Economics, Featured

A Wider Look At The Implementation Of The New Naira Notes 2023

Michael Antonorsi


April 1, 2023

In October 2022 the Central bank of Nigeria (CBN) announced the release of new bank notes for the following denominations N200, N500 and N1000. These measures were introduced, according to the CBN, to reduce cash in circulation and transition to a cashless society. There have been follow-up statements elaborating the reasons for the new notes: to reduce hoarding, reduce extortion and other illicit financial activities.

The CBN has redesigned Naira high-denomination bank notes, a practice carried out globally by central banks to increase security features. Best practice is to redesign the currency every five to eight years, the Naira has not been redesigned for the last 20 years. According to the CBN money in circulation has grown from N1.46 trillion in 2015 to N3.23 trillion in December 2022, of which 85% lies stashed outside of the formal banking sector. The introduction of new naira notes and the demonetisation of the old forces the reintroduction of massive amounts of cash into the formal banking sector. This will increase the virility of the CBN’s monetary policy by strengthening the money creation process.

Effective January 9th 2023 the CBN temporarily limited weekly cash withdrawals to N500,000 for individuals and N5 million for corporations, up from their earlier restriction of N100,000 and N500,000 respectively. This cash withdrawal limit does not affect most Nigerians. Unemployment is 33% and the minimum wage is N30,000 per month or 1.5% of the monthly withdrawal limit imposed by the CBN. This measure caused a huge scramble for foreign currency and new Naira notes. The value of the Naira on foreign exchange markets plunged, particularly on the ‘black-market’, as individuals desperately sought to hold foreign currencies to sidestep these restrictions and maintain autonomy over their money. The devaluation of the Naira has exacerbated inflation as the value of exports goes down and the value of imports increases.

Nigerian individuals who operate outside of the banking industry and work in the informal economy rely almost entirely on cash transactions. Individuals who rely on cash for the basic functioning of their day to day lives found that the CBN’s policies squeezed the inadequate supply of new notes. Starting the 22nd of January, unbanked individuals could exchange a maximum of N10,000 for new notes, should the amount exceed the limit, the difference would be credited to their fin-tech wallets. A wallet would be opened on their behalf should they wish. 

The lack of new Naira notes has caused much speculation about the structural problems in Nigeria. Individuals outside of the formal banking sector have seen cash withdrawals at point of sale (POS) locations increase dramatically as intermediaries face a lack of new notes to exchange or deliberately capitalise on market fears. This has led to questions regarding the short time window for exchanging the old notes and the banks inability to supply society with enough notes. Individuals have reported the abundance of new Naira notes from currency hawks, who charge high transaction fees or give worse exchange rates, leading to speculation of corruption and profiteering. Institutional banks across all regions have a lack of bank notes to supplant the old Naira leading to long queues and increased societal tensions. Individuals most dependent on cash transactions and by proxy poorer than those with bank accounts have been increasingly led to source new Naira notes through alternative sources, wearing down their disposable income.

Nigeria was ranked 6th for real time payments (non-cash transactions) in 2021, underlying the availability and ability to conduct transactions without cash. The fallout from the implementation of the CBN’s policies seem to particularly affect lower income individuals. Those most adversely affected are unbanked and unconnected individuals without cash alternatives.

Nigeria continues to combat pervasive illicit financial activity such as extortion through kidnapping and vote buying. The measures introduced by the CBN seek to curb the power of nefarious actors by demonetising the vast amounts of stockpiled cash and ‘temporarily’ limiting cash withdrawals. The effectiveness of such policies remains to be seen. 

Ransom payments in Nigeria have skyrocketed over the past five years, simultaneously the standard of living has fallen. As a result, hostage payments have begun to include non-cash alternatives. The imposed cash withdrawal limits may force families to pay ransom in foreign currencies adding further complexity to already fraught exchanges. Nefarious individuals with such extensive black-market networks will almost always find a work around such seemingly arbitrary policies.

The CBN’s policies come shortly before Nigeria’s elections at the end of February. The measures officially seek mitigate the endemic problem of vote-buying. The withdrawal limit only applies to cash in the formal banking sector. Prior to the CBN’s policies 85% of Naira notes were held outside the banking industry. As a result, the value of the Naira plummeted on the foreign exchange market for many reasons, one certainly being wealthy nefarious actors converting to foreign currencies to maintain their ‘war-chests’ for influence. Cash is cash and people willing to sell their votes will take US dollars or Euros.

The lock-up of the exchange mechanism resulted in cash dependent individuals being unable to access new notes and overall breakdown of the underlying principles of financial transactions. As a result, three states have launched legal action against the CBN to suspend the measures before societal tensions completely meltdown. Perhaps a necessary move given the implication of total failure. However, such a move will call into question the authority and autonomy of government institutions.


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