November 1, 2022/United Capital Research

In a press briefing on 26-Oct., the Governor of the Central Bank of Nigeria (CBN) revealed that the Bank will release redesigned N200, N500 and N1,000 notes to the financial system from 15-Dec. Currency holders are expected to remit the old notes to banks as they will effectively cease to be legal tender in the new year (31-Jan-2023). In this series, we evaluate the pros and cons of the decision as well as factors needed for the policy to be considered a success. In the first part, we would examine the pros of the decision.

First, it is important to reiterate that it is global practice for the Central Bank of a country to issue new currency notes withing 5 – 8 years in bid to maintain fitness of notes as well as curb counterfeiting of these notes. Thus, the CBN is clearly within its constitutional mandate to execute the currency redesign and issuance following the approval of the President. As a result, our analysis focuses on the merits and de-merits of the policy. In his briefing, the CBN Governor highlighted the alarming surge in counterfeit currencies (particularly at the high-end notes) and significant cash hoarding by members of the public (84.5% of currency in circulation are

outside bank vaults). By recalling old naira notes and redesigning the legal tender, this is likely to achieve the CBN’s aim of curtailing counterfeiting and currency hoarding. In addition, another major tick is the fitness of the naira notes. A large percentage of existing naira notes are mutilated and badly damaged. By issuing newly designed notes, this will introduce new and fit currencies into the economy.

Further arguments in favour of the policy will be how effective it would be in combatting some of the social evils facing Nigeria. Primary among the social evils is ransom payments to kidnappers and vote buying ahead of the 2023 elections. These social evils thrive on physical exchange of cash between concerned parties. By recalling old notes and issuing new ones, there would be a need to revisit banks to withdraw huge sums of money for these purposes, making them easier to track via proper controls. Other benefits would be improving financial inclusion, driving a cashless economy as well as exposing more tax-liable individuals.