On Wednesday, October 19, 2022, the Central Bank of Nigeria announced that it had concluded plans to redesign and circulate the country’s currency from the three highest denominations. That was 38 years after General Muhammadu Buhari, then Head of State, ordered the last redesign.
Despite that the same Buhari, now a civilian President, had approved the redesign as proposed by the CBN Governor, Godwin Emefiele, many Nigerian, even the Minister of Finance, Zainab Ahmed, seem not to be cool about the development. The minister had said she was not consulted on the matter. But Emefiele responded that with the President’s nod, he did not require further approval.
Why redesign?
Many reasons were adduced for the redesigning of the naira, which will cost the country a fortune.
According to Emefiele, majority of the country’s currency notes are stored outside of bank vaults, and the CBN would not allow this to continue. He stated that the new notes would be available for public use on December 15, 2022 and that the old and new notes would circulate concurrently until January 31, 2023, when the old notes would cease to be legal tender.
He said, “As you all may be aware, currency management is a key function of the apex bank, as enshrined in Section 2 (b) of the CBN Act 2007. Indeed, the integrity of a local legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy are some of the hallmarks of a great central bank.
“In recent times, however, currency management has faced several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country.”
Public hoarding of banknotes is one of the challenges, he noted, citing statistics showing that more than 80 per cent of the currency in circulation was outside commercial bank vaults.
The increasing difficulty and risk of counterfeiting, as shown by numerous security reports, as well as the worsening shortage of clean and functional banknotes, along with the associated negative perception of the CBN and increased risk to financial stability, were reasons for redesigning the notes, he explained.
Additionally, the CBN has recently seen significantly higher rates of counterfeiting, particularly with N500 and N1,000 bills. Recent advancements in photographic technology and printing devices have made counterfeiting relatively easier.
He said, “On the basis of these trends, problems and facts, and in line with Sections 19 (a and b) of the CBN Act 2007, the management of CBN sought and obtained the approval of President Buhari to redesign, produce and circulate new series of banknotes at N200, N500, and N1,000 levels.
“In line with this approval, we have finalised arrangements for the new currency to begin circulation from December 15, 2022. The new and existing currencies shall remain legal tender and circulate together until January 31, 2023, when the existing currencies shall cease to be legal tender.”
Accordingly, all Deposit Money Banks currently holding the existing denominations of the currency may begin returning these notes back to the CBN effective immediately, he added.
Financial Street gathered that the newly-designed currency will be released to the banks in first-come-first-served basis.
“Customers of banks are enjoined to begin paying into their bank accounts the existing currency to enable them withdraw the new banknotes once circulation begins mid-December 2022. All banks are, therefore, expected to keep open their currency processing centres from Monday to Saturday, so as to accommodate all cash that will be returned by their customers.
“For the purpose of this transition from existing to new notes, bank charges for cash deposits are, hereby, suspended with immediate effect. Therefore, DMBs are to note that no bank customer shall bear any charges for cash returned/paid into their accounts,” the bank stated.
It urged members of the public not to rejected the existing naira bills as a means of exchange till the end of January next year.
The CBN governor assured residents of rural areas that his team was mindful of their needs and that resources would be made available, to enable them to open bank accounts or exchange their old currency notes for new ones.
History of the naira
The first major currency issue in Nigeria followed the colonial ordinance of 1880, which established the Shilling and Pence as the legal tender in British West Africa. The Bank of England’s coin units were one shilling, one penny, half a penny, and one-tenth of a penny, which were distributed by a private bank, the Bank for British West Africa, until 1912.
Additionally, the West African Currency Board issued the first set of banknotes and coins in Nigeria, Ghana, Sierra Leone and The Gambia from 1912 to 1959. The highest denomination was one pound, while the highest coin was one shilling.
On July 1, 1959, the CBN issued Nigerian banknotes, while the WACB-issued banknotes and coins were withdrawn. The currency was not changed to reflect the country’s republican status until July 1, 1962. The bill that previously read ‘FEDERATION OF NIGERIA’ now reads ‘FEDERAL REPUBLIC OF NIGERIA’.
Following the misuse of banknotes during the civil war, the notes were changed again in 1968.
In January 1973, the name of the Nigerian currency was changed as a result of the government’s decision to switch from metric to decimal. The one naira, which was equivalent to ten shillings, became the major unit, while the kobo, a hundred of which made one naira, became the minor unit.
On February 11, 1977, a new banknote with the value of N20 was issued. It was the highest denomination introduced at the time as a result of the growth of the economy, the preference for cash transactions and the need for convenience.
The banknote was the first in Nigeria to bear the portrait of a prominent Nigerian citizen, the late Head of State, General Murtala Ramat Muhammed (1938-1976), who was the torch-bearer of the Nigerian Revolution in July 1975. The note was issued on the first anniversary of his assassination as a fitting tribute to an illustrious son of Nigeria. He was declared a national hero on October 1, 1978.
New N1, N5 and N10 notes were introduced on July 2, 1979. These notes were the same size – 151mm x 78mm – as the N20 note issued on February 11, 1977. To aid identification, distinct colours were used for the various denominations. The notes featured portraits of three distinguished Nigerians, who were named national heroes on October 1, 1978. The engravings on the back of the notes reflected various cultural aspects of the country.
To combat currency trafficking at the time, the colours of all banknotes in circulation were changed in April 1984, with the exception of the 50 Kobo note. In 1991, the 50K and N1 were both coined. In response to the expansion of economic activity and to facilitate an efficient payment system, the N100, N200, N500 and N1,000 bills were introduced in December 1999, November 2000, April 2001 and October 2005 respectively.
As part of the economic reforms, the N20 was issued for the first time in polymer substrate on February 28, 2007, while the N50, N10 and N5 banknotes, as well as the N1 and 50K coins, were reissued in new designs, and the N2 coin was introduced.
Following the success of the N20 polymer banknote, the redesigned N50, N10 and N5 notes were converted to polymer substrate on September 30, 2009. As a result, all banknotes of lower denomination were printed on a polymer substrate. The CBN released the commemorative polymer N50 bill on September 29 as part of its contribution to the nation’s celebration of its 50th Independence anniversary and 100 years of its existence as a nation on September 2010 and the N100 commemorative banknote on December 19, 2014.
Expectations
As the CBN moves to replace the N200, N500 and N1,000 bills, here are some of the things to expect:
(i) The newly-created currency will be distributed to the banks in the order of ‘first come, first served’. To be able to withdraw the new banknotes once circulation starts in mid-December 2022, bank customers are advised to start paying existing currency notes into their bank accounts.
(ii) When the CBN withdraws the finished banknotes from Nigerian Security Printing and Minting to distribute to all its branches, the currency will be in circulation. The banknotes are then given to DMBs, where they are distributed further before being made available to the general public for withdrawal.
(iii) DMBs may begin returning the notes to the CBN right away that they currently hold in the aforementioned denominations.
(iv) The CBN can use the circulation of new notes to control the level of liquidity in the system to maintain monetary stability.
(v) Most importantly, the escalating inflation rate, which reached 20.77 per cent in September 2022, may be contained.
