Supreme Court halts Nigeria's demonetisation process until Dec. 2023

Nigeria's Supreme Court has halted the demonetisation process until December 2023. According to the court ruling, the old ₦200, ₦500 and ₦1000 notes are still legal tender.

The apex court also nullified the Naira redesign policy, declaring it as an affront to the 1999 Constitution. Justice Emmanuel Agim, who read the lead judgement, held that the preliminary objections by the defendants (the Attorney General of the Federation, Bayelsa and Edo states) are dismissed as the court has the jurisdiction to entertain the suit.

Citing Section 23(2)1 of the constitution, the court held that the dispute between the Federal Government and states must involve law or facts.

Recall that, last December, the Central Bank of Nigeria (CBN) announced its plan to demonetise the higher denominations of the Naira notes, starting January 31, 2023. This was later extended to February 20, 2023, due to the unavailability of the new Naira notes.

With the ongoing general elections, demonetisation was also seen as a move to curb a popular illegal electoral practice in the country, vote buying.

Godwin Emefiele, CBN's governor said that the reason for the demonetisation is to reduce the amount of cash outside the vaults of commercial banks and also curb counterfeiting. On another hand, the policy was designed to enable the adoption of the CBN's cashless policy and also reduce crime rates in the country.

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Until recently, Naira notes have not been redesigned for the last 20 years. However, the polymer substrate version of the notes was introduced in 2007, 2009 and 2010. The Bank's governor argued that the global best practice is for central banks to redesign, produce and circulate new local legal tender every five to eight years.

How did the issue get to the Supreme Court?

Since the exercise began, Emefiele said that ₦1.9 trillion old Naira notes have been collected, out of the ₦3.23 trillion that was in circulation as of October 2022, only ₦900 billion is currently in circulation, according to the CBN.

However, the demonisation process has led to cash shortages since the process commenced, agency bankers are charging withdrawing customers about 10-20% of withdrawn cash. Meanwhile, the queues inside banks and ATMs queues across the country have been overwhelming.

While most people who want to make do with digital payment options have to struggle with issues like failed transactions or poor internet.

On the back of this frustration, some Nigerian state governors filed a lawsuit at the Supreme Court to challenge the policy, although the court instructed the CBN to suspend the process, it continued until Nigeria's President, Muhammadu Buhari approved the use of old ₦200 notes as legal tender until April 10 2023. This approval has not solved the issue of cash shortage in the country.

"The most severe impacts of cash shortages were seen with regards to output and new orders, which both fell substantially as customers were often unable to secure the funds to commit to spending," according to S&P Global, a financial institution. The country's Purchasing Managers' Index is reportedly at its worst level since the COVID-19 pandemic in 2020.

The CBN is yet to comment on the latest ruling by the Supreme Court.

Kaduna state governor, Nasir El'Rufai, who is one of the leading critics of the policy in Nigeria says "the policy of currency confiscation where you deposit money in the bank and the bank chooses not to give you is illegal and shall end forthwith, so Nigerians can go to the bank and collect whatever they have deposited and get on with their lives."

"It is not a rebellion, it’s a reform to make Nigeria better. And with this judgement, no future president or Governor of the Central Bank can come and announce a policy that ambushes the lives and livelihood of Nigerian people anymore," he added.