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CBN must review its mutilated currency notes policy with commercial banks—Expert

…Says direct exchange of new notes height of insult on itself

A former Executive Director in one of the first generation banks has described the ongoing direct exchange of new lower naira notes for mutilated ones by the Central Bank of Nigeria (CBN) as a defeatist strategy that cannot pass the test of time.

In an exclusive interview with Business Hilights in Lagos, the banking expert who pleaded anonymity averred that “There is no part of the world where a central bank directly involves itself in exchange of mutilated notes. The commercial banks are there and ready to do it better.

“But the CBN is now spending taxpayers money going up and down in a nation of over 200 million to distribute and exchange mutilated notes under the nose of commercial banks that have more branches and more accessible to the informal sector operators’.

Continuing, he said “There is a missing link created by the apex bank in this matter and it is not yet ready to tell Nigerians the truth. But we know that there has been a way this matter is usually resolved before now and CBN cannot pretend not to be in the know.

“Am no more in service of any bank, but I know that it has never been the role of the CBN to share new currency on the street or market places. This is not done anywhere in the world and it is an embarrassment on the monetary policy of the bank.

“A lot of small scale businesses are suffering because of the problem, in fact some transactions are abruptly ended due to scarcity of lower denominations and the same CBN is preaching to grow SMEs when common tools for the sector to grow are not within reach.

He therefore called on the apex bank governor, Mr. Godwin Emefiele to reach a workable understanding with all commercial banks on how best to recalibrate rates it charges in sorting and exchanging mutilated notes.

“To me, looking at the enormity of the crisis, CBN can mandate commercial banks to suspend dispensing higher denominations at ATMs and even over the counter withdrawal to flood the system with new lower denominations at least within a time frame of one month or even three weeks. With this, the economy will be saturated with new notes while holders of dirty ones can deposit them as well.

It would be recalled that about nine months ago and specifically on Thursday, October 4, 2017, the House of Representatives urged the apex bank to immediately remove surcharge levied on commercial banks for the destruction of old mutilated naira notes in the country.

The House also directed that the CBN as a matter of statutory responsibility withdraw old and mutilated notes from circulation and re-issue new ones immediately.

The House then, equally directed the Committee on Banking and Currency to liaise with the CBN to harness the modalities for handling, returning and destroying damaged and mutilated notes and report back within eight weeks for further legislative action.

The House resolution followed a motion sponsored by Hon. Sergius Ogun, entitled, “calls for the removal of surcharge by the central bank of Nigeria on mutilated notes.‎”

The lawmaker who cited Section 20 of the CBN Act of 2007, which provides that “the currency Notes and Coins issued by the Central Bank of Nigeria (CBN) shall be the approved medium of exchange, and as a result, should be accepted for all transactions in Nigeria.”

He also noted that the widespread circulation of dirty, mutilated and worn out Notes contrary to the requirement that they are replaced by Commercial Banks when they are worn out or defaced as long as the Central Bank’s and Treasury’s serial number can still be seen on the Notes.

Ogun said in the past, “such notes were replaced by Commercial Banks, but now, the Banks routinely reject torn, defaced and mutilated Notes which customers bring for deposits.”‎

He further argued that despite the regulatory position of the CBN, it is apparently encouraging the outrageous and appalling practice of the Commercial Banks in rejecting the Notes.

According to him, the continued circulation of worn out, dirty and mutilated Notes calls for concern and also raises the need for close investigation and constant monitoring of the process of destruction of the Notes, adding that continued printing of new currency Notes without destroying mutilated Notes contributes to the inflationary trend in the economy.

However, nine months on, Business Hilights Intelligence Unit (BHIU) gathered that rather than doing the needful, the CBN is now dispensing new notes by itself amongst market women instead of campaigning for financial inclusion in the market places and streets of states capitals.

Director, Currency Operations Department at the bank, Mrs. Priscilla E. Eleje, who led the bank’s Direct Intervention on Lower Denominations Banknotes held at Kurmi Market ,in Kano, on Tuesday, said “In the recent times, the CBN has observed the inadequate circulation of the lower denominations banknotes and the difficulty encountered by economic agents such as marketers, merchants ,shopping malls, supermarkets etc, despite the huge volume of bank notes injected into circulation on annual basis.”

She explained that given the role markets play in economic transactions, the management of the bank has approved to undertake a direct disbursement of these lower denominations to market associations, merchants, shopping malls, stores, super markets, toll gates in exchange for higher denominations.

Mrs. Eleje said that intervention, which was already operational, in Abuja, had been extended to Kano, Lagos, Enugu, Onitsha, Ibadan, Yola, Gombe, Katsina and Jos.

She argued that the objective of this intervention, she explained, is to ease the accessibility of these notes and consequently, address the dearth of these denominations in circulation.

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