How to tackle dirty naira notes – Experts

It is sad that Nigeria is infested with mutilated, dirty, worn-out and torn naira notes. It is an embarrassing situation to citizens and even visitors from other countries.

It is common to find naira notes strewn with oil, paint, pen ink or cello-tape. Almost all the denominations of the naira currently in circulation, especially the small ones, are mutilated.

A nation’s currency, like the flag, is its symbol of identity; thus, in most climes, currencies are well cherished and kept tidy.

According to medical experts, mutilated currency notes in circulation could harbour pathogenic microorganisms that could be injurious to human health.

It has been observed that all the banks are guilty of dispensing bad naira notes, both at the counters and even at their Automated Teller Machines (ATMs). Just a few ATMs dispense new notes across the country.

It has also been observed that even when customers approach banks to exchange bad naira notes for new or clean notes, they won’t oblige the requests, usually on the pretext that new notes are not available; yet they are sold in the streets nationwide.

Section 21(4) of the Central Bank of Nigeria (CBN) Act, 2007 makes it a punishable offence for any person to hawk, sell or trade in naira notes or coins.

It has been alleged that naira vendors do their businesses in active connivance with commercial banks. The banks refuse genuine requests by customers for new naira notes, only to sell them illicitly to street vendors for a premium.

Some banks also refuse to accept torn naira notes when customers want to deposit them. This is in flagrant disregard to CBN rules, where banks are mandated to receive all currencies, whether they are mutilated or not. For the worn-out and torn notes, the CBN collects, destroys and replaces them to balance up the volume of money in circulation.

Even when the banks receive the mutilated naira notes, they re-circulate it instead of taking it to the CBN for destruction and replacement. It is said that they do this to avoid additional expenses incurred from sorting out the mutilated notes or paying a 5 per cent fine to the CBN for unsorted notes. The CBN accepts sorted dirty and torn notes from the banks free of charge.

But commercial banks accused the CBN of undersupplying new naira notes, just as they decried charges by the apex bank. They said the CBN should not charge any fine on the torn and dirty notes, sorted or unsorted.

However, CBN’s acting director of Corporate Communications, Isaac Okoroafor, said the apex bank had been printing lower dominations of naira notes. He explained that “a combination of currency abuse and the fact that N100 notes have high velocity of circulation contribute to the fast wear and tear of lower notes. What that means is that you use it more often, and as you use it in exchange, it gets worn out and torn more frequently. That also creates another problem.”

On why the unsorted notes attract charges he said, “Instead of bringing them to us sorted, the banks bring them unsorted. Then we started charging them N12,000 per box. A box of N1000 notes contains N10 million worth. A box of N500 notes is N5 million, in that order. So, in a bid to avoid cost, they prefer to re-circulate old and mutilated notes,” Mr Okoroafor had said.

The House of Representatives had earlier directed the CBN to stop imposing charges on commercial banks before receiving mutilated and dirty notes. The House noted that the surcharge was one of the major reasons why the banks were reluctant to withdraw such notes from circulation or accept them from customers.

As plausible as that may sound, experts said it won’t end the challenge of dirty naira notes in the country. They said transactions with physical cash should rather be de-emphasised, adding that electronic payment channels presents the best option, and that Nigeria must fully key into the e-payment systems so that less cash would be in circulation.

“In most countries, especially the advanced ones, e-payment channels like internet banking, NEFT transfers etc, and mobile payments are predominantly used as modes of payment. This removes pressure on fiscal cash,” Mr. David Akwu, an ex-banker and lecturer at the University of Nigeria Nsukka said.

He noted that Nigerian banks and the CBN must invest more in deepening e-payment and mobile payment platforms in Nigeria. He also commended the CBN for the cashless programme it launched some years back.

Mr. Benedict Aondover, a public affairs analyst, noted that since cash could not be completely eliminated from the system, Nigerians should learn to treat the naira with more dignity by keeping it properly in a wallet. He frowned at the culture of squeezing the naira, especially by traders and bus attendants. He also tasked the CBN and the National Orientation Agency to step up awareness campaigns nationwide on the proper handling of the naira.

Also commenting on mutilated naira notes, Mr. Rislanudeen Muhammad, a former acting managing director of the Unity Bank of Nigeria, said dirty notes in circulation “often leads to frequent production of new notes, with an attendant cost on the CBN.”

“There is the need for improved awareness on the implication of improper handling of the notes. It easily makes them dirty and difficult to handle, leading to rejection by vendors in some cases.

“Electronic banking will, no doubt, significantly reduce cash handling; hence saving the CBN the cost of frequent printing of naira notes. However, for electronic banking to sustainably help in significant reduction of printing new notes, the risk of card and internet banking fraud needs to be mitigated. In so doing, people will be encouraged to handle less cash, thereby minimising the potential of having dirty money in circulation,” he noted.

Experts agree that it is critical for Nigerians to de-emphasise the use of cash in transactions. Nigerians must embrace the POS for transactions at markets and the purchase of bus tickets. This also removes the risk of losing money to thieves, market fires and others. This would also impact on the frequency of cash handling, thus making the naira neater.

In March 2007, the Central Bank of Nigeria launched the Payment System Vision 2020 (PSV2020) to transform financial system in the country. The vision originally identified seven priorities/key initiatives that would drive the usage of electronic payment: government supplier payments; person-to-person payments (p2p); salary payments; bills payments; taxes – for business and individuals; securities settlement and income processing.

The PSV2020 initiatives were intended to benchmark the existing core payment infrastructures in Nigeria against international best practices.

Through the implementation of the original PSV2020 initiatives by the CBN, in association with the banking community, Nigeria has witnessed an impressive growth of electronic payments and a shift from the overwhelming dominance of cash as a means of payment over these years, especially when the cashless policy was introduced in a number of states.

A recent data from the Nigeria Interbank Settlement System (NIBSS) for four major electronic payment channels showed that the total value of transactions rose by 35 per cent to N69.7 trillion in 2017, from N51.6 trillion in 2016. The channels are NIBSS Instant Payment (NIP), NIBSS Electronic Funds Transfer (NEFT), Point of Sale (PoS) and Mobile (Interscheme) transactions.

Also, the Nigerian Bureau of Statistics data analysed by Daily Trust shows that the values and volumes of transactions carried out between 2016 and 2017 was 7.56 billion volumes of transactions valued at N267.68 trillion in Nigeria through cheques, POS, mobile payments, ATM, web, NEFT and NIP.

During the period under review, cheques recorded a total transaction of 34.25 million valued at N17.04 trillion, ATM recorded 1.98 billion volumes of transactions valued at N12.84 trillion, POS recorded 273.70 billion volumes of transaction valued at N2.93 trillion, web recorded 57.17 million volumes of transaction valued at N451 billion, while mobile payments recorded 47.81 million volumes of transactions valued at N2.61 trillion.

Further analysis showed that NIP recorded 678.10 million volumes of transaction valued at N132.38 trillion while NEFT recorded 90.37 million volumes of transaction valued at N33.09 trillion within the same period.

With a huge growth in the e-payment system, there is the need for more Nigerians to embrace alternative payment channels. But where cash must be handled, the naira must be treated with care and respect as it is also a national symbol.