The central bank is changing the denominations of 200, 500 and 1,000 naira and the new bills will start circulating from December 15. The hope is that when people give up their old notes, many will choose that time to change production. electronic payments through a bank account for their daily finances.
2. What difference would this make?
It is difficult for the central bank to do its job when about 85% of the local currency does not go to the bank and more than 90% is generated through cash. In announcing the move in October, the bank’s governor, Godwin Emefiele, said it would help curb inflation. It can also reduce corruption and organized crime. The country has a thriving human trafficking industry that sees thousands of Nigerians abducted by bandits every year, and their family members often pay money for their release.
The amount of cash flow has doubled since 2015 to 3.23 trillion naira. Yet almost half of the 220 million people do not have bank accounts. Nigeria has only 4.5 bank branches for every 100,000 people, one of the lowest in the world. The danger is that banks are flooded with new customers trying to open accounts to save their old money as the deadline approaches.
4. What are the banks doing?
They have launched an advertising campaign and hired 1.4 million people to go to markets and villages to encourage people to open accounts, hoping to avoid the last rush. The central bank suspended bank deposits and ordered lenders to open their branches on Saturday to encourage people to return their old deposits.
5. What have Nigerians done?
Many rushed to buy dollars, causing the US currency to temporarily depreciate and briefly sending the naira to a low on the black market. Finance Minister Zainab Ahmed questioned the plan saying it could weaken investment and slow economic growth. But it was confirmed by President Muhammadu Buhari, who supported it as a way to fight corruption. Grain and gold dealers in the northern city of Kano say their business has increased because some people are trying to avoid the government’s radar by converting money into hard goods.
6. What was the Indian experience?
India also implemented a similar scheme that forced farmers to travel long distances to exchange their old currency. The move led to cash shortages, long queues at banks and post offices and reduced financial services. It failed to reduce the flow of money out of banks or curb corruption. Emefiele stressed that Nigeria can avoid India’s fate as banks have taken steps to reduce new exposure and increase access to banking.
–Contributed by Mike Cohen.
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