The Central Bank of Nigeria (CBN) has announced that, as a result of its redesigned naira notes and cash swap policy, it has recovered N1.9 trillion in currency previously held outside of the banking system.
This was revealed by CBN Governor Godwin Emefiele on Sunday, January 29th, 2023, as part of an update following a meeting with President Buhari.
Following the announcement of new naira notes, the apex bank was able to reduce the currency outside the banking system to N900 billion from a whopping N2.7 trillion, according to Emefiele.
Remember that President Buhari introduced new naira notes in denominations of N200, N500, and N1,000 in November 2022, with the goal of combating counterfeiting, improving the effectiveness of monetary policy tools on inflation, and removing excess liquidity.
“Ladies and gentlemen,” Emefiele said, “available data at the Central Bank of Nigeria show that currency in circulation in 2015 was only N1.4 trillion.”
“As of October 2022, currency in circulation had risen to N3.23 trillion, of which only N500 billion was within the banking industry and N2.7 trillion was held in people’s homes permanently.”
“Normally, when the CBN releases currency into circulation, it is intended to be used and then returned to the CBN, thereby keeping the volume of currency in circulation under the CBN’s firm control.”
“We have collected approximately N1.9 trillion since the inception of this program, leaving us with approximately N900 billion (N500 billion + N1.9 billion),” he said.
Emefiele also stated that the initiative has achieved a success rate of more than 75% of the N2.7 trillion held outside the banking system. “Nigerians in rural areas, villages, the elderly, and the vulnerable have had the opportunity to swap their old notes, thanks to the Agen Naira Swap initiative and the CBN Senior staff nationwide sensitization team exercise,” he said.
The CBN governor also announced a 10-day extension of the deadline to February 10, 2023, to allow the remaining old notes in the economy to be returned to banks.
“A 10-day extension of the deadline from January 31, 2023, to February 10, 2023; to allow for the collection of more old notes legitimately held by Nigerians and achieve greater success in cash swap in our rural communities,” Emefiele said.
“Our CBN staff, who are currently on mass mobilization and monitoring, will collaborate with officials from the EFCC and ICPC to achieve these goals,” he added.
He also stated that, in accordance with Sections 20(3) and 22 of the CBN Act, Nigerians will be given a 7-day grace period from 10 to 17 February 2023 to deposit old notes at the CBN after the deadline.
What this means is that the central bank’s massive recovery of circulating currency will make monetary policy more effective in taming inflation.
While the money supply and currency outside banks’ vaults remained high, the CBN raised the monetary policy rate (MPR) by a total of 500 basis points in 2022, with little effect on the inflation rate.
However, with the central bank’s continued hawkish stance and more people in the banking system, as well as the reduction of the OTC withdrawal limit, monetary tools will begin to have a greater impact in combating inflation, which is already at a nearly 17-year high.
