The total amount of currency in circulation in Nigeria decreased significantly from N3.29 trillion at the end of October 2022 to N1.38 trillion by the end of January 2023. This decline of N1.91 trillion over a three-month period was primarily due to the naira redesign policy implemented by the Central Bank of Nigeria (CBN). In October 2022, CBN Governor Godwin Emefiele announced plans to redesign the old N200, N500, and N1,000 notes, along with deadlines for Nigerians to exchange their old currency for the new notes.
Emefiele stated that all Deposit Money Banks currently holding the existing denominations could begin returning these notes to the CBN immediately. The newly designed currency would be distributed to banks on a first-come, first-served basis. He encouraged bank customers to deposit their existing currency into their accounts to facilitate the withdrawal of the new banknotes once they entered circulation. Emefiele highlighted several challenges related to currency management, including significant hoarding of banknotes by the public. Statistics indicated that over 80 percent of the currency in circulation was outside the vaults of commercial banks.
Additional challenges included a shortage of clean and fit banknotes, which negatively impacted the perception of the CBN and increased risks to financial stability. Emefiele noted a rising trend in counterfeiting, particularly with higher denominations such as the N500 and N1,000 notes. He pointed out that, while global best practices recommend that central banks redesign and circulate new local legal tender every five to eight years, the naira had not been redesigned in the past 20 years.
In light of these trends and issues, and in accordance with Sections 19, Subsections A and B of the CBN Act 2007, the management of the CBN sought and received approval from the President to redesign, produce, and circulate new series of banknotes in the N100, N200, N500, and N1,000 denominations. Prior to this redesign initiative, the CBN had recorded substantial amounts of currency in circulation. For instance, the currency in circulation rose by N58.36 billion to N2.84 trillion in September 2022, up from N2.79 trillion in August. It had also increased from N2.74 trillion at the end of June 2022 to N2.81 trillion in July 2022, before falling to N2.79 trillion in May from approximately N2.80 trillion at the end of April.
Currency in circulation is defined as the total legal tender currency held by the general public and in the vaults of Deposit Money Banks, excluding the currency held by the central bank. The CBN employs an “accounting/statistical/withdrawals and deposits approach” to calculate the currency in circulation in Nigeria. This method involves tracking currency movements on a transaction-by-transaction basis. For every withdrawal made by a Deposit Money Bank at one of the CBN’s branches, an increase in currency in circulation is recorded, while deposits result in a decrease. All transactions are documented in the CBN’s currency in circulation account, and the balance at any given time reflects the country’s currency in circulation. According to the CBN, analysis revealed that a significant and growing proportion of the naira held outside the commercial banking system was hoarded by the general public.
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