The Central Bank of Nigeria (CBN) announced on Wednesday that it has received President Muhammadu Buhari’s approval to redesign, produce, and circulate new naira notes of N200, N500, and N1,000 beginning December 15, 2022. The CBN governor, Godwin Emefiele, announced this during a press conference in Abuja, emphasizing that the move was in line with the CBN’s currency management function, which is enshrined in Section 2 (b) of the CBN Act 2007.
The global best practice, according to Emefiele, is for central banks to redesign, produce, and circulate new local legal tender every 5-8 years, but the naira has not been redesigned in the last 20 years, in violation of the practice.
According to the CBN governor, the plan has also become unavoidable due to significant hoarding of bank notes by members of the public, with statistics indicating that more than 80% of currency in circulation is outside commercial bank vaults, worsening the shortage of clean and fit bank notes. “In accordance with this approval, we have finalized plans for the new currency to enter circulation on December 15, 2022. Until January 31, 2023, when the existing currencies cease to be legal tender,” he explained.
Continuing, the CBN boss said: “We have called this gathering to inform relevant stakeholders and the general public of persisting concerns we are facing with the management of our current series of bank notes, and currency in circulation; particularly those outside the banking system in Nigeria. As you all may be aware, currency management is a key function of the Central Bank of Nigeria, as enshrined in section 2 (b) of the CBN Act 2007. Indeed, the integrity of a local legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy are some of the hallmarks of a great central bank.
“In recent times, however, currency management has faced several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country. These challenges primarily include significant hoarding of bank notes by members of the public, with statistics showing that over 80 percent of currency in circulation are outside the vaults of commercial banks; worsening shortage of clean and fit banknotes with attendant negative perception of the CBN and increased risk to financial stability; increasing ease and risk of counterfeiting evidenced by several security reports.
“Indeed, recent development in photographic technology and advancements in printing devices have made counterfeiting relatively easier. In recent years, the CBN has recorded significantly higher rates of counterfeiting especially at the higher denominations of N500 and N1,000 bank notes. Although global best practice is for central banks to redesign, produce and circulate new local legal tender every 5–8 years, the naira has not been redesigned in the last 20 years.
“On the basis of these trends, problems, and facts, and in line with sections 19, subsections A and B of the CBN Act 2007, the management of the CBN sought and obtained the approval of President Muhammadu Buhari to redesign, produce, and circulate new series of bank notes at N100, N200, N500, and N1,000 levels. Accordingly, all deposit money banks currently holding the existing denominations of the currency may begin returning these notes back to the CBN effective immediately.
The newly designed currency will be released to the banks in the order of first-come-first-served basis. Customers of banks are enjoined to begin paying into their bank accounts the existing currency to enable them withdraw the new banknotes once circulation begins in mid-December 2022.
“All banks are therefore expected to keep open, their currency processing centres from Monday to Saturday so as to accommodate all cash that will be returned by their customers. For the purpose of this transition from existing to new notes, bank charges for cash deposits are hereby suspended with immediate effect. Therefore, DMBs are to note that no bank customer shall bear any charges for cash returned/paid into their accounts.
“Members of the public are to please note that the present notes remain legal tender and should not be rejected as a means of exchange for purchase of goods and services. We would like to use this opportunity to reassure the general public that the CBN would continue to monitor both the financial system in particular, and the economy in general, and always act in good faith towards the achievement of the bank’s objectives and the betterment of the country.”
Prof. Uche Uwaleke of Nasarawa State University responded to the development, saying it is a decision that will have long-term benefits. “I believe the decision to replace some naira denominations with new ones will be beneficial to the economy in the medium to long term,” he said.
“First, although the measure does not amount to demonetisation of big currency notes often carried out by central banks to curb black money and corruption; it will go a long way in ensuring that a lot of naira notes circulating outside the banks are crowded in. If it leads to large deposits in banks, it means the banks will have more money to lend which may reduce interest rates. I also think it may have the effect of reducing speculative attacks on the naira in the parallel market. I expect that the Financial Intelligence Unit will be on the watch out for huge deposits as a way of monitoring illegitimate transactions.”
He added that despite the huge cost involved in changing currency notes, “I think it’s time to sanitise the system especially now that electioneering activities have kicked off. However, I think the deadline of January 31, 2023, is short in view of the number of naira denominations involved, from 100 to 1000. The CBN may consider extending it with time.”
Another analyst, Stephen Iloba, believes the move will confuse politicians who have already stashed money for political purposes. He said, “Politicians will not be happywith this decision, especially the corrupt ones who may not like the timing of the introduction of the new notes. Banks will soon be bombarded by these people in a matter of weeks.”