Kingsley Moghalu, a former deputy governor of the Central Bank of Nigeria (CBN), gave a justification for his support of the bank’s recent move to redesign naira notes on Friday, October 28, 2022.
The CBN is attempting to acquire control over the amount of money available in the economy, according to a series of tweets from Mr. Moghalu, who highlighted that while the action may not stop inflation, it is a “essential step.”
“I fully support the Central Bank’s redesign of the Naira,” he said. “If 80% of bank notes in circulation are outside the banks, that’s troubling. The CBN obviously wants to force all those notes back into the banking system. Those with the notes must surrender to get new ones or else it becomes illegal tender after January 31 2023.
“This is also a way to withdraw currency from circulation, an unorthodox way of tightening the money supply since the country is battling high inflation.
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“The flip side is that people who are holding huge amounts of cash outside the banking system for nefarious reasons will go the parallel forex market to buy hard currency, putting further downward pressure on the value of the Naira as too much Naira will be chasing too few dollars.
“I doubt it will solve inflation because there also are other major reasons for inflation such as the forex crisis, which this new move could exacerbate, as well the impact of the security crisis on food price inflation.
“But overall it is a necessary step.
“I just think the time window for its implementation is rather short. This will put a lot of operational pressure on commercial banks and the financial system in general. A 90 day window would have been better, but one can understand the need to avoid interfering with the elections.”
