Nigeria’s central bank said it’s move to replace high-value currency notes will help prevent hoarding and stymie illegal activity and kidnappings in Africa’s largest economy.
The country’s banking regulator plans to issue redesigned 200-, 500- and 1,000-naira notes from mid-December, Central Bank Governor Godwin Emefiele said at a briefing in Abuja, the capital, on Wednesday. Old bills will cease to be legal tender starting Jan. 31, giving citizens of the West African country, where cash dominates transactions, six weeks to exchange their notes. The country is scheduled to hold presidential elections 25 days later.
“At first sight, with the very ambitious timeframe outlined, this looks like an attempt by Nigeria to deal with illicit funds,” Razia Khan, head of research for Africa and the Middle East at Standard Chartered told Bloomberg.. “Given problems related to crude theft and security, this is understandable.”
The central bank says it doesn’t have visibility on 85 per cent of cash in Nigeria, which is undermining the efficacy of monetary policy and the integrity of the currency, according to Emefiele. The authorities operate a multiple exchange-rate regime dominated by a tightly controlled official exchange rate and a parallel market where the naira is freely traded — while the former has weakened less than 10 per cent since December, the latter is down by nearly a third within the same period, according to Bank of America.
The move to ban the notes may lead to chaos in the country of almost 220 million people, the majority of whom live in rural areas away from bank branches. Six years ago, Indian Prime Minister Narendra Modi’s decision to outlaw high-value currency overnight led to a prolonged scramble for cash and slowed economic growth in Asia’s third-largest economy.
Nigeria’s previous attempt at demonetization also didn’t go according to plan. In 1984, President Muhammadu Buhari’s military government changed the color of currency notes in an effort to combat corruption — Buhari was removed from office in a coup the following year and the naira was devalued a year later.
