CBN’s Godwin Emefiele surprised Nigerians yesterday when he announced plans to introduce new designs of the N200, N500, and N1,000 notes by December 15; a mere 50 days from today.
The policy move is advertised as a means of bringing currency from outside the banking system into the banking system, thereby making monetary policy more effective in combating inflation.
Some primary reasons cited included significant banknote hoarding, a scarcity of clean and fit banknotes, and the increasing ease with which banknotes could be counterfeited.
This is what Emefiele said:
“Statistics show that 85% of the currency in circulation are outside the vaults of our commercial banks. Data indicates that N2.73 trillion out of the N3.23 trillion currency in circulation was outside the vaults of commercial banks across the country.
“In recent years, the CBN has recorded significantly higher rates of counterfeiting, especially the high denominations of N500 and N1000 bank notes.”
Emefiele also stated that the redesigning of the naira would make ransom payments to terrorists and kidnappers more difficult.
Furthermore, Nigerians wanting to deposit more than N150, 000 cash must pay a deposit fee. So, this is a good way for the government to generate quick money.
The apex bank’s governor urged Nigerians to go to their banks and deposit their Naira notes, noting that the deposit fee would be waived for transactions worth less than N150,000.
Emefiele also explained that the redesign of the currency is long overdue. According to him, “our existing series of banknotes -the naira, has not been re-designed in the last 20 years. The bank reasonably determined to achieve the objective of its mandate as enshrined in Section 2B of the CBN act of 2007 to ensure a strong and effective legal tender.”
“It is therefore no longer tenable to continue with business as usual especially given the continually evolving circumstances that could impede the optimal performance of our naira.”
“Furthermore, we believe that the re-design of the currency will help deepen our drive to entrench a cashless economy, and a christ minting of our E-Naira will complement it.”
What it means for your money
Nairametrics believes the latest move by the central bank to redesign the exchange rate has multiple implications for Nigerians and their money.
Economic Implications – We do not see any positive economic benefit from the introduction of new naira notes come 2023. It is unlikely to lead to any major increase in Nigeria’s GDP growth rate and neither is it likely to bring down the inflation rate.
However, we do believe it gives the current central bank an opportunity to integrate advanced technology into the design of the new naira notes.
These new naira notes could also positively affect the utilization of the eNaira which gives the central bank better oversight over the tracking and management of the nation’s currency.
2023 Elections – Politicians with significant cash hoard in readiness for the election will be forced to deposit their money on or before January 31st, 2023 or the money will no longer be legal tender.
Some who cannot explain the source of the money may have questions to answer with Nigeria’s EFCC.
The effect is that vote buying will be significantly more difficult come 2023 as politicians will probably have to give out cash before the end of January or defer to electronic transfers of money afterward.
Whilst they can still give out newly printed notes, we suspect the central bank will have features in the new notes that can trace the movement of money.
Corruption Money – People who have illicit money stashed in their houses or safe locations will be forced to bring out this money or lose it to counterfeiting.
These people also face the risk of facing the EFCC has large deposits will be noticed by the central bank.
The EFCC through the money laundering act can call for information on deposits exceeding N500,00.
Money Laundering – The effect of the 2023 elections and corruption money means some people will out of desperation seeks alternative ways of depositing the money.
One way is to wash some of the illegally obtained money through legal means.
We suspect some people might be forced to use the money to purchase assets that can then be resold for money that can now be easily deposited in the bank.
This will likely impact the real estate sector, and money-making businesses like restaurants, bars, clubs, dry cleaning, supermarkets, etc.
Exchange rate – We also suspect the move to immediately meet the deadlines of the central bank will force some people to convert their naira into dollars.
Especially those who need the money for elections and those who are desperate to convert illicit funds into legal money.
One easy way we feel they will do this is to convert the money into dollars at any desirable rate. The rush to convert the money into dollars will likely impact the exchange rate depreciating it further.
Conversely, those who sell dollars will be careful to avoid receiving cash to avoid paying penalties or falling under the radar of the EFCC.
This will pile pressure on those who have cash and might force them to exchange for dollars at a rate higher than they may have done if the naira they had was electronic or already in the bank.
Cash business – We do not see any major implications for cash-based businesses, especially for traders and market people.
However, we expect them to be mindful of illicit money or counterfeited money as people rush to deposit their cash ahead of the deadline.
Most businesses should consider receiving electronic money rather than physical cash between now and January ending.
For money exchangers, especially those who sell new notes at weddings and parties, the implication might be dire for them. They will be under pressure to sell as many notes as they can or risk losing it to the bank’s deadline.
Their business will likely be at risk now that the apex bank is printing new notes that are likely traceable. Bankers who connive with money sellers should be more circumspect about the nature of this business post-January 2023.