For the moment, it is not entirely clear why Godwin Emefiele has been removed from his post and detained by Nigeria’s secret police, but there are a whole slew of possible reasons.
Something rather out of the ordinary occurred in Nigeria, Africa’s most populous nation and largest economy, this past weekend: the (now former) Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, was suspended from office by the country’s newly elected President Bola Tinubuand. Hours later, Emefiele — who had been at the helm of the CBN for nine years, during which time the Nigerian currency lost 65% of its value and inflation almost tripled — was taken into custody by Nigeria’s secret police, the State Security Service (SSS).
Governors of central banks, which are generally independent authorities, are rarely suspended from their posts, and they are hardly ever arrested. For the moment, it is not entirely clear why Emefiele has been detained but there are a whole slew of possible reasons. The arrest follows a months-long investigation into his office by the SSS, which tried unsuccessfully to arrest him in December on allegations of “financing terrorism, fraudulent activities, and economic crimes of national security dimension.”
All-Out War on Cash
Those “economic crimes of national security dimension” presumably now include waging an all-out war on cash, with dire consequences for Nigeria’s already embattled economy. Between January and February, the CBN withdraw all high-denomination notes from circulation and failed to replace them with the newly designed notes it had promised, triggering a cash crunch. The central bank also placed stringent limits on the daily cash withdrawals of anyone who could access cash. As with India’s brush with demonetisation in 2016, the result was unmitigated chaos and economic pain — in a country where 63% of the population was already poor and 33% unemployed.
In March, the central bank finally paused the cash swap program until the end of the year, but only at the dogged insistence of Nigeria’s Supreme Court. By then, the lives, jobs and businesses of untold numbers of people had been upended. Inflation soared to an almost 18-year high. Preliminary data showed that economic growth for the first quarter of 2023 came in more than one percentage point lower than in the previous quarter, which Nigeria’s National Bureau of Statistics attributed to the “adverse effects of the cash crunch.”
What’s more, irreparable damage was done to public trust in the country’s central bank and banking system, which is ironic given that lack of trust is one of the biggest obstacles to public adoption of the country’s floundering central bank digital currency (CBDC), the e-Naira. The online newspaper Premium Times called for the arrest and prosecution of Emefiele, arguing that the cash withdrawal limits the CBN had imposed were an infringement on people’s basic rights:
“[M]ost have had to live with a frightening range of infringements since the banknotes swap policy came into effect. These have ranged from the economic (loss of earnings platforms across the economy’s informal sector), through the emotional (having to beg for cash from friends, family, neighbours and strangers to meet basic needs) to the conceptual (just struggling to make sense of the policy’s design, implementation and expected outcomes).”
According to the central bank and Buhari government, these infringements were a price well worth paying in order to achieve the policy’s ostensible aims (bringing more cash into the formal economy, curbing money laundering and terrorism financing, preventing vote buying in the upcoming general election, increasing tax revenues, and advancing the country’s floundering CBDC). Emefiele hailed the cash swap as a success. For Nigeria’s Finance Minister Zainab Ahmed, the “only sore point [wa]s the pain it has caused to citizens.”
Among its laundry list of reasons for pursuing demonetisation, published in October, the CBN said the redesign of the currency would “help deepen our drive to entrench a cashless economy as it will be complemented by increased minting of our eNaira.” Yet most Nigerians had no chance of using the eNaira since they do not own a smart phone or have access to the Internet. Of Nigeria’s approximate population of 220 million, between 25 million and 40 million people actually have a smart phone. More than half of the population is unbanked.
In other words, the overwhelming majority of Nigerians had no possible means of using digital payment methods even if they had wanted to. As more than half of the cash was drained from the economy, they had no means of transacting. Many of them took to the streets to protest. Banks were vandalised; some were even burnt to the ground. At the height of the protests, in mid-February, a coalition of civil society groups demanded that the CBN issue the new notes and end the suffering of millions of Nigerians — a demand that was rejected by the central bank and the Buhari government.
IMF: “Disappointingly Low” Public Adoption of eNaira
Most of the people who have been able to download the eNaira app and have chosen to do so, have not bothered to use it. In a recent working paper, the International Monetary Fund (IMF) — which played a key role in the CBDC’s development and roll-out — described the Nigerian public’s adoption of the CBDC as “disapppointingly low,” with fewer than 2% of the downloaded eNaira wallets actually being used:
The average number of eNaira transactions since its inception amounts to about 14,000 per
week—only 1.5 percent of the number of wallets out there. This means that 98.5 percent of wallets, for any given week, have not been used even once. The average value of eNaira transaction[s] has been 923 million naira per week—0.0018 percent of the average amount of M3 during this period. The average value per one transaction has been 60,000 naira.
There are also political reasons for Emefiele’s removal from office and subsequent arrest. The (now-former) central banker tried to transition into party politics last year by running for the presidential ticket of the ruling All Progressive Congress. He had some powerful backers. As NC reader Negrodamus noted in a comment to a previous article of mine, when that bid failed, Emefiele used the country’s printing presses to try to prevent the primary victor, Tinubu, from winning the election:
[The] CBN announced the deadline for the currency swap 14 days [before] a national election? Odd timing. Why?
The CBN governor contested & lost in the primary that produced the eventual winner-Tinubu. It was thought that Tinubu’s entire machinery was based on money. So the governor in cahoots with a cabal in the office of the presidency decided to turn off the tap in a bid to deny him the Presidency by withdrawing currency from the economy (you simply cannot make this up). Take note, the policy was announced after the primaries and before the general elections.
Unfortunately this did not work for the CBN governor & co and now the courts have forced him to backtrack as there is a new president-elect and due to huge public outcry. The current presidency cabal seeing the plot has failed has abandoned Emeifele, the CBN governor.
To what extent CBN’s disastrous cash swap program was driven by Emefiele’s political ambitions is impossible to discern. Clearly those ambitions played an important role — and now that his political rival, Tibunu, is in power, he could be about to pay a very high price…
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Nick Corbishley 