. Old notes no longer legal tender from January 31, 2023
By Clara Nwachukwu
Effective December 15th, the Central Bank of Nigeria (CBN) will begin the circulation of new banknotes in N200, N500 and N1000 denominations.
Likewise, the existing naira notes will cease to be legal tender from January 31, 2023.
CBN Governor, Godwin Emefiele, who disclosed this yesterday at a news conference, explained that the redesign of the existing banknotes became imperative due to persisting challenges with the management of the series in circulation, particularly those outside the banking system in Nigeria.
He listed some of the challenges to include:
- Significant hoarding of banknotes by members of the public, with statistics showing that over 80% of currency in circulation are outside the vaults of commercial banks;
- Worsening shortage of clean and fit banknotes with attendant negative perception of the CBN and increased risk to financial stability;
- Increasing ease and risk of counterfeiting evidenced by several security reports.
…as at the end of September, available data at the CBN indicate that N2.73 trillion out of the N3.23 trillion currencies in circulation are outside the bank vaults. This is a worrisome trend that cannot be allowed to continue.
Counterfeiting risks
Specifically, Emefiele is worried about faking of the currency, saying: “In recent years, the CBN has recorded significantly higher rates of counterfeiting especially at the higher denominations of N500 and N1,000 banknotes.”
This, according to him, is because “recent development in photographic technology and advancements in printing devices have made counterfeiting relatively easier.”
Indeed, counterfeiting has become a big threat to the global economy that pervades all organizations, large and small, across multiple industries, as practically everything can be cloned, including humans.
According to the Organisation for Economic Co-operation and Development (OECD) data on counterfeiting and international trade, the total value of counterfeit and pirated goods was about $1 trillion in 2013, and is expected to grow to close to $3 trillion in 2022.
According to reports, “Combating counterfeits is not a simple matter of developing software, systems or covert markings, or setting up a single brand security function.
“Combating counterfeiting requires a multi-layered strategy that adopts multiple approaches and engages the entire organization.”
In the case of banknotes, many currencies of the world are susceptible to counterfeits. Due to its value and widespread use, the US dollar is said to be the second most counterfeited currency globally, while the New Zealand dollar — the Kiwi, is reputed as one of the world’s least counterfeited currencies.
As a result, central banks regularly change the designs of their money – whether coins or banknotes – to guard against counterfeiters and protect the integrity of the currency against criminals.
Admitting as much, the CBN Governor said: “… 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.”
He added that “Although global best practice is for central banks to redesign, produce and circulate new local legal tender every 5–8 years, the Naira has not been redesigned in the last 20 years.”
According to the CBN Currency Gallery, the current N200 denomination was issued in 2000, while N500 was released in April 2001, and the N1000 in October 2005.
Emefiele also expressed concern that trillions of naira remain outside the banking system. He disclosed that as at the end of September, available data at the CBN indicate that N2.73 trillion out of the N3.23 trillion currencies in circulation are outside the bank vaults. “This is a worrisome trend that cannot be allowed to continue,” he added.
He said the situation is further compounded by the worsening shortage of clean and fit banknotes with attendant negative perception of the CBN and increased risk to financial stability.
“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 President Muhammadu Buhari to redesign, produce, and circulate new series of banknotes at N100, 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,” he added.
For the purpose of this transition from existing to new notes, bank charges for cash deposits are hereby suspended with immediate effect.
What Nigerians must do
Emefiele therefore advised Nigerians to take advantage of the three-month grace to take the current notes to banks to enable them withdraw the new banknotes once circulation begins in mid-December.
“Accordingly, all deposit money banks (DMBs) 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 withdraw the new banknotes once circulation begins in 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.
“Members of the public are to please note that the present notes remain legal tender and should not be rejected as a means of exchange for purchase of goods and services,” he said.
Emefiele argued that the redesign of the banknotes will help deepen CBN’s drive to entrench cashless economy, which will be complemented by increased minting of the eNaira.
It will also reduce the volume and value of the currency outside the banking system, thereby making monetary policy more effective.
“Also, in view of the prevailing level of security situation in the country, the CBN is convinced that the incidents of terrorism and kidnapping would be minimised, as access to the large volume of money outside the banking system used as source of funds for ransom payments will begin to dry up,” he added.
Economic implications
Despite the CBN Governor’s optimism, experts are worried about the implications of the sudden introduction of the new banknotes.
While some believe it is ill-timed, coming about three months to the 2023 general elections, others argue that the cost of the printing and circulation of the new notes will constitute an additional drain on Nigeria’s lean resources.
According to them, this could lead to negative consequences, including further weakening of the Naira through dollarization of the currency, and attendant rise in inflation.
But Emefiele reassured that “…the CBN would continue to monitor both the financial system in particular and the economy in general, and always act in good faith for the achievement of the Bank’s objectives and the betterment of the country.”