THE EFFECT OF REDESIGN NAIRA NOTES ON SMALL AND MEDIUM

SCALE BUSINESSES IN KANO SOUTH RURAL AREAS

INTRODUCTION

The Central Bank of Nigeria (CBN) had on 26th October, 2022 announced a planned redesign of
the N200, N500 and N1,000 denominations of the naira notes. The apex bank state that it was
worried over the management of these series of banknotes and currency in circulation,
particularly those outside the banking system in Nigeria. It also alleged that unscrupulous people
have abused the naira, from hoarding to counterfeiting the notes with statistics showing that over
85% of currency in circulation are outside the vaults of the commercial banks.

The Apex bank specified that as at the end of September 2022, available data at the CBN
indicated that N2.73 trillion out of the N3.23 trillion currency in circulation was outside the vault
of commercial banks across the country and supposedly held by members of the public. Aside
from the attacks on the naira, the CBN said it was compelled to redesign the naira because of the
prevailing level of security situation in the country, especially cases of terrorism and kidnapping
with perpetrators holding on to large volume of money outside the banking system used as
source of funds for ransom. It was claimed that by giving the naira a makeover within the
timeframe stipulated by the CBN and given the existing laws around depositing of cash in banks,
unscrupulous individuals keeping naira notes would be forced to deposit these notes in the banks
or forfeit their ill-gotten wealth.

Since the Central Bank of Nigeria (CBN) announced the planned redesign of the naira, there
have been divergent views on the appropriateness or otherwise of the policy at a time the
Nigerian economy is facing storms. From those in support to those vehemently opposed to it, the
CBN has stirred up a debate with the fate of the economy at the centre of it all. When the Central
Bank of Nigeria (CBN) effects the change to the naira by January 31 next year, it will be the 16th
time the national currency has been redesigned or changed since 1959. It is claimed that global
best practice permits central banks to redesign, produce and circulate new local legal tender
every five to eight years. The last time the naira had a makeover was 20 years ago. However,
none of the changes has attracted as much interest and debate as this time most especially
following the official unveiling of the new Naira notes by President Muhammadu Buhari on 23th
November, 2023.

One of the major areas of concern is how the rural people and their businesses will seamlessly
transit from using the old notes to the new ones, the effect that the policy could have on their
businesses and the possible mitigation. The unbanked and the elderly may not be able to cope
with the inconveniences of this change since there are no sufficient banks in most local areas. In
addition, there is already a panic for a possible crisis of cash shortage and money supply, which
could deter business transactions especially in the rural areas where there is an infinite network
or connectivity challenges, and only cash transaction prevail. Therefore, it is on this premise that
this paper seek to evaluate the effect of redesign naira notes on particularly small and medium
scale businesses in Kano south rural areas.

Kano South is a senatorial zone in Kano State, comprising of the entire geographical areas of
Ajingi, Albasu, Bebeji, Bunkure, Doguwa, Garko, Gaya, Kibiya, Kiru, Rano, Rogo, Sumaila,
Takai, Tudun Wada, and Wudil Local Government Areas with several districts and villages. The
major activity of the people in this area is farming, and they have several markets spread across
the zone. The major commodity in these markets are grains, goats, sheep, cows and other farm
produce. The markets usually host people of all kinds, from far and near. Some of the markets
operates throughout the week, while some only on a specific day or days of the week.

LITERATURE REVIEW
Ultimately, there would be many challenges in moving the old notes to the
banks from many rural areas, looking at the short period given by the CBN.
There is going to be long queues in the banking hall. The process is going to
create many inconveniences for the people.

usually needed to facilitate

and at the ATM cash out

. How are their businesses going to be affected by this abrupt policy is a

source of concern. How the apex bank could effectively create an alternative
channels for the unbanked Nigerians especially in the rural areas to
seamlessly transit from using the old notes to the new ones is one aspect
that many Nigerians are really concern about.

” the Executive Director, Centre for the Promotion of Private Enterprise

(CPPE) and former Director-General of the Lagos State Chamber of
Commerce, Muda Yusuf, told The ICIR.

“All banks are 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.” Bank customers who want to pay-in cash over the
N150,000 limit can do so if they agree to pay the charges. For people in the
rural areas and those who do not have bank account, the eNaira will be
introducing a number of tokens where people in the rural areas who do not
have bank account can access bank services without bank account.
However, for those carrying cash, they have been advised to “go to the
nearest bank branch. They will take your cash and open an account for you
for the purpose of returning the naira right into the bank’s vault and then
collecting the new naira when we begin to release them.”

In the final analysis, many agree that the CBN’s decision to issue new
banknotes will reduce counterfeits, bring in the unbanked into the system,
and address inflation and money supply. However, if not properly handled,
the fate of the naira and the Nigerian economy will be better imagined,
especially for participants in the informal sector.

There can be crisis of cash shortage, and money supply. The CBN must listen
and distil the concerns of many stakeholders particularly on issues of timing,
the Bank’s credibility, and an effective alternative channels for unbanked
Nigerians to seamlessly transit from using the old notes to the new ones.
What many Nigerians do not know is that the shabby looks of the various
naira notes have resulted in the negative perception of the CBN, which in
turn has increased risks to financial stability. The credibility of the naira and
the ability of the CBN to effectively manage the currency were further put at
risk by “increasing ease and risk of counterfeiting evidenced by several
security reports.” According to Emefiele, “recent development in
photographic technology and advancements in printing devices have made
counterfeiting relatively easier. In recent years, the CBN has recorded
significantly higher rates of counterfeiting, especially at the higher
denominations of N500 and N1,000 banknotes.”
Aside from the attacks on the naira, the CBN said it was compelled to
redesign the naira because of the prevailing level of security situation in the
country, especially cases of terrorism and kidnapping with perpetrators
holding on to what Emefiele described as “large volume of money outside
the banking system used as source of funds for ransom.”

By giving the naira a makeover within the timeframe stipulated by the CBN
and given the existing laws around depositing of cash in banks, unscrupulous
individuals keeping naira notes will be forced to deposit these notes in the
banks or forfeit their ill-gotten wealth.

Fall-out of the CBN decision

The apex bank has admitted that the decision to redesign the naira will
impact the value of the naira. Almost immediately announcing the proposed
naira redesign, the naira plummeted like a wounded bird and it is now
hovering around N800/$ in the parallel market. Another consequence of the
naira change is the expected rush of bank customers and other members of
the public to convert their old currencies to the new within the stipulated
time.

With the expected rush to dump their old cash for the new in the banks, the
CBN will by extension mop up currency in circulation, thereby applying the
breaks on an inflation that looks unstoppable albeit temporarily. To address
these fallouts, all Deposit Money Banks (DMBs) currently holding the existing
denominations of the currency N200, N500 and N1,000 have been ordered to
return these notes to the CBN immediately pending when “the newly
designed currency will be released to the banks. Bank customers have also
been urged to start 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 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.” Bank customers who want to pay-in cash over the
N150,000 limit can do so if they agree to pay the charges. For people in the
rural areas and those who do not have bank account, the eNaira will be
introducing a number of tokens where people in the rural areas who do not
have bank account can access bank services without bank account.
However, for those carrying cash, they have been advised to “go to the
nearest bank branch. They will take your cash and open an account for you
for the purpose of returning the naira right into the bank’s vault and then
collecting the new naira when we begin to release them.”

In the final analysis, many agree that the CBN’s decision to issue new
banknotes will reduce counterfeits, bring in the unbanked into the system,
and address inflation and money supply. However, if not properly handled,
the fate of the naira and the Nigerian economy will be better imagined,
especially for participants in the informal sector. There can be crisis of cash
shortage, and money supply. The CBN must listen and distil the concerns of
many stakeholders particularly on issues of timing, the Bank’s credibility,
and an effective alternative channels for unbanked Nigerians to seamlessly
transit from using the old notes to the new ones.

https://thenationonlineng.net/naira-redesign-any-implications-for-the-economy/

He observed that the United States in 1996 redesigned it’s $100 bill to feature new
reprographic advanced technology in order to cub mainly counterfeiting, but never
recalled it’s currency around the globe already in circulation and has never done that.

“These also questions why our 1000, 500 and 200 bills would cease to be legal tender
by 31st of January 2023 such a very short time not up to 90 days. This is not an
economic strategy but a political move that must not be allowed to succeed because it
is an affront on our people who largely are farmers, business men and women and feel
safer to keep and safe their monies at home. We also see this as a way to further
impoverish our region and crash the little businesses developing in the north,” the forum
explained.
Comrade Abdulsalam noted that the unileterral move without inputs from the Finance
Minister and other relevant stakeholders by the Governor would further see to the
depreciation of the naira as the demand for Dollar would increase as explained in
elementary economics, adding that it is already seen and witnessed as the USD is over
900 naira and would keep soaring due to the demand and timeline issued by CBN.

As it stands now, he lamented that Nigeria is borrowing to fund its budgets and equally
borrowing to services the bugus debts, pointing out that it is in the public space how
expensive it is to print currencies and why should Nigeria expend so much in the
redesigning and printing of these currency when it ain’t financially buoyant enough to do
so?

“There will be lots of long queues in the banking hall. It’s going to create lots
of inconveniences for the people. The unbanked and the elderly may not be
able to cope since we don’t have banks in most local government areas,” the
Executive Director, Centre for the Promotion of Private Enterprise (CPPE) and
former Director-General of the Lagos State Chamber of Commerce, Muda
Yusuf, told The ICIR.

By December 15, 2022, the Central Bank of Nigeria (CBN) will introduce the new
redesigned Naira notes in denominations of 200, 500 and 1,000. Amidst speculations
over what the real intent of Government is, there is the ongoing bickering between the
CBN Governor, Godwin Emefiele and the Finance Minister, Zainab Ahmed. Dr Sam
Amadi, Jide Ojo, Jefferson Uwoghiren and Emeka Ejikonye interrogate the
issues surrounding the exercise, including its import and the cost of printing the new
notes
Economic and Legal Issues on the Redesign of the Naira
Dr Sam Amadi and Victor Opatola
Background
Recently, the Central Bank of Nigeria (CBN) issued a statement that it has concluded
plans to redesign the Naira. The CBN Governor cited money hoarding, inflation, and
counterfeiting as major reasons for its unusual decision. The CBN claims that about
N2.73 trillion of the N3.23 trillion currency in circulation in Nigeria, is outside the bank
vaults. This is about 85% of the total money in circulation. Also, the Naira is not as
secured as it ought to be, as it is easier to counterfeit theN500 and N1000
denominations.

This policy has elicited serious debate amongst Economists, Lawyers, and other policy
experts. Many of them hold the view that this policy change holds no significant
economic benefits for the people, and is a distraction in the midst of serious economic
crises buffeting. The Minister of Finance, appearing before the National Assembly,
disowned the policy and slammed it as valueless in fiscal and monetary terms. But, the
President has reaffirmed his approval of the policy and its benefits, as a tool to control
inflation and fight corruption. The question is whether this policy is the right policy at this
time, considering its costs and benefits.

Costs and Benefits Analysis of the Policy

The CBN regulates monetary policy. It is a quintessential regulatory agency. The

benchmark for regulatory decisions like it is proposing with regard to the redesigning of
the currency, is that the regulator can only act if the benefits of the proposed policy are
more than the costs. A good cost-benefit analysis will include social and political costs
and benefits, not just financial and commercial costs and benefits.

We should note that, money plays a crucial role in a country’s economy. It determines
such things as the general price levels, aggregate national income, production and
productivity, labour and capital employment levels, exchange rates. and the balance of
payments.

It is agreed that redesigning currencies could curb counterfeiting, especially where the
existing design is very worn and its security can be easily bypassed. It is also a fact
that, redesigning and printing of new currencies will cost billions of Naira of public funds.
CBN should show through credible statistics, the percentage of counterfeit to each
Naira, to warrant this design and printing of new Naira. The CBN in its most recent
report, 2020 Currency Report, states that a total of 67,265 pieces of counterfeit notes
with a nominal value of N56.83 million was confiscated in 2020, indicating a 20.80%
decrease in volume and 12.18% decrease in value, compared with 84,934 pieces
valued at N64.71 million in 2019. The Global standard for number of counterfeits per
million, is 100. The ratio of counterfeit notes to volume of banknotes in circulation was
13 pieces per million in 2020, compared to 20 pieces per million banknotes in 2019.
This shows that the issue of currency counterfeit, is not as rampant as to warrant a
currency redesign.
The CBN claims that it is also redesigning the Naira, due to hoarding. This claim should
be scrutinised because, currently, Naira-Dollar devaluation is so high CBN has to
employ artificial valuation. Between 2021 and 2022, Naira has been devalued at least
three times, and with the look of things, there is a likelihood of further devaluation,
coupled with an increasing inflation rate, which means that the purchasing power of
Naira is weakened. It makes little economic logic that a currency whose value is highly
decreasing is being massively hoarded, as claimed by CBN. Those who have the
capacity to hoard such huge amounts are the political class, and would also have had
the capacity to convert it to Dollars. The conversion argument further makes the claim of
the CBN Governor, that a redesign in currency will hamper ransom payment, not
altogether convincing. Naira redesign in itself will not remedy rising inflation in this
country, especially given the fact that this policy has no way to appreciate the value of
Naira in the real sense. It could actually increase inflation, as those with loads of Naira
unlawfully acquired could launder them through luxury purchases, or forex transactions
that could inflate the economy.

The Power of CBN to Make this Monetary Policy Decision

By virtue of the CBN Act, the Central Bank is designed to be independent and non-
partisan in monetary policy management. There is a big debate about whether the
Central Bank should be yoked to the government, in view of the importance of monetary
policy to strategic economic development. The Free Market (FM) argues in support of a
monetary policy institution, totally free from the control of partisan politicians. The
Governed Market model (GM) wants monetary policy to be subordinated to strategic
economic policy choices of elected officials. Nigeria chose the FM model, and wrote it
into the CBN Act. It gives the Board of Governors the power to make monetary policy,
without the control of elected or appointed partisan political officials. It is good to note
that, the only stipulation of the CBN Act on the design of Naira is the mandatory
approval of the President under Section 19. There is no legal burden on CBN to inform
or get the approval of the Ministry of Finance. But, for the purpose of economic
coherence, the decision and approval of the President ought to be mentioned at the
weekly Federal Executive Council meeting, because as much as it is the redesigning of
the currency is a CBN role, the decision to redesign the currency forms part of the
Federal Government’s monetary policy and will have far-reaching economic and social
impacts. The lack of government-wide communication, betrays a dysfunctionality of the
Buhari administration

Section 20 of the CBN Act empowers the Bank to call in any of it’s currency upon
payment of face value upon reasonable notice, while Section 18(d) empowers the Bank
to destroy such currencies withdrawn from circulation. The role of Banks in the transition
is shown in Section 19. Banks are mandated to deal only in legal tenders. Their role is
that of exchange, and facilitation of payment in exchange of value.

Case on Arabic Inscription on Naira note

The fact that the Naira bears an Arabic inscription has become a contentious issue, in
view of Nigeria’s religious pluralism. The point is that Arabic is the language of Islam,
and therefore, that inscription “advances… religion in its principal or primary effect” and
therefore, fosters “an excessive entanglement with religion”, as propounded by US
Justice Blackman in Allegheny County v Greater Pittsburgh ACLU 109
U.S. 493 (1988), This decision was based on the disestablishment clause of the
First Amendment to the US Constitution, that is similar to Section 10 of our Constitution.
This matter is now subject of a judicial determination in the case of Malcolm
Omirhobo v CBN & 3 Ors FHC/L/CS/3/2020, In this case, a legal practitioner
sued the CBN, the Federal Government, the Nigerian President and the Attorney-
General of the Federation (AGF), praying the court to declare as unlawful the provisions
of Section 53(1) of the Banks and other Financial Institutions Act (BOFIA), CAP B3,
LFN, 2004, which absolves the Government and CBN of any legal action in connection
to exercising their mandate of printing, issuing, supplying and circulating Naira notes
bearing Arabic inscriptions as legal tender for a secular State that has English as its
official language, and thereby, robbing the courts of jurisdiction to entertain such case.

“He wants the court to declare that by virtue of Section 6(6)(b) of the 1999 Constitution
(as amended), the court has the jurisdiction to entertain the Plaintiff’s action for the
interpretation of Sections 10 and 55 of the 1999 Constitution, as they relate to the
powers of the Defendants to issue legal tender with Arabic inscriptions. The Plaintiff
also wants the court to declare that the Constitution is supreme and a binding force on
all the Defendants by virtue of Section 1(1).“Section 53(1) of the Banks and other
Financial Institutions Act, CAP B3, LFN, which ousts the jurisdiction of the court to
entertain this suit, is inconsistent with the provisions of Section 6(6)(b) of the 1999
Constitution (as amended), which gives the plaintiff right to access the court for the
interpretation of the Constitution and therefore, by virtue of Section 1(3) and 315 (3) of
the Constitution, null and void to the extent of the inconsistency”, He relied on the true
letters and spirit of Section 55 of the Constitution, Nigeria’s official language is English,
as well as Hausa, Igbo and Yoruba in special circumstances.”.

https://www.thisdaylive.com/index.php/2022/11/08/naira-redesign-economic-or-political-
expediency/#:~:text=It%20is%20agreed%20that%20redesigning,of%20Naira%20of%20public
%20funds.

Economic Implications of Introduction

of New Naira Notes in Nigeria
By Otori Emmanuel