Cash at Hand, Cash at Bank? The Puzzling Logic Behind Nigeria’s New Notes

Nigeria has redesigned its currency notes but the big question is how the government will recall the old notes, as cash is still king despite efforts by the Central Bank of Nigeria and fintech companies.  

On October 26 2022, the Central Bank of Nigeria announced plans to recall 200, 500 and 1,000 banknotes from circulation and replace them with redesigned notes. 

Godwin Emefiele, governor of the CBN, disclosed that President Muhammadu Buhari approved the exercise, and that the apex bank will begin the distribution of the new notes by December 15 2022. He also said the notes will be available for withdrawal by the public from commercial banks.  

The old notes will be used for transactions until January 31, after which only new notes will be legally recognized and used for transactions. Banks have been instructed to keep their deposit centres open from Monday to Saturday for collections. No constraints have been placed on how much individuals or corporate entities can deposit, and bank customers will not be charged for cash returned/paid into their accounts during the implementation. 

On November 23 2022, President Muhammadu Buhari revealed the redesigned naira notes before the federal executive council meeting at the state house, Abuja. The naira had changed from the multicoloured notes in circulation to distinct red, blue and green tones similar to the 10, 20, and 50 polymer naira notes. 

Countries recall, redesign and reissue their legal tender for multiple reasons. These include improving the security of banknotes, mitigating counterfeiting, preserving the collective national heritage, controlling currency in circulation, and reducing the overall cost of currency management. The CBN expects the currency recall to encourage a cashless economy, stave-off cash hoarding, and lower kidnapping rates and terrorism as there will be no notes in circulation for ransom payments.

At a press briefing last month, Emefiele had disclosed that 85 per cent of the naira in circulation were outside the vaults of commercial banks. 

‘At the end of September 2022, available data at the CBN indicate that 2.73 trillion out of the 3.23 trillion currency in circulation, was outside the vaults of Commercial Banks across the country; and supposedly held by the public,’ he said. 

In addition to curbing the counterfeit trade, Emefiele said the redesigned naira notes cannot be counterfeited due to the ‘security features’ which can be checked with ultraviolet light. In 2020, the CBN confiscated 67,265 counterfeit banknotes to the tune of 56.8 million. 200, 500 and 1000 accounted for 63.5 per cent and 98.08 per cent of the volume and value of the currency in circulation respectively.  

Nigerian laws on redesigning and redistributing the naira are enshrined in the CBN Act of 2007. Sections 18 (a), 18(b) and 20(3) of the act provide the apex bank with the power to do so.  

According to section 18, the CBN shall: 

…arrange for the printing of currency notes and the minting of coins; as well as issue, re-issue and exchange currency notes and coins at the Bank’s offices and at such agencies as it may, from time to time, establish or appoint. 

In the last 15 years, the CBN has redesigned the naira four times. In 2009, the apex bank changed the five, ten and 50 naira notes from paper to polymer substrate notes after the 20 polymer banknote commemorating the death of General Murtala Mohammed, issued in 2007, proved to be durable. In 2010, the 50 commemorative polymer banknote was issued to celebrate Nigeria’s 50th independence.  

The last redesign was in 2014 when the 100 commemorative banknote was issued for Nigeria’s centenary celebration. The note bears a QR code that, when scanned, links to the centenary story of Nigerian history. 

From 1912 to 1959, the West African Currency Board issued banknotes and coins in Nigeria, Ghana, Sierra Leone and the Gambia. The highest banknote denomination was one pound, while the one shilling coin was the highest coin denominationOn 01 July 1959, the CBN issued naira banknotes, while authorities withdrew the WACB-issued banknotes and coins. On 02 July 1962, the inscription on the banknote, ‘FEDERATION OF NIGERIA’, was revised to, ‘FEDERAL REPUBLIC OF NIGERIA’ to reflect Nigeria’s newly attained republican status. 

During the civil war, Nigeria changed its currency over concerns that the naira was being used to finance the Biafran war effort and issued its first nationwide recall in an act of political warfare. In December 1967, the federal government in Lagos issued new naira pound notes, to crash the value of the estimated £37 million circulating in the secessionist Biafra states. The government mandated all old naira notes be exchanged to the new notes within 19 days, after which all old notes would be null and void. At the time, currency notes were in denominations of five pounds, one pound, ten shillings and five shillings. The coins issued in 1959 remained the same.  

In ‘Biafran Pound Notes’, Olly Owen details how in response to the Nigerian government, the Biafran government introduced the Biafran pound and criminalized the possession of the naira within its territory. 

Economic growth saw the central bank issue other naira banknotes and withdraw its smaller denominations of kobo coins from circulation. Ayo Teriba, CEO of Economic Associates explained how the wide acceptance of naira notes led to its withdrawal, as follows: 

The explosive growth in the pieces of notes is the result of the extinction of coins. A staggering 6.17 billion pieces of notes circulated in the Nigerian economy by December 1998… In each year from 1992-1998, coins dropped to less than half of the 2.4 billion pieces circulating in 1991.  

In 1984, under then-military head of state Muhammadu Buhari, the colours of all the banknotes in circulation were changed—except for the 50 kobo banknote—to curb the currency trafficking prevalent at the time. This was in line with his ten-point economic recovery project to revamp the economy and eradicate corruption, among other things. The exercise rendered almost half of the estimated ₦6 billion in circulation worthless at the expiration of the change. 

More than three decades later, Nigeria is still plagued by its financial woes; declining earnings from oil sales, skyrocketing inflation, corruption and a struggling currency at global markets.   

Kalu Aja, a financial education instructor, highlighted similarities between the economic landscape of the 1980s and present day 2022, but singled out the government’s priorities as the main difference: 

The military government was trying to fight corruption, trying to fight counterfeiting, also it was trying to bring monetary policy under the control of the CBNIn terms of priorities, it was corruption first before monetary policy in 1980Today, the CBN is in charge of driving this. Their main reason for the naira change is monetary policy; it does not really affect the economy as much because there’s lots of naira in circulation. This change is to bring all the naira into the banks, so that going forward they can reduce the volume of currency they print. 

Aja explained that the CBN’s move to ‘change the economy by changing the colour of the currency’ in 1980 did not work and it is unlikely that the 2022 recall would. In 2016, India’s prime minister, Narendra Modi, had a similar idea and planned to reduce the amount of money in circulation by recalling and then reintroducing the 500 and 1,000 denominations of the Indian rupee within six months.  

This policy failed due to the timeframe within which it was enforced and the resulting cash deficit. A 2018 report by Bloomberg said that the recall halted ‘agriculture and small businesses with a liquidity shock, put people through unnecessary hardship, disrupted supply chains, and destroyed demand for everything from autos to property.’ 

The big question is how efficiently the recall will be implemented if, as the World Bank estimates, about 64 million of Nigeria’s 200 million people are unbanked. In a 2020 survey by Statista, cash was recorded as the most common payment method chosen in Nigerian stores, restaurants and similar locations despite efforts by the CBN and fintech companies pushing for digital banking and payment services.  

The CBN wants us to drop off our old notes but cash, old or new, is still king in Nigeria

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