IMPACT OF NAIRA REDESIGN ON FOREIGN EXCHANGE RATE IN NIGERIA

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The redesign of the Nigerian Naira was one of President Muhammadu Buhari’s most widely anticipated projects.

Over the last five years, the Naira has lost 94% of its value in relation to the US dollar.

Keep in mind that in October 2022, the naira saw its worst depreciation ever, dropping from #580 to around $707 per dollar and trading at nearly $860 per dollar on the illegal market.

The naira depreciates due to a surge in the demand for dollars and naira hoarding. 80% of printed notes are not being used and are being kept outside of the vaults of commercial banks, according to information given by the Central Bank of Nigeria (CBN).

Therefore, N200, N500, and N1000 notes will undergo redesigns and enter circulation on December 15, 2022, according to CBN Governor Dr. Emefiele’s statement on October 26, 2022.

The new Naira note design, which was unveiled on November 23, 2022, has drawn criticism from many Nigerians since the motifs are the same but the color is different from the old notes.

Reason for Redesign

Despite opposition from some, the CBN has good intentions.

The redesign of the Nigerian currency will greatly boost the nation’s cash flow and represents a win in the war against counterfeit money.

Currency fraud has grown to be a significant source of income for certain individuals, which has made counterfeiting exceedingly challenging.

According to CBN, Nigerians have formed factories and are just creating bank notes since they do not enter the banking system. The Nigerian Central Bank cannot identify counterfeit money. There is a problem if the regulating body is unable to solve this, which is why rethinking is required.

Currency exchange also aims to lessen kidnapping and the rapidly growing ransom trade. The business engages in illicit activity, and they have a propensity to hoard funds, which delays the flow of cash.

Changing the naira notes will also provide new avenues and help manage the quantity of money in circulation. The redesign of the national currency is a product of the government’s effort to make Nigeria a modern, useful, and effective nation. Develop interregional trade and business in Nigeria as well as digital projects, mobile money transfers, and an electronic money supply system are all part of this.

Transfer of New Notes

Mr. Emefiele, the head of Nigeria’s central bank, has ordered all citizens to deposit their old N200, N500, and N1000 notes at commercial banks by January 31. The old notes won’t be recognized as legal tender after that date.

Although it seems that the designs are better than they had anticipated, the public has had a negative reaction to the statement. Since there were so many outstanding young designers in the country, many grieved that the government should have done a better job.

However, the new currencies have only been accessible on social media platforms; they won’t really begin to be used for transactions until December 15, 2022. The new currency may differ significantly from the old one when it is utilized by the general people.

The Economic Impact of the Naira Redesign

Following the announcement of the redesign of the naira note, the naira appreciated by around 26.24% against the dollar.

While some claim the impact will intensify after the new note is in use, others claim it is a fantastic idea that would trigger economic change.

I’ll provide examples of both the positive and negative impacts of the Naira redesign.

People will be quite worried, and a lot of them will want to deposit money at the banks, which will result in huge lineups. Anyone relocating far from the bank would find it challenging to deposit their old notes in time. This might have a negative impact on the economy and put the people and bank under stress.
Nigeria only has Lagos and Abuja as its two printing centers. After printing is complete, distribution is required.

Money has to be distributed throughout Nigeria, which takes a lot of work and costly logistics. Huge quantities of money would need to be borrowed in order to keep up with this development, which would intensify the inflation the country is currently facing. One of the factors causing inflation is the vast national debt.

Here, logistics provide still another issue. How will it be possible to deliver those printed dollars to the needed area, given the level of security in the country?
Since commercial banks and the central bank no longer control 80% of the money printed, the redesign of the new note would help banks restore control over the money in circulation.

Since the Apex Bank would be able to reduce the amount of printed money in circulation and promote a cashless society, the redesign of the naira notes will also help the country’s transition to a cashless economy policy. The impact of this policy will be favorable to the economy.

The prevalence of fake currency would decline as the apex fund works to fully regulate the distribution of printed notes.
The redesign of naira notes has both positive and bad implications. The Apex Bank and other Regulatory Agencies’ engagement is necessary for the consequences of this notion to be realized. How much initiative and effort are they willing to use to draw attention to the positive features of this development?

There are other hypotheses on currency reform as well. The one thing that is certain, however, is that redesigning by itself won’t be enough to reduce inflation.

We hope that the Apex Bank will uphold its promise to regulate the circulation of printed notes even though we think this decision will be successful.