In October 2022 the Central bank of Nigeria (CBN) announced the release of new bank notes effective from the December 15th, 2022 and a restriction of withdrawals: N500,000 for individuals and N5 million for corporations. Anyone holding the old bank notes had until the 31st of January to exchange them or deposit them into an account, thereby removing them from circulation. The official reasons given for a new issuance of the Naira were to discourage hoarding, curb extortion and illicit transactions (such as vote-buying), reign in counterfeiting and promote a more cashless society.
The decision from the CBN to issue a new currency is not a new concept and has been done in OECD countries such as the US and UK. However, the implementation of this policy has resulted in calamity.
When the UK released new polymer bank notes, it gave its ‘clients’ more than a year to exchange them. In the meantime, both notes were legal tender for transactions. When the deadline for exchanging the old notes passed it was merely that old notes were no longer considered legal tender and shops/businesses could refuse them. Anyone holding the old note could still exchange them for new banknotes with commercial banks. The US has also issued new bank notes for security against counterfeiting. Unlike the UK there was no deadline for exchanging old notes, they would be filtered out of the money supply when deposited at a bank. Old US bank notes are still considered legal tender.
The CBN made the new Naira legal tender starting from the 15th of December 2022, a monetarily orthodox move. The CBN blundered in its arbitrary decision to bind the window of conversion to a January 31st deadline. Leaving Nigerians 48 days to exchange their bank notes. The rush to exchange bank notes has led to crowds forming outside banks, and desperate Nigerians demanding their money. The shortage of new notes and withdrawal limits have sometimes devolved into violent interactions.
The CBN postponed the exchange deadline until February 10th. However, the limited penetration of bank accounts across the Nigerian population has increased structural difficulties in absorbing the old notes and has pressured the limited supply of new notes.
The Kogi, Kaduna and Zamfara state governors have filed a suit against the federal government seeking to keep old notes in circulation to smoothen the transition process and diffuse political instability.
The Nigerian Supreme court has since suspended the February 10th deadline.
By Michael Antonorsi
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