The Central Bank of Nigeria (CBN) has announced plans to redesign, produce and circulate new local legal tender. The Naira has not been redesigned in the last 20 years. The management of the CBN sought and obtained the approval of President Muhammadu Buhari to redesign, produce, and circulate new series of N100, N200, N500, and N1,000 banknotes. This is effective December 15, 2022, while the old notes and the new notes would circulate together until January 31, 2023, when the old notes would cease to be legal tender in Nigeria.
Replacing old currency notes with new ones is a routine exercise which central banks make no noise about. Old notes are gradually replaced with new ones once they get back to the banking system.Proposing a sudden withdrawal of notes for replacement with redesigned notes is of no economic benefit to the country but it will come at huge costs.
It is sheer waste of the nation’s time and resources to be re-designing the N100 (equivalent to US$20 cents) to N1000 (equivalent to US$2) as these are ripe for replacement with Naira coins of the same denominations to make room for the immediate introduction of N2000 (equivalent to US$4) to N10,000 (equivalent to US$40) denominations of Naira notes that will be more in line with the value of denominations of currency notes circulating in other climes.
Fixing the onset for the replacement two/three weeks ahead of Christmas/New Year festivities, and two months ahead of general election, is as disruptive as it is insensitive. Nigerians are already enduring a lot of disruptions that range from local forex supply, exchange and interest rate shocks that are aggravating global food and energy shocks, and they deserve to be spared needless shock from the wild goose chase being proposed by CBN so close to the yuletide and the polls.
The CBN should refrain from peddling the misleading claim that the fact that ‘over 80 percent of currency in circulation is outside the vaults of commercial banks (that is N2.73 trillion out of N3.23 trillion exists outside the commercial banks)’is evidence of ‘persistent hoarding of banknotes by members of the public’ because the only reason that currencies are printed is for them to be put in circulation, not to be kept in banks.
That is why it is called currency in circulation, which is usually broken down in to two components: currency outside banks and vault cash- the cash that banks keep aside to honour request for cash by their customers. Only a negligible faction of currency in circulation usually stay in banks vault because it only stays in bank vaults in transit. The ultimate destination of every currency that is printed is outside banks so that it may circulate from hand to hand for years.
The CBN should also refrain from peddling the misleading suggestion that the fact that ‘currency in circulation has more than doubled since 2015; rising from N1.46 trillion in December 2015 to N3.23 trillion in September 2022’ is a problem because the GDP has also more than doubled from N95 trillion to N210 trillion over the reference period, and currency in circulation has rightly remained roughly the same fraction of GDP, at 1.34 percent, over the period.
While the value of currency in circulation has been a stable fraction of GDP, information published in the annual report of the Currency Operations Department of CBN reveal that the number of pieces of notes in circulation have exploded from 3.2 billion pieces in 2006, following the phased introduction of N100 to N1000 notes from December 1999 to December 2005, to more than 10 billion pieces of all notes as of 2020, and more than five billion pieces of these were N100 to N1000 notes.
LThe CBN is thus proposing to redesign and replacefive billion pieces of the highest four denomination notes, when the right thing to do is to coin them and replace them with no more than a billion pieces of larger denomination Naira notes to cut the monumental waste implicit in continuing to print 10 billion pieces of low value notes, while any denomination within the 1 Naira to 1000 Naira range should be a coin.