Due to the Central Bank of Nigeria’s naira redesign strategy, the total quantity of currency in circulation in the nation decreased from N3.29 trillion at the end of October 2022 to N1.38 trillion by the end of January 2023.
According to data received from the CBN, this implies a decrease of N1.91 trillion over the past three months. The old N200, N500, and N1,000 notes will be replaced in October 2022, according to CBN Governor Godwin Emefiele. Emefiele also gave Nigerians timelines for exchanging their old notes for new ones.
The banking sector regulator said, “Accordingly, all Deposit Money Banks currently holding the existing denominations of the currency may begin returning these notes back to the CBN effective immediately. The newly designed currency will be released to the banks in the order of first-come-first-serve basis.
“Customers of banks are enjoined to begin paying into their bank accounts the existing currency to enable them to withdraw the new banknotes once circulation begins.”
He decried the challenges associated with currency management including significant hoarding of banknotes by members of the public, with statistics showing that over 80 per cent of currency-in-circulation was outside the vaults of commercial banks. Other challenges, he added included shortage of clean and fit banknotes with attendant negative perception of the CBN and increased risk to financial stability; and increasing ease and risk of counterfeiting evidenced by several security reports.
In recent years, he said, the CBN had recorded significantly higher rates of counterfeiting especially at the higher denominations of N500 and N1,000 banknotes. Although the global best practice was for central banks to redesign, produce and circulate new local legal tender every five to eight years, he said, the naira had not been redesigned in the last 20 years.
“On the basis of these trends, problems, and facts, and in line with Sections 19, Subsections A and B of the CBN Act 2007, the management of the CBN sought and obtained the approval of the President to redesign, produce, and circulate new series of banknotes at N100, N200, N500, and N1,000 levels,” Emefiele said.
Before the currency redesign plan of the CBN, huge figure of currency in circulation was recorded. According to the CBN, the currency in circulation rose by N58.36bn to N2.84tn in September 2022 from N2.79tn in August. The currency in circulation rose to N2.81tn in July, 2022 from N2.74tn at the end of June, 2022. It fell to N2.79tn in May from about N2.80tn at the end of April.
Currency-in-circulation is defined as currency outside the vaults of the central bank; that is, all legal tender currency in the hands of the general public and in the vaults of the Deposit Money Banks, according to the apex bank. The CBN stated that it employed the “accounting/statistical/withdrawals and deposits approach” to compute the currency in circulation in Nigeria. This approach involved tracking the movements in currency in circulation on a transaction-by-transaction basis.
It said for every withdrawal made by a DMB at one of CBN’s branches, an increase in the CIC was recorded, adding that for every deposit made by a DMB at one of CBN’s branches, a decrease in the CIC was recorded. The transactions are all recorded in the CBN’s CIC account, and the balance on the account at any point in time represents the country’s currency in circulation.
According to the apex bank, analysis of the currency in circulation showed that a large and increasing proportion of the naira outside the commercial banking system was held by the general public who hoard a lot of the new banknotes.
