Recriminations over Naira redesign

  • Experts differ as Minister faults CBN, Buhari confirms approval
  • Exercise could trigger fall in GDP output – Rewane
  • Strategy to checkmate inflationary pressure – Chizea
  • Implementation could create stability for the Naira – Cordros analysts

The Central Bank of Nigeria had on Wednesday announced its plans to redesign N100, N200, N500, and N1000 to take control of the currency in circulation, manage inflation, as well as tackle counterfeiting. It also said the move will help the bank fight money laundering and insecurity. The governor of the bank, Godwin Emefiele, said the plan would allow the bank to mop up N2.73 trillion out of the N3.23 trillion currency in circulation that is outside the vaults of commercial banks. However, the plan has drawn criticism as the Minister of Finance, Budget and National Planning, Zainab Ahmed, kicked against the plan to redesign naira notes. BAMIDELE FAMOOFO also reports that analysts say the move may further mount pressure on the naira as a scramble by holders of illicit money to change their cash into dollars may further drive up the exchange rate.

Uba Group

The International Monetary Fund has advised Nigeria to be careful in its plan to redesign and replace the naira.

According to Bloomberg, the IMF advised that Nigeria take caution to avoid any missteps that could undermine confidence in the financial system.

The Fund’s resident representative, Ari Aisen, in an emailed response to questions to the newspaper, said the IMF had reached out to the CBN to get more information on the plan which was announced on Wednesday.

“We stand ready to provide any assistance as needed,” the official was quoted as saying
Also, a former deputy governor of the CBN, Kingsley Moghalu, said the duration allowed by the bank is short and “could create huge operational pressure on banks and some traders may prematurely reject the existing currency notes once the new ones come into circulation.”

He, however, said the “move is a necessary step to tighten money supply and battle high inflation”.

Speaking at a budget defence session at the Senate on Friday, Ahmed said the apex bank did not consult her and other ministers before announcing the plan, noting that the project would produce negative economic consequences.

Ahmed, who commented on the policy in response to a question raised by members of the Senate Committee on Finance headed by Senator Solomon Olamilekan, warned the CBN of the consequences that might arise from it.

She said, “As a Nigerian privileged to be at the top of Nigeria’s fiscal management, the policy, as rolled out at this time, portends serious consequences for the value of the naira to other foreign currencies.

“I will, however, appeal to this committee to invite the CBN governor for required explanations as regards the merits of the planned policy and the rightness or otherwise of its implementation now.”

The Senate had noted that just two days after the announcement of the policy, the naira had fallen from N740 to N788 against $1 due to a rush to exchange the naira notes for foreign currencies, particularly the United States dollar.

The senators noted that the policy might be well-conceived, but the timing was wrong as the naira might fall to as low as N1, 000 to the dollar before January 31, 2023 fixed for full implementation of the policy.

In response to claims by the Minister of Finance that her ministry was not carried along by the CBN in the Naira redesigning, the bank on Friday insisted that it followed the law and due process to carry out the exercise, “which is 12 years due.”

In a statement, spokesman of the CBN, Osita Nwanisobi, expressed surprise at the minister’s claim, stressing that the CBN remains a very thorough institution that follows due process in its policy actions.

According to Nwanisobi, the management of the CBN had duly sought and obtained the approval of President Buhari in writing to redesign, produce, release and circulate new series of bank notes.

However, urging Nigerians to support the currency redesign project, he said it was in the overall interest of Nigerians, reiterating that some persons were hoarding significant sums of banknotes outside the vaults of commercial banks.

Furthermore, he noted that currency management in the country had faced several escalating challenges “which threatened the integrity of the currency, the CBN, and the country” adding that every top-rate Central Bank was committed to safeguarding the integrity of the local legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy.

On the timing of the redesign project, Nwanisobi explained that the CBN had even tarried for too long considering that it had to wait 20 years to carry out a redesign, whereas the standard practice globally was for central banks to redesign, produce and circulate new local legal tender every five to eight years.


Assuring Nigerians that the currency redesign exercise was purely a central banking exercise and not targeted at any group, the CBN spokesman expressed optimism that the effort will, among other goals, deepen Nigeria’s push to entrench a cashless economy in the face of increased minting of the eNaira.

This, he said, is in addition to helping to curb the incidents of terrorism and kidnapping due to access of persons to the large volume of money outside the banking system used as a source of funds for ransom payments.

However, The Point gathered that it was decided by the Presidency and the CBN to keep the Naira redesign away from ministers, until it comes into effect, so as not to defeat the purpose.

“The President is in support of how Emefiele is going about the Naira redesign. He is aware of the CBN governor not telling the ministers,” it was learnt.

Responding, a Professor of Economics, Jonathan Aremu, wondered why the Finance minister was not carried along, noting that it was evidence of the gap between the fiscal and monetary policy authorities in the country.

Aremu said, “Changing of currency notes is not an essential monetary policy tool. So many people may read this intention as political geometry. I am yet to be convinced regarding the basis for this.

“Are we going to be changing our currency if we have these kidnapping issues?”

The Chief Executive Officer, Centre for the Promotion of Private Enterprise, Muda Yusuf, said it was difficult to see any compelling value proposition of the currency redesign idea.

Yusuf said the cost of such an action would be outrageous and disproportionate compared to the expected benefits advanced by the CBN.

“At a time when the government is grappling with high fiscal deficit, debt crisis, severe revenue crisis and underfunding of many government projects and programmes, it is most inappropriate to embark on such a profligate exercise. Currency as a percentage of money supply is less than seven per cent,” he stated.

Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane, expressed concern that the policy could impact negatively on the nation’s economic output, if not properly managed.

Looking at the possible economic impact of the policy on inflation and GDP, Rewane noted that the exercise ordinarily should not impact on the level of prices in the economy.

“Since the economic value of the currency notes has not increased money supply, it will have no effect whatsoever on the general level of prices. However, to the extent that economic agents especially market women in the middle of December will be constrained to exchange goods for a currency that will cease to be legal tender in 45 days; it could discourage them from accepting the old notes and therefore will reduce aggregate demand and affect the supply of goods. In other words, it could lead to a fall in GDP and output,” Rewane warned.

The CEO of FDC Limited added that the exercise could inadvertently lead to the dollarization of the domestic economy or a sharp increase in electronic payments and settlements of transactions.

But the Chief Economic Officer, BIC Consulting Limited, Boniface Chizea, expressed a contrary view on the impact of the decision on prices. In his response to the policy he said: “This is a strategy to checkmate inflationary pressures as the liquidity in the economy is thus better regulated. All charges for currency handling by the banks during this exercise will be suspended in the interim to facilitate the exercise.”

Chizea eulogized the CBN for the policy, noting that the Bank is being alive to its responsibilities to issue currency notes and regulate money supply in the economy.

“In fact this exercise is behind schedule going by the recommended interval for such exercise to be undertaken,” he said.

“As a Nigerian privileged to be at the top of Nigeria’s fiscal management, the policy, as rolled out at this time, portends serious consequences for the value of the naira to other foreign currencies”

Meanwhile, Chizea is only hopeful that the exercise will achieve its purpose at the end of the day, noting: “We pray that the exercise will be seamless and deliver on the anticipated promise in the greater interest of a troubled Nigerian economy.”

A finance analyst and President, Association of Capital Markets Academics of Nigeria, Uche Uwaleke said the decision to replace some naira denominations with new ones will be positive for the economy in the medium to long term.

He said, “Although the measure does not amount to demonetization of big currency notes often carried out by central banks to curb black money and corruption, it will go a long way in ensuring that a lot of naira notes circulating outside the banks are crowded in.

“If it leads to large deposits in banks, it means the banks will have more money to lend which may reduce interest rates.

“I also think it may have the effect of reducing speculative attacks on the naira in the parallel market,” he said.

Uwaleke urged the Financial Intelligence Unit to be on the watch for huge deposits as a way of monitoring illegitimate transactions.

“Despite the huge cost involved in changing currency notes, I think it is time to sanitize the system, especially now that electioneering activities have kicked off,” he added.

Uwaleke, however, stated that the deadline of January 31, 2023 was short in view of the number of naira denominations involved, from N100 to N1000, and urged the CBN to consider extending the dateline.

A forensic expert, Mathew Ogagavworia, said on the surface, it is a good policy to redesign the naira but said that the apex bank needed to disclose the cost of the redesign and reprinting to the Nigerian economy.

“In my view, most of the corruption money is held in US dollars. What we are likely to see is that more of those holding these illicit funds will change them to US dollars and allow the BDCs to move the naira to the banks since charges have now been lifted.

“The immediate implication is that it will drive up the black market rate of the dollar,” he said.

Ogagavworia argued that the policy was not deep enough and would require the collaboration of the security agencies to interrogate large sum deposits.

“There is also the need for legislation to support the CBN move to check the huge amount of money outside the banking vault.”

On its part, the Economic and Financial Crimes Commission has applauded the move by the CBN to redesign and reissue higher denominations of the naira.

Reacting to the development, its chairman, Abdulrasheed Bawa described the move by the apex bank as “a well-considered and timely response” to the challenges of currency management.

“The EFCC, the CBN and some other regulators in the financial sector have worked closely in the recent past to determine how best to stabilise the country’s monetary policy environment,” he said.

Financial analysts at Cordros Research, in their overall analysis of the planned exercise by the CBN, said the CBN’s directive will lead to pressure on the local currency in the short term.

“However, barring unexpected shocks or if handled well, we believe it would achieve the stated objectives over the medium term,” they said.

Expounding on the positive side of the policy, Cordros noted that it could mean the end of the game for illicit cash hoarders as the directive from the CBN would effectively render illegal and stolen monies useless.

Considering all the possibilities, the experts noted that hoarders may recourse to the parallel market FX operators to convert their naira to dollar instead of going directly to deposit the money in the banks, but given that Anti-Money Laundering rules are expected to be tight, it is expected that parallel market FX operators will not accept the money from the illicit hoarders as they could be apprehended for money laundering if they subsequently deposit such money at the banks.

It is also believed that the exercise will boost the acceptance and use of the eNaira by Nigerians who may rather embrace digital money rather than continue to use the physical tender.

“Also, given our belief that the new notes will not equal the amount being phased out, the CBN could further institute measures to limit withdrawals, such as ensuring that part of any future withdrawals is done in eNaira, likely increasing the adoption of the digital currency. Other measures could include the CBN announcing amendments to the cashless policy after the existing notes cease to be legal tender.

“Some specific amendments to the current cashless policy could include (1) higher processing fees for withdrawals above N500,000 by individuals (currently 3.0%) and N3.00 million by corporates (currently 5.0%) and (2) a reduction in the cumulative free withdrawal limits – currently N500,000 for individuals and NGN3.00 million for corporates,” Cordros said in a report.

Another gain of the policy according to Cordros Researchers would be a reduction of cash in circulation and naira liquidity ahead of the 2023 general elections.

“Given that some individuals may have hoarded money ahead of the general election, this new development will likely force them to deposit the cash in the banks so as not to render the tender useless after the 31 January 2023 deadline.”

“Over the medium term, the lower cash in circulation would reduce the local currency volatility, providing some respite for the naira while the phasing out of existing currencies and replacing them with new ones could improve the effectiveness of the monetary transmission mechanism as counterfeited, illegal and high volume cash is significantly reduced,” the experts at Cordros added.

Currency redesign in retrospect
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.

About 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.

The corruption component of the reissued naira was managed properly because of the reputations of the then military leadership which was seen as disciplined and determined to fight corruption.

The population of the country was lower than what we have today. The Nigerian population was 81.45 million in 1984, unlike today where the population is over 200 million with the vast majority living in abject poverty and in rural areas.

Though there is no study to show the success or otherwise of the measure back then, from the accounts of many people who witnessed the exercise, the disruption in the economic activities during the change was lower than the gain recorded as many corrupt politicians lost money to the process as they were afraid to return back to the system what they have stolen from the economy.

Nevertheless, many Nigerians went through a difficult time in getting their old notes exchanged for new ones as a result of the slow process by bank officials, providing opportunities for backdoor activities which marred the exercise back then.

There is optimism that unlike in the previous exercise, the impact of the new measures may be minimized due to the expansion of banking activities across the country. There are more bank branches, spread across the country unlike in 1984, providing opportunities for seamless operations if properly managed.

The advent of technology has reduced the role played by cash in some areas as many people today depend largely on electronic banking, which has reduced cash management largely in the urban areas and among the elites.

The new measures therefore could enhance the use of e-banking, the recently introduced e-Naira and cash management by both the CBN and the banking industry.

However, there are still fears that many people in rural areas would suffer significantly because of the low presence of banking, the inefficiency of electronic banking in such areas due to network failure and the low level of financial literacy in the country.

“The management of the CBN had duly sought and obtained the approval of President Buhari in writing to redesign, produce, release and circulate new series of bank notes”

Perception challenge
Rewane warned that the perception could have a big impact on the way the ordinary Nigerians and investors react to the policy of the CBN.

“Many political pundits could read meanings into what should ordinarily be a purely economic policy issue. If the new notes are counterfeited by political saboteurs; it could easily destabilize the country. Even though this is a far-fetched notion,” he said.

The FDC boss also sounded the warning that the first reaction to the new regulations is likely to be a flight to safety by investors, noting for example that anytime there is a major global market shakeout, investors scramble for gold and dump the U.S. dollar.

“So we expect some initial speculation against the Naira but this should be short-lived. In times of uncertainty, investors, speculators and manufacturers will prefer to be long in dollars and short in domestic currencies,” he said.


Experts warned that if the anti- money laundering rules are tactically relaxed to increase money in the system over that which is outside the system, or illicit hoarders find ways to exchange the money with parallel market operators for US dollars, there is likely to be significant pressure on the local currency. Accordingly, they could prefer to exchange the naira for foreign currency (specifically USD) at the parallel market, while the operators in that segment of the FX market subsequently deposit flows in banks.

There is also the tendency for this development to cause panic among the populace, who will race to exchange their naira for US dollars at the parallel market before the December 15 new banknote circulation date, increasing the pressure on the naira.