The Central Bank of Nigeria has ordered all Deposit Money Banks (DMB) holding the existing denominations of the naira note to “begin returning these notes back to the CBN effective immediately.”
CBN recently was authorised by President Muhammad Buhari to redesign the N100, N200, N500, and N1,000 notes.
Its Governor Godwin Emefiele said that the newly designed currency, “will be released to the banks in the order of First-come-First-serve basis.”
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Emefiele called on bank customers “to begin paying into their bank accounts the existing currency to enable them to withdraw the new banknotes once circulation begins in mid-December 2022.”
However, on the present notes, he said, “remain legal tender and should not be rejected as a means of exchange for the purchase of goods and services.”
The reasons for the introduction of new notes, Emefiele said, include significant hoarding of banknotes by members of the public, with statistics showing that over 80 percent of currency in circulation are outside the vaults of commercial banks.
Another reason is the worsening shortage of clean and fit banknotes with the attendant negative perception of the CBN and increased risk to financial stability.
Financial experts also commended the Central Bank of Nigeria (CBN) for its decision to redesign the naira, saying it would positively affect the economy.
The experts spoke in separate interviews on Thursday.
They spoke against the backdrop of an announcement by the CBN that new designs of the N200, N500, and N1,000 denominations would be produced and circulated on December 15.
According to Umhe Uwaleke, a financial economist and professor of capital market at the Nasarawa State University, Keffi, the decision will be positive for the economy in the medium to long term.
Mr Uwaleke said the measure would go a long way to ensure that the naira notes in circulation outside the banking system were brought into the banking system.
He said the measure would also provide enough liquidity for banks and more money for the banks to lend.
“The measure does not amount to demonetisation of big currency notes often carried out by central banks to curb black money and corruption. But it will go a long way in ensuring that a lot of naira notes circulating outside the banks are crowded in,” the professor explained. “If it leads to large deposits in banks, it means the banks will have more money to lend, which may reduce interest rates.”
“Perhaps more importantly, with increased currency in circulation now in the vault of banks, I expect to see improvement in monetary policy transmission.”
Mr Uwaleke further noted that it might also reduce speculative attacks on the naira in the parallel market in the medium term.
“I expect that the Financial Intelligence Unit will be on the lookout for huge deposits as a way of monitoring illegitimate transactions. Despite the huge cost involved in changing currency notes, I think it’s time to sanitise the system, especially now that electioneering activities have kicked off.”
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