Naira redesign suit: Supreme Court adjourns hearing by one week

The Supreme Court of Nigeria has adjourned the substantive suit on the naira redesign policy of the Central Bank of Nigeria for hearing on the 22nd of February, just three days to the presidential elections. Bismarck Rewane, the CEO of Financial Derivatives, joined CNBC Africa to discuss this development and more around the naira redesign. Rewane analyzed the implications of the court's position on the naira redesign and the impact it has had on consumer activity and the economy at large. He highlighted the decline in consumer confidence due to the confusion surrounding the legal tender status of the old currency notes. The Supreme Court's adjournment has brought into question the credibility of government institutions and the Central Bank itself, as conflicting messages have left the public uncertain about the status of their money. Rewane explained that while the court may have jurisdiction over the matter, it is ultimately the Central Bank and the federal government that have the power to enforce any decisions regarding the legal tender. This has led to a situation where people are bypassing the banking system, increasing the stock of cash in circulation but diminishing cash deposits in banks. The velocity of money circulation has also drastically reduced, impacting the demand for goods and ultimately affecting the GDP of the country. Rewane pointed out the significant drop in cash transactions and the subsequent decline in consumer spending, leading to a ripple effect on various sectors of the economy. The uncertainty surrounding the naira redesign policy has further eroded consumer confidence and disrupted economic activities. People are now resorting to alternative means of payment, such as barter or informal transfers, to circumvent the limitations on cash transactions. The CBN governor's statement regarding the ideal amount of cash in circulation sparked a debate on the necessity of reducing the volume of physical currency in the economy. However, Rewane argued that people's motivations for holding cash vary, with transactional and precautionary reasons driving cash hoarding in the absence of reliable electronic payment systems. The current situation in Nigeria bears similarities to the disruptions witnessed during the pandemic lockdowns, albeit with a different set of challenges. The scarcity of cash and the decline in consumer purchasing power have led to steep discounts on essential items, with prices fluctuating based on the mode of payment. This has created a volatile market environment, making it challenging for policymakers and businesses to assess the true inflationary pressures at play. While January's inflation figures may not accurately reflect the ongoing disruptions, February is expected to witness a temporary decline in inflation due to reduced cash circulation. However, this artificial dip may be short-lived, as the mismatch between cash supply and economic output could fuel a resurgence in inflation in the coming months. The uncertainty surrounding the legal tender status of the naira and the subsequent impact on consumer behavior and economic activity underscore the need for coordinated policy action and clear communication from regulatory authorities to restore confidence and stability in the financial system.