. As Cordros Securities reviews economic implication
To prepare them for a smooth transition to the new banknotes coming into circulation by mid-December, deposit money banks have begun enlightening their customers on how to make the process seamless.
The United Bank for Africa (UBA) Plc set the pace by urging its customers to visit the nearest branch to deposit their current banknotes ahead of the change.
The message follows the announcement by the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, of the impending circulation of new banknotes in N200, N500, and N1,000 denominations effective December 15th.
In its electronic mails to customers yesterday, the earliest of such mails from the deposit money banks, UBA said it has “put together a number of points to guide you.”
Titled: “Update on new naira notes,” the pan-African bank listed the transition process to include:
- Start depositing your existing naira notes into a UBA branch closest to you.”
- Don’t panic, we are adjusting our branch opening hours for your convenience. We will open Saturday (Cash deposit only) from 10am to 2pm.
- Zero charges will apply for all cash deposits.
- Have your debit card handy for payments on POS terminals
- If you do not have a digital channel, please download the New UBA Mobile app from your App Store, or access one of our other channels – Leo, Internet Banking, *919# for your transactions.
UBA also noted that the “present notes can still be used for the purchase of goods and services until the cut-off date in January,” adding that when in doubt, customers could approach its customer service unit for assistance.
First Bank urges cashless transactions
In a similar message to its customers, Firstbank listed a number of steps to follow to prepare them for the transition. they include:
- Start depositing your Naira notes into your FirstBank accounts; there will be no charges on all cash deposits at this time.
- Use your debit cards to make payments to reduce your interaction with cash. Debit cards are issued instantly at all FirstBank branches.
- Payments can also be made through our alternative channels such as FirstMobile, FirstOnline and USSD *894#.
- Don’t have a digital channel, you can download the FirstMobile App from your App store; visit our website to sign up to online banking or dial *894# now to bank with USSD.
- Don’t panic, the present notes remain legal tender for all transactions until January 2023.
Overall, we think the CBN’s directive will lead to pressure on the local currency in the short term based on our analysis above. However, barring unexpected shocks or if handled well, we believe it would achieve the stated objectives over the medium term.
Review of new banknotes
Cordros Capital in its” Review of the CBN’s New Banknotes Announcement,” assessed the possible impacts of this directive in the context of the timeframe introduced to complete the exercise.
It identified a number of potential positive impacts, which include that “illicit hoarders may recourse to the parallel market FX operators to convert their naira to dollar instead of going directly to deposit the money in the banks.
“However, given that Anti-Money Laundering (AML) rules are expected to be tight, we believe parallel market FX operators will not accept the money from the illicit hoarders as they could be apprehended for Money Laundering if they subsequently deposit such money at the banks.
“Consequently, this directive would effectively render illegal and stolen monies useless.”
The securities company also believes that the new notes will not equal the amount being phased out, saying: “the CBN could further institute measures to limit withdrawals, such as ensuring that part of any future withdrawals are done in eNaira, likely increasing the adoption of the digital currency.
“Other measures could include the CBN announcing amendments to the cashless policy after the existing notes cease to be legal tender.
“Some specific amendments to the current cashless policy could include, higher processing fees for withdrawals above NGN500,000 by individuals (currently 3.0%), and NGN3.00 million by corporates (currently 5.0%); and a reduction in the cumulative free withdrawal limits – currently NGN500,000 for individuals and NGN3.00 million for corporates.
“The reduced cash in circulation would also reduce naira liquidity ahead of the 2023 general elections. Given that some individuals may have hoarded money ahead of the general election, this new development will likely force them to deposit the cash in the banks so as not to render the tender useless after the 31 January 2023 deadline.”
It added that “Over the medium term, the lower cash in circulation would reduce the local currency volatility, providing some respite for the naira.
“Finally, the phasing out of existing currencies and replacing them with new ones could improve the effectiveness of the monetary transmission mechanism as counterfeited, illegal and high-volume cash is significantly reduced.”
Negative implications
On the flip-side, Cordros Securities expressed concern that “If (1) the AML rules are tactically relaxed to increase money in the system over that which is outside the system, or (2) illicit hoarders find ways to exchange the money with parallel market operators for US dollars, there is likely to be significant pressure on the local currency.
“On (1), the illicit hoarders could be wary of the AML relaxation, given the exposure. Accordingly, they could prefer to exchange the naira for foreign currency (specifically USD) at the parallel market, while the operators in that segment of the FX market subsequently deposit flows in banks.”
It continued: “There is also the tendency for this development to cause panic among the populace, who will race to exchange their naira for US dollars at the parallel market before the 15 December new banknote circulation date, increasing the pressure on the naira.
“Overall, we think the CBN’s directive will lead to pressure on the local currency in the short term based on our analysis above. However, barring unexpected shocks or if handled well, we believe it would achieve the stated objectives over the medium term.”
