How banks are responding to CBN’s naira redesign directives

The Central Bank of Nigeria (CBN) on October 27, 2022 announced that higher denominations of the Naira including N200, N500 and N1,000 would be redesigned and introduced into the economy from December 15, 2022 while commercial banks were directed to return existing denominations to the CBN.

Godwin Emefiele, governor of the CBN, who announced this during a press conference in Abuja believes that the redesign of the currency will help deepen the country’s drive to entrench cashless economy as it will be complemented by increased minting of eNaira.

This, he said, would further rein in the currency outside the banking system into the banking system thereby making monetary policy more efficacious.

Also, in view of the prevailing level of security situation in the country, the CBN is convinced that the incidents of terrorism and kidnapping would be minimized as access to the large volume of money outside the banking system used as source of funds for ransom payments will begin to dry up, Emefiele said.

He instructed that all Deposit Money Banks currently holding the existing denominations of the currency begin returning these notes back to the CBN with immediate effect as the newly designed notes will be released to the banks on a First-come-First-serve basis.

“For the purpose of this transition from existing to new notes, bank charges for cash deposits are hereby suspended with immediate effect; Therefore, DMBs are to note that no bank customer shall bear any charges for cash returned/paid into their accounts,” he said.

Emefiele added that as people pay the existing currencies to commercial banks, all banks are expected to keep their currency processing centers open from Monday to Saturday so as to accommodate all cash that will be returned by their customers.

For people in rural areas especially those without bank accounts, Emefiele said a number of tokens will be introduced for them with which they can carry out banking services.

In response to the CBN’s directives, some Nigerian banks have commenced Saturday banking as part of compliance measures. The CBN had directed all banks to keep their currency processing centers from Monday to Saturday so as to accommodate all cash that will be returned by their customers.

Access Bank bank said in a statement that its branches will be open for longer hours during the week for customers’ convenience, and that it will also be open on Saturdays from 10 a.m. – 2 p.m. to receive cash deposits.

Read also: Naira redesign: Access Bank provides alternative channels for cash deposits

“With the current number of our Access Closa Agents at over 160,000 spread across the 774 Local Government Areas in the country, you can easily deposit your existing naira notes through an agent near you in your location to avoid the risk of transporting cash to a far distance to locate a branch,” the statement said.

“Whether you choose to deposit your existing Naira notes through a branch, an ATM, or a point-of-sale machine (POS), you can rest assured that your money is safe with us and that you can always rely on our speed, service, and security.

Access Bank said, “during this period of receiving your existing Naira notes, all cash deposit transactions will be free. You will not be charged for cash deposits. You can also pick up your debit cards for emergency payments on POS terminals and ATM withdrawals.

In a note to its customers, First Bank of Nigeria states, “please note that in line with our drive to always put You First, a number of our branches nationwide will now provide Saturday banking services to our customers from 10 am – 1 pm, starting from Saturday, 5 November 2022.”

Furthermore, the bank said, “You can start depositing your Naira notes into your FirstBank accounts immediately; there will be no charges for cash returned/paid into your accounts.

The present notes remain legal tenders and should not be rejected as a means of exchange for the purchase of goods and services. You can withdraw the new notes from your account once circulation begins in December 2022.”

The CBN noted that as at the end of September 2022, N2.73 trillion out of the N3.23 trillion currency in circulation, was outside the vaults of commercial banks across the country.

According to a new report by the FSDH Research, the policy move was motivated by the need to get more currency into the banking system in order to increase the efficacy of monetary policy, among other reasons cited by the CBN.

The panic created by the policy increased speculative activities on the exchange rate, which has experienced rapid depreciation since the announcement of the policy.

“The panic created by the policy increased speculative activities on the exchange rate, which has experienced rapid depreciation since the announcement of the policy,” analysts at FSDH said.

Reacting to the CBN’s decision when it was announced, Uche Uwaleke, professor of Capital Market at the Nasarawa State University Keffi, said, “I think the decision to replace some naira denominations with new ones will be positive for the economy in the medium to long term.

He said, although the measure does not amount to demonetization of big currency notes often carried out by Central banks to curb black money and corruption, it will go a long way in ensuring that a lot of naira notes circulating outside the banks are crowded in.

“If it leads to large deposits in banks, it means the banks will have more money to lend which may reduce interest rates. I also think it may have the effect of reducing speculative attacks on the naira in the parallel market.

“I expect that the Financial Intelligence Unit will be on the watch out 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 sanitize the system especially now that electioneering activities have kicked off. I think the deadline of Jan 31 2023 is short in view of the number of naira denominations involved, from 100 to 1000. The CBN may consider extending it with time,” Uwaleke said.

Taiwo Oyedele, head of tax and corporate advisory services at PwC, noted that the planned redesigning of the Naira was in line with global standards and that it would help to bring some of the huge cash outside the banking system into the financial system for more effective monetary policy interventions.

This may also help the government to have a better view of likely illicit funds within the economy. If properly implemented in collaboration with the Financial Intelligence Unit, National Identity Management Commission (NIMC), fiscal authorities and anti-corruption agencies, among others, could help to identify ill-gotten wealth for appropriate actions and limit vote buying during the forthcoming elections. It could also help to bring more people into the tax net,” he said.

Emefiele said, currency management has faced several daunting challenges that have continued to escalate in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country.

These challenges primarily include, significant hoarding of banknotes by members of the public, with statistics showing that over 85 percent of currency in circulation are outside the vaults of commercial banks.

Evidently, he said currency in circulation has more than doubled since 2015; rising fromN1.46 trillion in December 2015 to N3.23 trillion in September 2022. This is a worrisome trend that cannot be allowed to continue.

Other challenges include worsening shortage of clean and fit banknotes with attendant negative perception of the CBN and increased risk to financial stability and increasing ease and risk of counterfeiting evidenced by several security reports.

“Indeed, 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,” Emefiele said.

According to the CBN, in April 1984, the colours of all the banknotes in circulation were changed with the exception of the 50 Kobo banknote to arrest the currency trafficking prevalent at the time. In 1991, the 50K and N1 were both coined.

In response to the expansion in economic activities and to facilitate an efficient payments system, the N100, N200, N500 and N1000 banknotes were introduced in December 1999, November 2000, April 2001 and October 2005 respectively.

On 28th February, 2007, as part of the economic reforms, N20 was issued for the first time in polymer substrate, while the N50, N10 and N5 banknotes; as well as N1 and 50K coins were reissued in new designs, and the N2 coin was introduced.

On 30th September, 2009 the redesigned N50, N10 and N5 banknotes were converted to polymer substrate following the successful performance of the N20 (polymer) banknote. Thus, all lower denomination banknotes were now printed in the polymer substrate.

Finally, the CBN, as part of its contribution towards the celebration of the nation’s 50th anniversary of Nigeria’s Independence and 100 years of its existence as a nation, issued the N50 Commemorative polymer banknote on September 29, 2010; and the N100 commemorative banknote on December 19, 2014 respectively.

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