The Central Bank of Nigeria’s proposal to begin issuing newly redesigned N200, N500, and N1000 notes on December 15, 2022, has been met with conflicting opinions.
The plan’s announcement by Governor Godwin Emefiele was accompanied by a long list of justifications. Controlling inflation, discouraging naira hoarding, shortage of clean banknotes, increasing ease of counterfeiting, and making it impossible for terrorists and kidnappers to collect/spend ransom are a few of the motivations. He added that the naira’s facelift was long overdue.
It should be noted that this policy change comes at a time when the value of the naira has declined significantly. According to analysis, the value of the currency has fallen by over 30% since the apex bank restricted dollar sales to bureau de change (BDC) operators in 2021.
What experts are saying
Citing the comments of Professor Uche Uwaleke, President of the Association of Capital Market Academics of Nigeria (ACMAN), Vanguard wrote that the decision to replace some naira denominations with new ones will be positive for the economy in the medium to long term.
He said, “the policy will go a long way toward guaranteeing that a lot of naira notes circulating outside the banks are crammed in, even though it does not equate to the demonetization of large currency notes frequently carried out by Central banks to combat dirty money and corruption.”
Mr. Sam Chidoke, MD of Kairos Capital Limited, while speaking on News Central expressed his belief that it may be difficult to mop up the old notes in three months. This will put pressure on individuals who have to now go to the banks to make sure that they deposit money. However, he noted that the good part of this situation is that a lot of transactions are happening digitally, so those who are already used to that will not be so much affected. He said, “I am not sure it will put pressure on the economy, but perhaps the people that deal with cash are going to have to o and queue up in the banks.”
According to Sam, this policy could lead to the depreciation of the naira. “If we assume that some people have currencies in naira that have been acquired through “not so legitimate means,” those set of people may not want to go to the banks today and deposit that money. We might see those kinds of people put pressure on foreign currency; they want to go to foreign currencies and when the new notes come they go back to the naira. That could put pressure on the pricing of the naira.”
However, he noted that because there is so much money outside the banking system, the monies are putting pressure on the naira because people are using them to buy foreign currencies. He said when the money in circulation is withdrawn out of the system and the new notes circulated and regulated to make sure we don’t have so much money out of the banking system, the pressure on the naira will dissipate.
Wyoming Capital and Partners CEO, Tajudine Olayinka told Vanguard that the CBN is trying to eliminate counterfeit notes and reduce the amount of illicit funds/criminal proceeds that can contribute to the challenge of inflation.
He noted that people who hold illegal currency would seek to buy foreign currency on the black market, but may be required to deposit Naira equivalents in banks, and due to disclosure requirements, the source of the exchanged funds will be exposed.
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