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Nigeria: Notes Redesign and a Cash Crunch

Categories : Cash and Crises, Cash is available to all users, Cash is the most widely used payment instrument, Costs of cash versus costs of electronic payment instruments
March 1, 2023
Tags : Access to cash, ATMs, Banknotes, Digital payments, Financial inclusion, Nigeria
A botched redesign of banknotes has caused a cash crunch in Nigeria. The country’s digital payments infrastructure has been unable to meet the public’s demand for cash.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

On October 26, 2022, the Central Bank of Nigeria (CBN) announced it would replace its three highest denomination notes within four months. The redesign of the 200 Nairas (NGN, equivalent to USD0.43), NGN500 (USD 1.08), and NGN1,000 (USD 2.17) notes would “check counterfeiting, strengthen the economy, reduce the expenditure on cash management, promote financial inclusion, and enhance the CBN’s visibility of the money supply,” according to a CBN brochure.

The CBN sought to reduce the cash reserves hoarded by the public outside the financial system. Currency in circulation has more than doubled in Nigeria since 2015 (see Graph 1). Currency outside Nigerian banks rose from NGN1.46 trillion in December 2015 to NGN 2.83 trillion in October 2022.

Graph 1. Nigeria: Currency in Circulation, January 2015-December 2022 (NGN trillions)

Source: CBN Money and Credit Statistics (2023).

Digital Payments and Financial Inclusion

The new notes would help “entrench the cashless economy,” said Godwin Emefiele, the CBN governor. During the cash swap,

Most Nigerians use cash and have not adopted digital payments.

The Cash Swap Program

On January 23, 2023, citizens would get “newly redesigned notes and notes of lower denominations” by depositing their old banknotes at commercial banks without charges. The CBN instructed banks to “load new notes into their ATMs nationwide” of “denominations of “NGN200 and below only” and set up cash withdrawal limits (see Table 1). As of January 29, the CBN had collected about NGN1.9 trillion in old notes.

Table 1. Nigeria: Limits to Cash Withdrawals for Cash Swap (NGN)

Source: CBN Circulars (December 6, 21, 2022).

A Cash Crunch

The old Naira notes would lose legal tender status on January 31. However, the CBN began supplying the new notes to banks only in December, leading to a cash shortage.

Some businesses have stopped accepting old notes. Nigerians make long lines to get new notes at ATMs, bank branches, and point-of-sale (POS) operators. Banks in Lagos and Abuja limit cash withdrawals to NGN10,000 (USD 21.71) per customer. Uber drivers cancel trips if passengers don’t pay in cash.

The cash crunch is causing widespread anger and social unrest, with rioters blocking roads in Ibadan, Benin City, and Warri.

The International Monetary Fund (IMF) advised Nigeria “to consider extending the deadline [to replace old notes], should problems persist.” On January 29, the CBN extended it until February 10, and Nigeria’s Supreme Court extended it until February 22.

A Digital Payments Fiasco

The CBN insisted it is working “assiduously to increase the circulation of the new notes” and denied a shortage of printing materials caused the delay. While the CBN encourages Nigerians “to embrace and adopt other payment channels,” digital payments have been unable to mitigate the cash crunch:

A Political Rationale?

The cash shortage has raised withdrawal commissions and created a black market for the new Naira notes at inflated prices. The CBN said the Police, tax, and financial authorities would prosecute those who “hawk, sell or otherwise trade in” the newly redesigned banknotes.

The cash shortage happened shortly before the presidential and parliamentary elections on February 25. “The new currency voids old banknotes stored by politicians to buy votes in the upcoming general elections,” said Rafiq Raji, a senior associate with the Africa program at the Center for Strategic and International Studies.

This post is also available in: Spanish