CBN Currency Redesign: Gains, Losses, and Effect on Residents

The CBN announced intentions to revamp the existing 200, 500, and 1000 bank notes on Wednesday, October 26, 2022, while leaving the five lesser denominations alone. President Muhammadu Buhari has given his approval for this process, according to CBN Governor Godwin Emefiele, who also announced that the new notes will be made available for distribution and withdrawal by the general public from deposit money banks on December 15, 2022. The public was also made aware that the old notes would remain legal tender until January 31. Thereafter, the new notes would be accepted as legal tender and used in transactions throughout the nation.

He made the decision of the Apex Bank rely on the authority granted to it by Section 2(b) of the CBN Act 2007. Emefiele claims that the CBN has been dealing with a lot of difficulties with regard to currency management for some time. This includes: Significant hoarding of banknotes by the general public; figures indicate that more than 80% of the currency in circulation is not kept in deposit money institutions' vaults. According to the CBN's data, as of the end of September 2022, N2.73 trillion of the N3.23 trillion in currency in circulation was reportedly held by the general population outside the vaults of the nation's deposit money institutions. This shows that Nigerians have not fully embraced the Central Bank's cashless program.

Increasing ease and risk of counterfeiting, as shown by several security reports; and a deteriorating lack of clean and suitable banknotes, which has a bad impact on public view of the CBN and raises the risk to financial stability, are further challenges. 

Our current series of the Naira has not undergone a redesign in the past 20 years, despite the fact that it is considered best practice for central banks to redesign, create, and circulate new currency every 5-8 years.

Each and every type of cash is much more than just its face value and the items it may be used to purchase. Each piece is a representative of the country from which it hails and demonstrates the culture that makes its inhabitants proud to be referred to as citizens.. 

Currencies also show how rich the culture of each nation is. With prominent people displayed on its face, it gives people a gist of what the country has been through and who played the biggest roles in helping it survive to this day. Different nations have gone through currency redesigns as they cope through different changes. This could be a result of changing regimes, policy or of new principles and beliefs. Regardless of what triggers the change, all this only means one thing: redesigning an entire set of currencies also spell a change in an entire nation.   (https://inspirationfeed.com/currency-concepts)

Although, there s no justification to the CBN not to redesigning the currency as appropriate. The reason why it must be now is not farfetched especially now that inflation is soaring. However, the truth remains that this singular “ACT” must cause some pains to genuine business men, investors, petty traders and rural dwellers.

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The Gains

These as discussed below are the benefits the new CBN currency design:

Money That Is Secure Against Counterfeiting

Operational risk management is the driving force behind periodically removing currencies and revamping them. Nigeria faces a significant problem with money fraud due to the prevalence of such operations there.

Currency redesigns increase a currency's security by allowing a nation to keep counterfeiting to a minimum and stay on top of counterfeiting risks. The CBN anticipates that the redesign of Nigeria's currency would lessen currency fraud.

The practice of holding cash is still highly common; in Nigeria, it is not unusual for dealers to maintain cash reserves totaling hundreds of millions of Naira. The CBN claims that it is also redesigning the Naira, due to hoarding with statistics showing that over 80 percent of currency in circulation are outside the vaults of Deposit money banks. After the CBN announced the redesign policy, naira notes that were minted as far back as over a decade ago began to circulate. Photos of the said naira notes have since gone viral on social media.

Deepening of Cashless Policy 

Nigerians embracing cashless transaction would be inevitable with the pegging of cash withdrawal limit over the counter (OTC) by individual and corporate organizations per week at N100,000 and N500,000 respectively. CBN also attached process fees of 5% and 10% respectively to individual and corporate body for cash withdrawal above such limits. Definitely, the policy would force increased minting of the eNaira and most transactions to go cashless via various electronic payment platforms thereby deepening Nigeria’s push to entrench a cashless economy.

Strategy for Financial Inclusion

Financial inclusion is one of the benefits of the strategy. Financial inclusion, especially for those living in rural regions, refers to the availability of practical and reasonably priced financial goods and services that suit their needs for transactions, payments, savings, credit, and insurance. The benchmark on withdrawals will undoubtedly encourage the rural communities and the unbanked to use banking services like agent banking, linkage banking, and financial literacy to meet their needs..

Reducing the expense of currency management

The high expense of currency management is one of the other issues that led to the decision. The Central Bank of Nigeria spent N58.618 billion to produce 2.518 billion Naira notes, valued at $1.06 trillion in 2020, according to a Vanguard web article from November 4, 2021. This information was included in the bank's 2020 Currency Report, which was available online. The bank's expenditure on currency printing, which was N75. 523 billion in 2019 and N64. 040 billion in 2018, showed a decrease (https://www.vanguardngr.com/2021/11) The CBN's establishment of this policy would significantly lower the expense of recovering and discarding damaged and filthy currency notes because the majority of transactions would be made via electronic payments with less cash to toy with.

Curtailing the Act of Terrorism and Other Criminal Activities

The CBN also believed that with the redesigning of the currency and the new cash withdrawal limit in place it would drastically reduce the act of kidnapping, terrorism and other criminal activities. This is hinged on the premises that access to huge cash would be cut off and other activities through banks could be traced to an account. The CBN noted that the policy is going to help reduce insecurity, ‘if money outside the banking vault, used to fund ransom payments and terrorism, begin to dry up.

Accurate Policy Predictions and Implementations

The CBN also stand a better chance for accurate policy predictions and implementations for its various monetary and fiscal policy regulations for the of development of the economy when the currencies in circulation are easily accountable and assessable in the banks. There is no magic to do when a country’s over 80% cash in circulation are unaccounted for thus, the need for the policy. The policy will help control the money in circulation and in the long run have meaningful impacts on the country’s fiscal stabilization.

The Hurts

Any chosen policy must have an intrinsic cost that results in suffering for all facets of the community. We'll look at how the government and the general public were affected by the redesign of the currency.

The Administration

As previously said, the Central Bank of Nigeria spent N58.618 billion to produce 2.518 billion notes, which will be worth $1.063 trillion in 2020. Many believe that if such a large sum was spent on the reprinting of just a few money notes, one can only image how much it would cost to replace all 200, 500, and 1000 currency.

notes. The money used to redesign, produce, and distribute the new notes could have been used to address other pressing economic needs.

Additionally, some government officials who enjoy carelessly flaunting and giving riches to their women friends and family members would no doubt find the attraction boring.

Politicians, who are the primary perpetrators in the cash and carry industry, have already begun to push back against the legislation. They are accustomed to carrying large denomination notes, which will soon be less common. As the election gets closer, it will be harder to gather the funds for kickbacks and the ones to corrupt the electorates. Therefore, to the politicians and some government officials the policy comes with an inevitable pain that should not see the light of the day.

Since October 26th, 2022, the general public forex problem has delayed the announcement of the policy. Due to a rush to exchange the cash that has been hoarded for foreign currency, the price of foreign currencies, particularly the Dolla, has skyrocketed on the illicit market. The burden on those who buy them would be severe due to our thirst for foreign goods, which led to a high reliance on importation of almost everything. The costs of those items would gradually change if we assessed FX at a high cost.

Since CBN's introduction of the program, the naira has been depreciating dramatically. The black market depreciation of the naira effectively expanded the difference between the official rate and the parallel market rate..

Following the revelation on the black market, the naira plunged to a record low versus the dollar and the pound sterling, trading at N900 and N1000, respectively.

Due to the forex problem, which has been made worse by the naira redesign strategy, there will likely be severe inflation, which would raise the cost of goods and services throughout the nation. Food shortages will result from the program, which is being implemented during a time of food crises and insecurity, particularly in rural areas where cash payments for items are the norm. It would take a lot of sureties and convictions to persuade traders in those regions to accept money transfers in exchange for selling their goods. The policy toward rural residents is extremely difficult to deal with.

Nigerians who take satisfaction in giving money to others could think twice now that the policy has limited their access to large sums of money to play with. If the penalty for currency spread were to be applied, anyone who were to become a victim would feel regret. They do not think the policy is advantageous.

The policy is a bad market to kidnappers, armed robbers, bandits, and other criminal elements. Access to large sums of money for ransom payments and luxurious lifestyles would be restricted. Criminals who specialize in stealing ATM cards would only have one day to withdraw N20,000 before their accounts are blocked. The policy does deal them a serious hit..

Effects of the Policy on Rural Residents

The present 200, 500, and 1000 naira currency notes must be deposited with the CBN by October 26, 2022, per the CBN's currency redesign strategy.

Banks must have access to the new ones by January 31st, 2023, at the latest. The policy has numerous implications for rural residents, which are discussed below..

Since many people in rural areas lack access to electricity, radio, and television, spreading knowledge there is a significant difficulty. In order to keep rural residents informed about upcoming policy changes, the CBN must develop a mechanism to explain the new policy and how to exchange the old notes to them. To assist in informing the communities of the development in their native tongues, community leaders, religious figures, and government representatives from such places should be enlisted. The National Orientation Agency, the media, the Ministry of Information, and Telecommunication via SMS could all be helpful.

The difficulty facing rural residents who are unbanked. The majority of rural residents lack bank accounts, which keeps them out of the banking system.. 

The olds notes according to CBN must be paid into an account to be able to access the new notes. This would disrupt their business activities which is cash driven.

Deposit money banks and microfinance banks must be convinced by the CBN to establish their presence in these rural areas by opening branches or agency banking.

The homes of notable community leaders and market areas may include agency banking facilities where their financial needs can be met. In order to learn how to use USSD, Mobile Banking, and POS for their payment, deposit, and transfer services, community leaders should enlist the help of experts. They are able to open accounts in community agency banks. The deposit and withdrawal limits for Tier One and Tier Two Accounts should be increased as a result of this policy, and Utility Bills should be replaced with Reference Letters from the Community Heads for Tier One Accounts..

The CBN should exercise extreme prudence while revamping its naira policy at this period of unrest, banditry, kidnapping, food shortages, and flood disruptions, which disproportionately affect rural populations. The apex bank must mobilize the necessary support to mitigate the effects of the policy, particularly in rural areas and across the nation.