Don’t Redesign the Naira: Experts Disagree With the CBN

Godwin Emefiele, the governor of the Central Bank of Nigeria (CBN), on October 26, 2022, announced the redesign of the four highest naira denominations: N100, N200, N500, and N1,000.

According to him, this move will help resolve the hoarding of the naira, which has resulted in about 85% of it being in circulation and reduce counterfeit naira notes. Apart from the reasons for this decision, the CBN governor made it known that it is also the duty of the body to change the notes every five to eight years.

He said, “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”.

However, the news announced by the CBN governor has been met with different reactions from financial experts and Nigerians. Let’s look at what experts are saying about the naira redesign.

Effect on the gross domestic product (GDP) —  Economist and the MD/CEO of Financial Derivatives Company (FDC), Bismarck J. Rewane

Bismarck Rewane, an economist and the Managing Director/Chief Executive Officer (CEO) of Financial Derivatives Company (FDC), believes that the timing of the naira redesign is wrong as it coincides with the upcoming festivity and general elections, which might affect the country’s GDP.

According to him, “Economic agents, especially market women in the middle of December, will be constrained to exchange goods for a currency that will cease to be legal tender in 45 days.

It could discourage them from accepting the old notes and, therefore, it will reduce aggregate demand and affect the supply of goods. In other words, it could lead to a fall in GDP and output”.

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High Cost of printing the new notes — Macroeconomist at CardinalStone Partners Limited, Boboye Olaolu

According to him, although the CBN wants to reduce the currency rate in circulation, curb counterfeits and increase cash inflows into the banking system, they also need to consider some factors, such as cost.

He believes that the cost and effect of the decision taken by the CBN can be seen in the form of the expenses of printing new notes, the cost of destroying existing notes, and the justification for printing new notes when the CBN is encouraging the usage of eNaira. As of October 2022, eNaira had processed N4.4 billion worth of transactions.

Bad timing —  Chief Executive Officer (CEO) of the Economic Associates, Ayo Teriba

With the approaching general election in Nigeria, the economist expert Ayo Teriba questions the timing and relevancy of the new CBN policy. He, therefore, sees it as a disruption on the part of the CBN.

This disruption, he believes, is uncalled for as Nigerians already face a number of them, such as local foreign exchange supply, exchange rate, and interest rate shocks.

He said: “Replacing old currency notes with new ones is a routine exercise which central banks make no noise about. Old notes are gradually replaced with new ones once they get back into the banking system.

Proposing a sudden withdrawal of notes for replacement with redesigned notes is of no benefit to the country but will come at huge costs. Fixing the deadline two to three weeks ahead of Christmas and New Year festivities, two months ahead of a general election is as disruptive as it is insensitive.

It is a sheer waste of the nation’s time and resources to be re-designing the N100 (equivalent to $20 cents) to N1000 (equal to $2) as these are ripe for replacement with naira coins to make room for the immediate introduction of N2000 (equivalent to $4) to N10,000 (equal to $40) denominations of Naira notes that will be more in line with the value of currency note circulating in other climes.”

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