NAIRA SWAP, ELECTIONEERING AND INSECURITY MENACE IN NIGERIA

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Olusegun Alaba Adebayo

What Is a Currency Swap?

Currency swaps were first developed by financial institutions in the United Kingdom in 1970s
as a manner to circumvent currency controls imposed at that time by the government. A
currency swap, sometimes referred to as a cross-currency swap, involves the exchange of
interest—and sometimes of principal—in one currency for the same in another currency.
Interest payments are exchanged at fixed dates through the life of the contract. It is considered
to be a foreign exchange transaction and is not required by law to be shown on a company's
balance sheet.
The Basics of Currency Swaps
Currency swaps were originally done to get around exchange controls, governmental limitations
on the purchase and/or sale of currencies. Although nations with weak and/or developing
economies generally use foreign exchange controls to limit speculation against their currencies,
most developed economies have eliminated controls nowadays.
So swaps are now done most commonly to hedge long-term investments and to change the
interest rate exposure of the two parties. Companies doing business abroad often use currency
swaps to get more favorable loan rates in the local currency than they could if they borrowed
money from a bank in that country.

Cashless policy of the central Bank of Nigeria

The central bank explained that the proposed redesigning of the currency was sequel to the
approval of President Muhammadu Buhari and that the circulation of the new banknotes would
commence on December 15, 2022. According to the central bank, the development was also
aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several
security reports, and the increased risk to financial stability as well as the worsening shortage of
clean and fit currency, with the attendant negative perception of the central bank.

The central bank further insisted that it followed the law and due process to carry out the
redesigning exercise, which is 12 years due.

The Central Bank of Nigeria (CBN) has introduced a new policy on cash-based transactions
which stipulates a �cash handling charge� on daily cash withdrawals that exceed N500,000 for
Individuals and N3,000,000 for Corporate bodies. The new policy on cash-based transactions
(withdrawals) in banks, aims at reducing (NOT ELIMINATING) the amount of physical cash
(coins and notes) circulating in the economy, and encouraging more electronic-based
transactions (payments for goods, services, transfers, etc.)

Why the Cash Policy?

Among other benefits, the decision of the Central Bank of Nigeria to redesign some
denominations of the country’s currency is a crucial step towards bringing back large volumes of
money in circulation outside the banking system. The new cash policy was introduced for a
number of key reasons, including:
1. To drive development and modernization of our payment system in line with Nigeria�s vision
2020 goal of being amongst the top 20 economies by the year 2020. An efficient and modern
payment system is positively correlated with economic development, and is a key enabler for
economic growth.
2. To reduce the cost of banking services (including cost of credit) and drive financial inclusion by
providing more efficient transaction options and greater reach.
3. To improve the effectiveness of monetary policy in managing inflation and driving economic
growth.

In addition, the cash policy aims to curb some of the negative consequences associated with the
high usage of physical cash in the economy, including:

 High cost of cash: There is a high cost of cash along the value chain - from the CBN & the
banks, to corporations and traders; everyone bears the high costs associated with volume cash
handling.
 High risk of using cash: Cash encourages robberies and other cash-related crimes. It also can
lead to financial loss in the case of fire and flooding incidents.
 High subsidy: CBN analysis showed that only 10percent of daily banking transactions are above
150k, but the 10percent account for majority of the high value transactions. This suggests that
the entire banking population subsidizes the costs that the tiny minority 10percent incur in terms
of high cash usage.
 Informal Economy: High cash usage results in a lot of money outside the formal economy, thus
limiting the effectiveness of monetary policy in managing inflation and encouraging economic
growth.
 Inefficiency & Corruption: High cash usage enables corruption, leakages and money
laundering, amongst other cash-related fraudulent activities.
Content of the Cash policy

The following aspects of the policy was applied from January 1st 2012 in Lagos State (�tagged
Cash-less Lagos�):

 Only CIT licensed companies is allowed to provide cash pick-up services. Banks will cease cash
in transit lodgment services rendered to merchant-customers in Lagos State from December 31st
2011. Any Bank that continues to offer cash in transit lodgment services to merchants shall
be sanctioned.
 3rd party cheques above N150, 000 shall not be eligible for encashment over the counter. Value
for such cheques shall be received through the clearing house.

The service charge took effect from March 30th, 2012, this gave people time to migrate to
electronic channels and experience the infrastructure that has been put in place. Banks were to
use this period as grace to encourage their customers to migrate to available electronic channels,
and where possible, demonstrate the costs that will accrue to those that continue to transact high
volumes of cash from March 30th, 2012 in Lagos State.
When informal relationships prove insufficient to establish and maintain a desired social order, a
government or a state may impose more formalized or stricter systems of social control. With
institutional and legal machinery at their disposal, agents of the state can compel populations to
conform to codes and can opt to punish or attempt to reform those who do not conform.
Authorities employ various mechanisms to regulate (encouraging or discouraging) certain
behaviors in general. Governing or administering agencies may for example codify rules into
laws, police citizens and visitors to ensure that they comply with those laws, and implement
other policies and practices that legislators or administrators have prescribed with the aim of
discouraging or preventing crime. In addition, authorities provide remedies and sanctions, and
collectively these constitute a criminal justice system. Legal sanctions vary widely in their
severity; they may include (for example) incarceration of temporary character aimed at
reforming the convict. Some jurisdictions have penal codes written to inflict permanent harsh
punishments: legal mutilation, capital punishment, or life without parole.
Usually, a natural person perpetrates a crime, but legal persons may also commit crimes.
Historically, several premodern societies believed that non-human animals were capable of
committing crimes, and prosecuted and punished them accordingly.[6]
The sociologist Richard Quinney has written about the relationship between society and crime.
When Quinney states "crime is a social phenomenon" he envisages both how individuals
conceive crime and how populations perceive it, based on societal norms.
The shift towards platforms accelerated during the coronavirus pandemic as businesses switched
to delivery and contactless payments to enable them to continue serving their customers behind
closed doors. advantage. The principal motive in such crimes is economic gain.

Economic crime, also known as financial crime, refers to illegal acts committed by an individual
or a group of individuals to obtain a financial or professional Platforms have become an integral
part of our daily lives. Social media platforms connect us, e-commerce platforms give us access
to goods and services. Nowadays criminals are constantly innovating to find new opportunities to
infiltrate gaps in the perimeter Fraudulent transfers to or from a platform are the most common
type of platform fraud, comprising more than three-quarters of all incidents. While PwC’s Global
Economic Crime and Fraud Survey demonstrates C-suite concern about the rise in platform
fraud, business leaders also reveal a general lack of understanding regarding their risk exposure.
So, what can Nigeria do to protect yourself against this new frontier for fraud and economic
crime.

BENEFITS OF NAIRA SWAP AND SCARCITY OF THE NAIRA

Despite divergent views that have trailed recent decision of the Central Bank of Nigeria (CBN)
to redesign the N200, N500 and N1,000 as well as the sentiment expressed by the Minister of
Finance, Budget and National Planning, Zainab Ahmed on the matter, a great number of analysts
believe that the initiative would be positive for the economy.

They maintained that the central bank has both operational and administrative independence to
carry out the exercise and only required a presidential approval. Ahmed had said the CBN did
not carry her Ministry along on the plan to redesign and roll out some denominations of the
naira. The Minister, who was responding to posers raised by Senator Opeyemi Bamidele (APC
Ekiti Central) during the 2023 budget defence session at the Senate Committee on Finance, had
warned that the new notes could have dire consequences on the value of the naira. But she
clarified that her position was personal opinion, adding that her Ministry was not aware of the
policy but only heard of it from the media. Bamidele had told the Finance Minister that barely
two days after the announcement of the policy by the CBN, it had started having repercussions
on the value of the naira when compared to the dollar. However, President Muhammadu Buhari
explained that the decision of the CBN to redesign the banknotes had his support, saying he was
convinced that the nation would gain a lot by doing so. According to the president, reasons given
to him by the CBN convinced him that the economy stood to benefit from reduction in inflation,
currency counterfeiting and the excess cash in circulation. He said he did not consider the period
of three months for the change to the new notes as being short. According to him: People with
illicit money buried under the soil will have a challenge with this but workers, businesses with
legitimate incomes will face no difficulties at all.” The CBN also urged Nigerians to support the
currency redesign project which it stressed is in the overall interest and that of the economy at
large. Part of the functions of the central bank is currency issuance and distribution within the
country. Central banks are required to redesign, produce and circulate new local legal tender
every five to eight years, but the naira has not been redesigned in the last 20 years. On February
28, 2007, as part of economic reforms, N20 was issued for the first time in polymer substrate,
while the N50, N10 and N5 banknotes; as well as N1 and 50 kobo coins were reissued in new
designs, and the N2 coin was introduced. Also, on September 30, 2009, the redesigned N50, N10
and N5 banknotes were converted to polymer substrate following the successful performance of
the N20 (polymer) banknote. Similarly, the CBN, as part of its contribution towards the
celebration of the 50th anniversary of Nigeria’s Independence and 100 years of its existence as a
nation, had issued the N50 Commemorative polymer banknote on September 29, 2010; and the
N100 Commemorative banknote on December 19, 2014.

CBN Director in charge of Corporate Communication, Mr. Osita Nwanisobi said the CBN
management, in line with provisions of section 2(b), section 18(a), and section 19(a)(b) of the
CBN Act 2007, duly sought and obtained the approval of President Muhammadu Buhari in
writing to redesign, produce, release and circulate new series of N200, N500, and N1,000
banknotes. Nwanisobi urged Nigerians to support the currency redesign project, stressing that
some persons were hoarding significant sums of banknotes outside the vaults of commercial
banks. He argued that such a trend should not be encouraged by anyone who means well for the
country. He pointed out that currency management in the country had faced several escalating
challenges which threatened the integrity of the naira, the CBN, and the country in general,
adding that every top-rate central bank was committed to safeguarding the integrity of the local
legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy.
On the timing of the redesign project, Nwanisobi explained that the CBN had even tarried for too
long considering that it had to wait 20 years to carry out a redesign, whereas the standard
practice globally was for central banks to redesign, produce and circulate new local legal tender
every five to eight years. While assuring Nigerians that the currency redesign exercise was
purely a central banking exercise and not targeted at any group, the CBN spokesman expressed
optimism that the effort will, among other goals, deepen Nigeria’s push to entrench a cashless
economy in the face of increased minting of the eNaira. This, he said, was in addition to helping
to curb the incidents of terrorism and kidnapping due to access of persons to the large volume of
money outside the banking system used as a source of funds for ransom payments. The CBN
director urged Nigerians, irrespective of their status, to support the Naira redesign project as it is
for the greater good of the economy. He said the development was also aimed at checking the
increasing ease and risk of currency counterfeiting evidenced by several security reports, and the
increased risk to financial stability as well as the worsening shortage of clean and fit currency,
with the attendant negative perception of the central bank. Also, CBN Governor, Mr. Godwin
Emefiele explained that there was significant hoarding of naira notes by members of the public,
with statistics showing that over 80 per cent of the currency in circulation were outside the vaults
of the commercial banks. He said as of September 2022, a total of N3.2 trillion was in
circulation, of which N2.73 trillion was outside the vaults of the banks, describing the
development as unacceptable. Emefiele also urged bank customers to begin paying into their
bank accounts the existing currency notes to enable them to withdraw the new banknotes once
circulation begins mid-December 2022. He said all banks were expected to keep open their
currency processing centres from Monday to Saturday so as to accommodate all cash that would
be returned by their customers. The CBN governor also said that for the purpose of the transition
from existing to new notes, bank charges for cash deposits had been suspended with immediate
effect. He added that no bank customer should bear any charges for cash returned/paid into their
accounts. Emefiele explained, “On the basis of these trends, problems, and facts, and in line with
Sections 19, Subsections A and B of the CBN Act 2007, the Management of the CBN sought and
obtained the approval of President Muhammadu Buhari to redesign, produce, and circulate new
series of banknotes at N200, N500, and N1,000 levels. “So first of all, what we want to do is
mop up the N3.2 trillion back into the CBN so we can take control of the money supply. Again,
this would help to rein inflation and it would have a positive impact on inflation.” But the
Executive Chairman of the Economic and Financial Crimes Commission (EFCC), Abdulrasheed
Bawa, applauded the move by the CBN, describing it as “a well-considered and timely response”
to the challenge of currency management, which had negatively impacted the country’s
monetary policy and security imperatives. Bawa said the EFCC, the CBN and some other
regulators in the financial sector have worked closely in the recent past to determine how best to
stabilise the country’s monetary policy environment. “It is heart-warming that the CBN has
demonstrated courage in taking this bold decision, which I believe will bring sanity to the
currency management situation in Nigeria,” he added.

The EFCC chairman called on operators in the Nigerian financial services sector, especially
deposit money banks and bureau de change operators, to work within the guidelines provided by
the CBN to ensure seamless withdrawal of the old currency. He warned that EFCC would
monitor the process to ensure that unscrupulous players and currency speculators and their
cohorts among the BDCs do not undermine the exercise. He also charged banks to be alive to
their reporting obligations and not assist unscrupulous customers in laundering suspected
proceeds of crimes through their system. On his part, a former Deputy Governor of the CBN,
Prof. Moghalu, commended the apex bank on the proposed redesigning of the naira. He,
however, advocated a 90-day window for the implementation. He said: “I fully support the
Central Bank of Nigeria in redesigning the Naira. If 80 per cent of banknotes in circulation are
outside the banks, that is troubling. “The CBN obviously wants to force all those notes back into
the banking system. Those with the notes must surrender them 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. “The flip side is that people who are
holding huge amounts of cash outside the banking system for nefarious reasons will go to 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.” He, however, expressed doubt that the
step would solve inflation, “because there also are other major reasons for inflation such as the
forex crisis, which this new move can exacerbate, as well as the impact of the security crisis on
food price inflation.” The Conference of Nigeria Political Parties (CNPP) noted that, “only
politicians who intended to buy votes” and other equally ill-motivated elements would criticise
CBN’s action.” “Only politicians who intended to buy votes and financially induce electoral
officials, the ignorant of the import of the policy or beneficiaries of proceeds of crimes, including
drug barons and kidnappers, will kick against the move by the CBN,” it added. According to the
umbrella association of all registered political parties and political associations in Nigeria, “the
effort of the CBN to control the amount of money in circulation, where N2.7 trillion out of the
N3.3 trillion currency-in-circulation was said to be outside the vaults of commercial banks across
the country and are found to supposedly be held by members of the public, is of high risk for the
country’s economy and her internal security. “It is, therefore, obvious that many politicians,
especially since 2015, amassed illicit wealth and depleted the national commonwealth to the
extent that the currency in circulation has more than doubled since 2015, rising from N1.46
trillion in December 2015, to N3.2 trillion as of September 2022, according to the CBN data.”

“The CNPP is totally in support of the CBN and the CBN Governor, Mr. Godwin Emefiele, on
this policy initiative and hereby call on all security agencies, including the Department of State
Services (DSS), the Economic and Financial Crimes Commission (EFCC), and the ICPC to
redouble efforts to reduce insecurity and electoral corruption by placing all politicians contesting
in the 2023 general election on perpetual surveillance,” it added. Also, a former President and
Chairman, Governing Council, Association of Corporate Treasurers of Nigeria (ACTN), Mr.
Zeal Akaraiwe, described the decision of the CBN as the solution needed to bring in large
amounts of cash into the banking system and enhance the effectiveness of the apex bank’s
monetary policies. “The amount of cash in circulation outside the banking system is very
alarming. And the CBN needs to take measures to police it. And redesigning the currency is one
of the most efficient ways to achieve that. So, that is what they are doing. And I think, in terms
of pulling money into the banking system, this is a good way to go about it. “This is what the
CBN is trying to achieve, and I think this (redesigning the currency notes) is the best way to
achieve it,” he added.

In a related development, a group, Ethnic Youth Leaders, in a statement by its convener, Godwin
Meliga, insisted that the decision to redesign naira was a welcomed development. It noted that it
would help tighten money supply in the face of rising inflation.