March 6, 2023/CSL Research
Based on a BusinessDay news report, the Supreme Court on Friday ordered that the old N200, N500, and N1,000 Naira notes remain in circulation till 31 December 2023. It was noted that the apex court also nullified the Federal Government’s naira redesign policy, declaring it as an affront to the 1999 constitution. The judgement was sequel to the suit brought against the Federal Government on the Naira redesign policy by sixteen states of the federation. The 16 states led by Kaduna, Kogi and Zamfara prayed the apex court to void and set aside the policy on the ground that it is inflicting hardships on innocent Nigerians. President Muhammadu Buhari had in a nationwide broadcast approved the release of the old N200 note back into circulation for the next 60 days from 10 February 2023 to 10 April 2023 when the old N200 notes will cease to be legal tender.
We had noted that the benefits of the Naira redesign policies are beginning to unfold considering the recent sharp drop in the currency outside the banking system. Currency outside the banking system declined month-on-month by 69.26% to N788.92bn (representing 56.90% of currency in circulation) as of January 2023 from N2.57trn (representing 85.22% of Currency in Circulation) in December 2022. The currency outside the banks had averaged c.84.42% of currency in circulation since the year 1960 till December 2022. Moreso, the policy largely ensured that vote buying was curtailed in the just concluded presidential and national assembly elections.
However, the process has been defective with several hiccups particularly the scarcity of the new notes and its multiple effects on business activities. We note that PoS operators still charges as much as 30% on cash withdrawals. Asides reducing the volume of economic activities, we believe the additional charges may have partly influenced general price levels. Based on data from the National Bureau of Statistics (NBS), the average price of selected food items increased by 1.6% m/m and 23.52% y/y as of 22 January 2023. Specifically, Agric eggs (medium size – price of one) increased by 4.46% m/m and 49.68% y/y to an average of N87.23; Yam tuber increased by 1.38% m/m and 30.22% y/y to an average of N431.36 while Maize grain (yellow sold loose) increased by 3.98% m/m and 22% y/y to an average of N342.15.
The Central Bank of Nigeria (CBN) had extended the deadline for swapping old Naira notes with the redesigned notes to 10 February 2023. The President also approved that all existing old N1000 and N500 notes remain redeemable at the CBN and designated points, in line with Section 20(3) of the CBN Act 2007. Despite these accommodations, the scarcity persists. In the coming weeks, particularly after the gubernatorial elections on March 11, 2023, we anticipate a gradual increase in the volume of Naira notes as the need to curtail vote buying would have been eliminated.
