The Nigerian economy faced complex challenges in 2022. One of the most significant of these challenges is the prolonged fuel scarcity, which appears to be slowing down economic activity, increasing inflationary pressure, eroding the purchasing power of the Naira, and pushing more Nigerians into poverty.
While ordinary Nigerians and many businesses were devising strategies to mitigate the effects of fuel scarcity and rising inflation, the Central Bank of Nigeria (CBN) announced plans to redesign the country’s currency, specifically the higher denominations, on October 26th, 2022. The announcement came with a tight deadline of January 31st, 2023, to phase out the old N200, N500 and N1,000 notes – which account for 95.6 percent of the total value of the currency in circulation.
The decision by the CBN to redesign some Naira denominations is not unprecedented in Nigeria, given the history of currency redesigns as obtained in 2007 and 2009 with the lower denomination banknotes. The Naira redesign policy is authorised by Sections 18 (a) and (b) of Nigeria’s Central Bank of Nigeria Act of 2007. According to the Act, the CBN shall (a) arrange for the printing of currency notes and coin minting; and (b) issue, re-issue, and exchange currency notes and coins at the Bank’s offices and such agencies as it may establish or appoint from time to time.
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Both the reasons for the redesign of the Naira and the timing are important factors in examining the policy and the merits of the decision to redesign the currency notes. The CBN highlighted five (5) main reasons for its decision [1].
Apart from promoting economic activity, the Naira currency represents Nigeria’s pride and heritage, far more valuable than its face value and purchasing power – what it can buy. Cash is still central to economic activity in Nigeria, where about 90 percent of transactions occur using money. Therefore, chronic shortages, such as the Naira scarcity experienced since the fourth week of January 2023, due to limited Naira notes printed by the CBN, hoarding by financial institutions and digital financial platform breakdown/malfunction, have economic and sociocultural consequences for the Nigerian economy and the general populace.
At a broader level, the Nigerian economy is facing continued exchange rate volatility, increased inflationary pressure, and other macroeconomic challenges. These issues have deteriorated socio-economic conditions, increasing insecurity, food shortages, and crime. While this is due to various structural problems, the effects of the pitiable execution of the redesign policy are exacerbating the economy’s situation, mainly because of the prominent role of “cash-in-hand” to economic activities and the unpreparedness of economic actors for the rapid changes which have taken place. This report details an analysis of the CBN’s Naira redesign policy to provide a critical way forward toward addressing the unintended realities emanating from policy implementation.
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