The 200, 500, and 1000 Naira notes will be redesigned by December 15, 2022, according to the Central Bank of Nigeria (CBN). The CBN’s governor, Godwin Emefiele, made this announcement on October 2022, against the backdrop of a weakening Naira and a nearly insolvent economy. By January 31, 2023, the old notes would no longer be valid for payment.
This would not be Nigeria’s first attempt at redesigning its currency- in 1984, Nigeria changed the colours of the 5, 10, and 20 Naira notes. This colour change came barely 11 years after the old notes were introduced in 1973. In 2007, Nigeria, yet again, redesigned her 5, 10, and 50 Naira notes; that same year, the country also redesigned the 20 Naira note to a polymer substrate. In 2009, 5, 10, and 50 Naira notes were all redesigned for polymer substrates. In 2010, the 50 Naira note was redesigned to mark Nigeria’s 50th anniversary of Nigeria’s independence. In 2014, the 100 Naira note was redesigned to commemorate the centenary celebration of the creation of Nigeria.
There are concerns expressed by Nigerians about these frequent changes. The most surprising fact is that some nations haven’t redesigned their currency since gaining independence. This article examines the CBN’s proposed redesign of three Nigerian currencies, its effects on the economy and business, and any resulting repercussions.
Why CBN is redesigning the Naira
Why the Naira should be redesigned at all is presumably the most frequently asked question. At a press conference, Emefiele gave the rationale for the redesign. The CBN governor asserts that the main objective of the redesign is to stop individual hoarding of Naira notes and transfer ownership of the cash to the banks. A total of 3.23 trillion Naira were in circulation in Nigeria as of September 2022, according to data. Of that total, 2.73 trillion Naira were reportedly held by the general public outside bank vaults. With regards to the total currency in circulation, that figure indicates that the amount of Naira in the hands of the general public is greater than 80%.
In addition to hoarding, the CBN asserted there has been a marked decline in the availability of clean, fit, and proper currency notes. The apex bank claims that widespread Naira counterfeiting is a result of the risks associated with the lack of clean currency.
Once more, the CBN asserted that the over 80% of the currency in circulation that is held by the public is a source of illicit funding for terrorists and bandits as well as kidnappers who use the large amount of cash in circulation to take advantage of people.
The implications of the Naira redesign for the economy
A significant implication is that the redesign is anticipated to cause an economic upswing, which will frustrate and keep businesses in Nigeria under stress. The brief window for the issuance of the revised notes is primarily to blame for this expected economic flurry. The growing crowds anticipated at banking halls are predicted to overwhelm commercial banks.
Those who live in rural areas may be the most affected. It is disappointing to learn that some communities in Nigeria, particularly rural communities, do not have a bank within 70 kilometres of them. There will likely be a transport rush in these areas once the redesigned currencies are available, as people will travel to the cities to exchange their old currencies.
Additionally, with an already high inflation rate of over 20%, the strengthening dollar, and Moody’s downgrading of Nigeria’s economic growth forecast from B2 to B3, choosing to spend billions on printing new currencies may cause untold hardship to the country’s economy.
What the Experts Are Saying
The CBN’s initiative to redesign currency was met with conflicting reactions from experts. Some experts applauded the decision, stating it would stimulate the economy. Supporters of the CBN’s policy argued that the action of the CBN is not new; to combat currency fraud, nations all over the world redesign their currency notes.
The redesign policy is also opposed by some experts, who argue that it is a waste of time and resources that could have been invested in the economy. Recently, the International Monetary Fund (IMF) has joined the list of those who oppose the Naira redesign policy. The IMF warned the CBN against taking actions that might weaken the stability and confidence of the Nigerian financial system, according to Ari Aisen, a representative of the IMF. Aisen, nonetheless, stated that the IMF would support Nigeria in whatever decision she deems fit to make.
Experts predict that shortly, illicit fund holders will begin storing their money in currencies other than the Naira as a result of the CBN’s action. In addition, experts feel the action was taken with the best intentions but misapplied.
The development makes one thing abundantly clear: society is preparing for a rush in the middle of December 2022. Informal businesses and traders have already started depositing extra cash at the bank. Commercial banks are preparing for a challenging December.
Additionally, the controversy over the Finance Minister’s lack of knowledge of the Naira redesign had sparked commotion across the nation. However, the situation was put to rest by key players revealing that the finance minister need not be informed.
The CBN is the apex bank according to law and has the additional responsibility of managing the Naira. The proposed redesign of the Naira has both advantages and disadvantages for the Nigerian economy. It appears that those who oppose the currency redesign policy are mostly of the opinion that the policy is being implemented at a very bad time rather than being fundamentally against it.
The problem experts appear to be facing is the fear of experiencing an all-out economic rush and spending more money on an already troubled economy. There is no way to predict what will happen before or after January 31, 2022, until the policy has been put into effect and the deadline has passed. One might speculate that the CBN would postpone the deadline to a later time so Nigerians could more easily submit their old currency.
Frequently Asked Questions (FAQs)
The likelihood of Nigerians refusing to collect the old currency even before the deadline is high. This action would affect businesses, especially in the informal sector, where cash is mostly used to trade.
Experts have rightly advised that the CBN governor is a separate office created by law and is not subordinate to the ministry of finance. The action of informing the minister is an issue of pattern that was adopted by former governors and not of law.