Nigeria’s Apex Bank Makes A Surprise Announcement On The Naira

The Central Bank of Nigeria has made public the plans of the Nigerian’s apex court to redesign higher denominations of the country’s currency, the naira. Making the announcement was the CBN Governor Mr. Godwin Emefiele at a special press briefing in Abuja.

The affected naira denominations are the N200, N500, and N1,000 notes. Consequently, the apex bank is calling on the general public to return all old currencies to commercial banks. According to Mr. Emefiele, the redesigned notes will be launched on 15 December 2022 by President Muhammadu Buhari.

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The old notes will continue to circulate side-by-side until 31 January 2022 when they will cease to become legal tender. To facilitate the return of the old notes, the CBN has directed commercial banks to suspend all deposit charges as well as to keep their doors open from Monday to Saturday to attend to customers.

The reason for the redesign of the naira notes

According to the CBN governor, the reason necessitating the redesign of the bank notes are multi-faceted. Mr. Emefiele highlighted that the apex bank was facing “persisting concerns regarding the management of existing series of bank notes”.

The CBN governor announced that the challenges with currency management in the country have continued to escalate with negative consequences on the apex bank and the nation at large. Mr. Emefiele listed some of the problems including significant hoarding of the currency by the public.

The CBN governor revealed that “over 85% of currency in circulation are outside the vault of the commercial banks”. As of September 2022 ending, CBN’s data showed that 2.73 trillion naira out of the total 3.32 trillion naira currency in circulation was outside the vaults of commercial banks and held in private hands.

This also highlights the number of unbanked Nigerians, especially in rural areas. Since commercial banks are often not easily accessible in rural areas, most residents in such areas devise means of keeping their money rather than taking them to the bank. This includes hiding wads of cash under their beds or in their closet.

The result is that the CBN will be forced to print more currencies to ensure that the currency in circulation is adequate. According to Mr. Emefiele, “the currency in circulation has more than doubled since 2015, rising from 1.46 trillion in December 2015 to 3.23 trillion as of September 2022”.

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The second reason highlighted by the CBN that necessitated the redesign of naira notes is the “worsening shortage of clean and fit naira notes,” which gives the CBN a negative perception.

Thirdly, the evolution of printing devices and photographic technologies has made it easier to print counterfeit notes. Mr. Emefiele said that “in recent years, the CBN has recorded significantly higher rates of counterfeiting especially at the higher denominations of five hundred and one thousand naira bank notes.”

Redesign of naira notes is in line with global best practice

According to global best practice, the central bank is supposed to be redesigned, reproduce, and redistribute local legal tender every five to eight years. Sadly, the Nigerian higher denomination notes have not been redesigned for the past 20 years.

For those that may be nursing sinister speculations regarding the redesign of the naira notes, Mr. Emefiele pointed out that the apex bank was only carrying out its statutory responsibility “as enshrined in section 2b of the CBN Act of 2007 to ensure a strong and effective legal tender.”

CBN’s little strides toward a cashless economy

Mr. Emefiele believes the redesign of the naira notes “will help to deepen [CBN] drive to entrench cashless economy as it will be complemented by the increased minting of the e-naira”. In 2021, the CBN introduced the e-naira which is a digital form of the naira notes as it continued to make effort to transform Nigeria into a cashless economy.

While the e-naira has been widely criticized, the CBN defended the policy on Tuesday 24 October 2022 which marks the first anniversary of the e-naira.

The CBN governor hinted that over 700,000 e-naira transactions worth over N8 billion were recorded since the launch of the platform. According to Emefiele, 33 commercial banks have integrated fully with the platform. He also noted that over 1 million Nigerians have registered on the platform as well as 3,305 merchants.

Emefiele hinted that the NIBSS Instant Payment (NIP) solution was introduced in August 2022 to give e-Naira users the flexibility of transacting from their wallet to any bank. According to Mr. Emefiele, the e-naira users on the NIBSS instant payment platform made a total of N301 million worth of transactions.

The redesign of the naira notes is expected to help rake in the currency outside the banking system into the banking system which will improve the efficacy of the monetary policy.

A cashless economy will help to curb kidnapping

Kidnapping for ransom has become a serious security challenge in Nigeria. The CBN governor noted that a cashless economy will discourage the payment of ransom by kidnaped victims. Emefiele further notes that the payment of ransom is usually done using a large volume of money outside the banking system.

However, it is easy to argue that those who pay a ransom are usually left with no choice since they rarely get help from security operatives. It should be noted that kidnappers often kill their victims even after the ransom has been paid. The fate of victims that fail to pay the ransom is even more bizarre.

How this affects Nigerians in the diaspora

Available data shows the Nigerian Immigration Service issued 38% more passports in 2021 (1,059,607 passports) compared to 2020 (767,164 passports). This shows the growing number of Nigerians leaving the country for greener pastures.

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Some of them may have stashed wads of cash in personal safes. They risk losing that money if they don’t return it to a commercial bank before 31 January 2023. Nigerians in the diaspora that have stashed cash away hoping to utilize them when they return will have to look for someone that will help them to deposit the money in a commercial bank. The CBN continues to struggle with curbing soaring inflation.

The naira has been on a free fall since 2020, falling to a record low of N750 to a dollar in October 2022. It is unclear how the redesign of the naira notes will impact the currency’s declining value. We just have to wait to find out.