The Central Bank of Nigeria (CBN) announced that new designs of stashedN100, N200, N500, and N1,000 banknotes would be produced and circulated. The new currency would be in circulation from December 15, 2022, while the existing currency would remain a legal tender till it is phased out on January 31, 2023. According to the CBN, the endgame is to rid the system of counterfeited currencies and to mop up a large amount of money currently held outside the banking system. CBN data suggest that N2.73tn of the N3.23tn currency in circulation (about 80% of money in circulation) lies outside commercial banks’ vaults.
Analysts believe that the move would make monetary policy action more effective in the long term. The move was also motivated by the government’s efforts at disrupting the activities of bandits, kidnappers, drug peddlers and other such unscrupulous individuals who operate on the fringe of society since they would usually demand cash as payment. Perhaps most importantly, the Decision of the CBN would help prevent vote buying during the 2023 general elections since politicians who have stash large volumes of cash would be forced to convert the same to new notes. If banks play their role of reporting transactions of certain volumes to the Economic and Financial Crimes Commission (EFCC), the withdrawal and transfer limits would act as an effective control valve on the amount of money available for vote buying.
On the flip side, however, analysts argue that the policy would create multiple cobra effects. First, the ultra-rich, who hold large amounts of existing currency, may consider the dollar and other liquid securities as alternatives to lodging their monies in the bank, thus sending asset prices higher in the short term. The large amounts of money that would be released into the economy may spur a short-term inflationary rush. It has also been argued that many Nigerians who operate in the large informal sector may get stuck with the existing notes as the six-week window provided for the conversion of notes may prove inadequate given also the fact that many communities lack the presence of commercial banks. The last time Nigeria redesigned its currency was in 1984.