New Telegraph

September 29, 2023

CBN redesigning new currency notes; its implications on economy –Global Financial Digest

The Central Bank of Nigeria (CBN) on Wednesday announced its plans to change the design of the nation’s currency notes in the categories of N200, N500 and N1000 in its bids to fight counterfeiting, huge naira outside the banking system and ensure effective and efficient management of the currency. The introduction of the redesigned currency which will take off from December 15, 2022, will have the exit of the old design by January 31, 2023; this will lead to the attraction of huge currency, put at over 80 per cent currently outside the banking system back to the economy. It’s a reminiscence of what happened during the first coming of President Mohammadu Buhari as military head of state in 1984 when he chose to change the colour of the currency in his efforts to confront huge corruption and ensure that politicians who have stacked away the naira are made to pay huge price for that. However, to date, there is no record of study to show how successful was the measure taken 38 years ago on the economy, the politics and the value of  currency. Some of the reason provided by the CBN Governor, Godwin Emefiele for embarking on the latest currency redesigning is: Significant hoarding of banknotes by members of the public, with statistics showing that over 80 per cent 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. According to Emefiele at the media briefing, the regulatory bank has finalized arrangements for the new currency to begin circulation from December 15, 2022. The new and existing currencies shall remain legal tender and circulate together until January 31, 2023, when the existing currencies shall seize to be legal tender. The positive effect of the measure Many people have suggested that the new measure could restore confidence in the local currency as the bulk of the naira note stacked away by politicians, criminals and other illegal operators would be returned to the banking system, helping the CBN to monitor the currency in the economy. It is also expected that with the new notes, most tattered naira notes currency pushed into the system would be eliminated while counterfeiters would be refrained for a couple of years in carrying out their illicit business. Another angle to look at the measure is the positive effect it will have on crime in the country. Currently, Nigeria is having challenges with terrorists and banditry across the country with money being paid to kidnappers as ransom running to billions of naira. It is expected that the ransom money that is yet to find its way into the banking system would be brought out to be exchanged for the newly redesigned notes. This could also lead to crime detection and probable prosecution as many who could not explain the sources of their wealth may find themselves in trouble with law enforcement agencies. Also, politicians who have stacked away money for the purpose of vote buying during the forthcoming election may have a difficult time changing their notes into the new naira while bringing such money back to the system could upset some of their plans. The offside of the new measure The huge cost of printing the new note could run to trillions of naira, which the economy may be least prepared for with the current state of the economy, the state of the nation’s foreign reserves since the currency is expected to be printed abroad and the implications for the balance sheet of the central bank. Learning from the previous similar occurrence 38 years ago, the economy will surely be upset by the change in the currency as many merchants and petty traders would start rejecting the old notes ahead of the implementation of the policy on December 15. The cost of food and other items will shoot up as the naira notes for transactions will become scarce while many people may go hungry because they could not get new naira to make necessary purchases. The banking hall will be jam-packed with people scrambling to exchange their old currency for new notes, putting pressure on the lean capacity of the banks to process currency. Armed robbery could escalate with criminals targeting bullion vans to be used in the distributions of the new notes in some rural areas in a bid to minimize their losses on the old naira notes stacked away previously in order to evade the law. Both the CBN and the banks will face logistic challenges in the distribution of the new notes across the country with the rate of crime in form of banditry and terrorism across the country escalating. Also, security around the banks would be threatened because of the huge demand for the new notes as criminals could also take advantage of the change-over to commit their illicit trade. There is the possibility that counterfeiters may take advantage of the lag in distribution to circulate their own notes in some parts of the country, which may not be effectively covered by the publicity around the new notes. There is also the possibility of the exercise being hijacked by corrupt politicians who may want to compromise officials of the CBN and banks to circumvent the system for their selfish interests. Lessons from the 1984 experience In April 1984, all the notes were withdrawn and reissued in interchanged colours, except the 50 kobo note. This was done by the military administration which took over power in December 1983, to arrest the alarming rate of currency trafficking going on at the time. However, the coins remained the same. 38 years ago, the change in the colour of the naira and the reissue of new notes put some strain on the economy as many people suffered as a result of their inability to buy or sell due to the shortage of new notes. Although the local currency was stronger in value than other currencies then, which means the change did not directly impact the value of the naira and the exchange rate of the naira.

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