The Central Bank of Nigeria has announced the naira design for the 200, 500, and 1000 naira notes. These will be introduced by December 15, 2022. This statement was delivered in October 2022 by the governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, amid the backdrop of a declining naira and a nearly bankrupt economy. The old notes would cease to be redeemable on January 31, 2023.
Nigeria has already attempted to reform its currency by changing the colors of the 5, 10, and 20 Naira notes in 1984. Only 11 years had passed since the old notes were first released with this redesign. 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. Nigeria redesigned its 5, 10, and 50 naira notes in 2007 and changed its 20 naira note to a polymer substrate at the same time. The 5, 10, and 50 naira bills underwent redesigns in 2009 to accommodate polymer substrates. In 2010, to commemorate Nigeria’s 50th anniversary of independence, the 50 Naira note underwent a makeover. The 100 Naira note had a redesign in 2014 to mark the 100th anniversary of Nigeria’s founding.
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Nigerians have voiced anxiety over this abrupt redesign of the notes. The most surprising finding is that several countries have not redesigned their currencies since becoming independent. This article discusses the proposed Naira redesign of three Nigerian currencies by the CBN. We share its implications for business and the economy and any ensuing consequences.
Contents
Why is the Central Bank of Nigeria redesigning the Naira?
The most prevalent question is probably why the Naira should be redesigned at all. Emefiele explained the reasons behind the revamp during a news conference. According to the CBN governor, the primary goal of the redesign is to prevent individual Naira note hoarding and transfer control of the currency to the banks. According to reports, there were 3.23 trillion nairas in circulation in Nigeria as of September 2022. 2.73 trillion Naira of the sum were purportedly held outside of bank vaults by the public. That number suggests that a larger percentage—more than 80%—of the Naira in circulation is in the hands of the citizen.
The CBN claimed that in addition to hoarding, there has been a noticeably decreased supply of clean, fit, and acceptable currency notes. The apex bank contends that a scarcity of clean money poses hazards that contribute to rampant Naira counterfeiting.
Once more, the CBN said that the over 80% of currency in circulation that is owned by the general populace serves as a means of illegitimate funding for terrorists, robbers, and kidnappers. These take advantage of people by using the vast quantity of money in circulation.
The implications of the Naira redesign for the economy
The redesigns are likely to create an economic upswing, which may disrupt businesses and put firms in Nigeria under pressure. The main cause of this anticipated economic frenzy is the short timeframe for the release of the updated notes. Commercial banks are expected to be overrun by the escalating throngs expected at banking halls.
The majority of those impacted may reside in rural regions. It is discouraging to find that certain Nigerian towns, especially rural ones, do not have a bank within 70 kilometers of them. Once the newly designed currencies are accessible, there will probably be a transit rush in these regions. People will come 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.
What are the possible consequences?
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.
Conclusion
According to law, the CBN is the apex bank and has the additional responsibility of managing the naira. The proposed Naira redesign has both advantages and disadvantages for the Nigerian economy. Those who oppose the currency redesign policy appear to be most concerned that the policy is being implemented at an inopportune time, rather than being fundamentally opposed to it.
The problem experts appear to be facing is the fear of experiencing an all-out economic rush and spending more money in 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.