity prices worsened by the Russia-Ukraine war.

Earlier in the month, a 0.5 percentage points interest rate hike announced by the United States’ Federal Reserve had reverberated around the globe, spurring other economies to hike rates.

The U.S. Fed raised its benchmark interest rate to a target rate range of between 0.75% and 1%, the largest hike in 22 years. The decision followed a 0.25 percentage point increase in March, the first increase since December 2018.

Like the US, other big economies of the world have raised their rates.

Monetary Tool

The interest rate is one of the key tools deployed by central banks across the world to manage the flow of money and productivity in their respective countries. A change in the interest rate could have an effect on macroeconomics and other key economic indicators like consumer spending and borrowing.

In Nigeria, the tool allows the apex bank to effect changes in broad monetary policies designed to facilitate the government’s planned fiscal policy.

Mr Emefiele explained on Tuesday that at the MPC meeting, six out of the 11 members of the committee voted to raise the key rate.

The committee also voted to retain the asymmetric corridor at +100 and -700 basis points around the MPR, just as it maintained the Cash Reserve Ratio (CRR) at 27 per cent.

The CBN governor argued that the sharp rise in inflation across both the advanced and emerging market economies has generated growing concerns among central banks across the world, adding that the progressive rise in inflation driven by rising aggregate demands and wage growth has put sustainable pressure on price levels.

Inflationary Pressure

The major determinant of the CBN’s hike in rate on Tuesday was the need to tame rising inflation. Until Tuesday, Nigeria hadn’t altered its interest rate since September 2020 when the CBN reduced the monetary policy rate from 12.5 per cent to 11.5 per cent.

In the midst of the global hike, the nation faces a dicey situation amid efforts to contain inflation, keep domestic prices stable, and ensure economic growth.

Mr Emefiele addressed this concern on Tuesday, thus: “On the need to tighten, MPC feels compelled that tightening would help moderate inflationary trade-off from the steady growth so far recorded and improve real GDP.

“It also feels that tightening would help rein inflation before it assumes the galloping frame considering the rising increase in headline inflation month-on-month.”

By hiking the interest rate to 13%, it is expected that borrowing would become more difficult and consumers would have less money to spend. By implication, amid lower demand among consumers, manufacturers of goods would be wary of raising prices. In effect, all of these would combine to reduce inflationary pressure.

But the hike could also fail to tame inflation if other macroeconomic indicators go wrong.

Manufacturers’ nightmare

A hike in interest rate is often considered manufacturers’ nightmare as it stifles productivity and expansion.

As the apex bank raises its rates to 13%, manufacturers hoping to borrow from banks may have been shut out of the windows due to the higher cost of borrowing amid falling demands.

When the benchmark rate was pegged at 11.5 per cent, banks typically charged manufacturers and other lenders between 12 to 30 per cent on loans. With the hike in rate (13%), the charges could skyrocket.

Earlier in the year, the Manufacturers Association of Nigeria had said the average rate at which its members borrowed money from banks was 20.75 per cent and 21.25 per cent in 2020 and 2019, respectively.

“It is important for the CBN to carry out a coordinated reduction in the monetary policy rate and lending rate,” MAN said in a statement.

Employment and Productivity

A hike in interest rate slows down productivity, as manufacturers struggle to keep machinery in operations and pay salaries. Those who look forward to borrowing for expansion and production would have to shelve such ideas in the face of the high cost of accessing funds. Persistent low interest rates favor larger companies because it allows them to increase production, employ more people, and expand. When the interest rate is hiked, the reverse is the effect.

In terms of job creation, a hike in interest rate could have effect—if marginal—on the number of jobs created or lost.

Unemployment Rate in Nigeria averaged 13.55 percent from 2006 until 2020, climbing to an all-time high of 33.30 percent in the fourth quarter of 2020. Even if the impact may not be significant in the immediate, the hike in interest rate and attendant fall in productivity could throw a number of people out of jobs.

Stocks, Bonds, and Forex

By default, low interest rates can cause the stock market to go up, just as the market records depreciation when the apex bank raises interest rates.

By implication, change in central banks interest rates affect prices of various assets such as bonds, stocks and houses.

The exchange rate can also be affected by the increase in rates, because a hike in a nation’s interest rate relative to other countries makes the domestic currency denominated assets more attractive to foreign and domestic investors. This can lead to a rise in demand for the domestic country’s currency in relation to other foreign currencies.

Meanwhile, as domestic currency strengthens, imported goods would become cheaper while locally produced products would become more expensive in the foreign market. This could as well affect demand, and lead to reduction in foreign exchange earnings with possible impact on balance of payments.

In the case of Tuesday’s increase in Nigeria’s interest rates, it remains uncertain how much this would affect the nation’s foreign exchange in the light of the widespread hike in rates across different economies around the globe.

As of press time Wednesday, numerous central banks across the world have hiked their rates in the wake of the United States’ hike in rate earlier in the month. Like the US’ apex bank, the Bank of England increased interest rates from 0.75% to 1% in order to tackle soaring inflation that is expected to rise above 10% in the coming months. The bank also warned that the cost-of living crisis could plunge the economy into recession in 2022.

Similarly, Australia’s central bank as well as the Reserve Bank of India (RBI) raised their rates to accommodate the changing dynamics.

 

Source: Premium Times

‘How Nigeria can attract FDIs, tackle liquidity constraint’

For Nigeria to surmount its liquidity challenges, generate foreign exchange (forex) and remain competitive, there is a need to target a heavy inflow of foreign direct investment (FDI) through a wholesale listing of its corporate assets, liberalise infrastructure and commercialise greenfield real estate portfolio.

An economist, Dr. Ayo Teriba, while addressing participants at the Economic Associates (EA) one-day quarterly conference on ‘Nigeria’s Economic Outlook’ in Lagos on Thursday, said aside from unbundling its assets, Nigeria needs to aggressively increase its average cross-border mergers and acquisition deal counts from six deals a year in the next 15 years.

According to him, Nigeria needs to initiate policies that will boost its FDI and remittance inflow sustainably.

He pointed out that this would enable the country to attract huge capital inflows, record domestic liquidity, stability, inclusiveness, diversified growth, shared prosperity and national cohesion post-pandemic.

Teriba insisted that the only way Nigeria could achieve sustainable growth is through privatisation of public assets and subsequent listing them on the stock market.

He said ensuring speedy listing of the companies would ultimately improve the depth of the capital market and create wealth for the people.

“There should be a policy that any company that Nigeria has equity in, must be listed on the exchange. It is only when these assets are listed that you can securitise them for financial value.

“Until we generate a third party claim in any of our assets, it cannot be financial. It is only when it is in a financial firm that we can raise liquidity from it to impact our balance sheet.

“To have companies in the petroleum sector that do not have any market value is a tragedy to Nigeria,” he said.

The economist argued that the country is rich in assets but economically poor, noting that until the nation generates optimal returns from its assets, it may not record any meaningful growth.

He also pointed out that trade flows are drying up globally while financial flows are surging significantly due to cross-border investment deals.

Teriba stressed the need for the country to be more strategic to stay ahead of trends in attracting sufficient financial inflow to grow the economy.

 

SOURCE: THE GUARDIAN

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