Macro Online Quiz/Discussion (Naira Redesign and Monetary Equilibrium)–27-2-2023
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to discuss and analyse the merits and demerits of this policy initiative adopted by the CBN. Secondly, what is the nexus between Naira redesign money market equilibrium? Will this new policy promote equilibrium in the money market? Discuss this comprehensively,
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Benedict Jennifer chinagorom
2019/244229
Department:Economics
The main reason for redesigning the naira notes is limits on large cash withdrawals would help curb money laundering and make digital payments the norm in Africa’s biggest economy.
MERIT:Redesigning currencies improve a currency’s security by enabling countries to keep counterfeiting low and stay ahead of counterfeiting threats.
The CBN expects that this dash to redesign Nigeria’s currency would reduce counterfeiting, encourage a cashless economy, and stave-off cash hoarding.
.The currency redesign would assist in the fight against corruption as the exercise would rein in the higher denomination used for corruption and the movement of such funds from the banking system could be tracked easily.
.Enhanced security, greater durability, attractiveness and promotion of rich cultural.
.Adoption of electronic channels, which is in tandem with global best practices.
.Strengthen the economy, reduce the expenditure on cash management, promote financial inclusion, and enhance the CBN’s visibility of the money supply.
DEMERIT: The downsides of going cashless include:
Greater exposure to hacking:due to the cashless policy Nigerians been depending on E-transfer and Pos as a means of exchange or payment which makes us prone to hacking, given that we put in our bank pin in several Pos which may be manipulated and so expose us to fraud.
.Technological dependency:Nigeria as a country does not have a dependable technological system, we all notice how all bank networks has been down or bad during this period(January 31st,2023 till date)
Therefore making it difficult for Nigerians to purchase goods and services.
.Magnifying economic inequality:As of January the gap between the rich and the poor was quite alarming small businesses shut down due to cash scarcity, those who had no bank accounts had no way to transact, even if you desire to create an account the crowd at every bank was quit a lot that it was difficult to get into the banking hall.Even the World Bank has warned that the newly redesigned naira which went into circulation few weeks ago may have negative effect on economic activity especially poor Nigerians due to its timing and short transition period.
.Reduction of Broad Money Supply: Effectively implemented currency redesign large causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.To be able to access cash this past few weeks has been difficult that if u do get access to it it’s at a high cost rate.Pos has been charging 400 per 1000 naira withdrawals.
Money market equilibrium occurs at the interest rate at which the quantity of money demanded equals the quantity of money supplied. All other things unchanged, a shift in money demand or supply will lead to a change in the equilibrium interest rate and therefore to changes in the level of real GDP and the price level.This being said the new policy will not promote equilibrium in the money market.
Francis chinedu Michael
2019/244161
economics department
Recently, the Central Bank of Nigeria (CBN) issued a statement that it has concluded plans to redesign the Naira. The CBN Governor cited money hoarding, inflation, and counterfeiting as major reasons for its unusual decision. The CBN claims that about N2.73 trillion of the N3.23 trillion currency in circulation in Nigeria, is outside the bank vaults. This is about 85% of the total money in circulation. Also, the Naira is not as secured as it ought to be, as it is easier to counterfeit
This policy has elicited serious debate amongst Economists, Lawyers, and other policy experts. Many of them hold the view that this policy change holds no significant economic benefits for the people, and is a distraction in the midst of serious economic crises buffeting.
The question is whether this policy is the right policy at this time, considering its costs and benefits?
A good cost-benefit analysis will include social and political costs and benefits, not just financial and commercial costs and benefits. We should note that, money plays a crucial role in a country’s economy. It determines such things as the general price levels, aggregate national income, production and productivity, labour and capital employment levels, exchange rates. and the balance of payments.
Politically speaking, it is believed that many candidates and political parties who have kept humongous sums of the nation’s currency in fireproof vaults in their homes, in overhead and underground water storage tanks and on the farms, will be forced to bring such into the bank vaults to exchange for the new banknotes. The agency will upon receipt of reports of the expected huge judgements, go after such account owners to ask them about the source of the money, to establish that it is not proceeds of crime.
Long and Short Term Impact on the Economy
The short term impact of the proposed exercise on the economy has been unsavoury, with the Naira slumping against foreign currencies, especially the Dollar.
Cost of the Redesign and its Desirability at this Point
CBN has not, and is most unlikely, to disclose the cost of redesigning our banknotes. The speculation is that, the amount is humongous. More so, as it may actually have been contracted to a foreign firm and not
Merits of this policy initiative adopted by the CBN
1. Currency redesign by the CBN helped to reduce inflation. Currency in circulation has more than doubled since 2015 rising from #1.46 trillion in December 2015 to #3.23 trillion in September 2022 and its worrisome and cannot be allowed.
2. It also help to reduce speculations against the naira.
3. It also target criminals whose stock in trade is raw cash by promoting a less cash-heavy economy.
4. It aimed also at reducing counterfeiting in the economy.
5. It promotes a cashless economy by limiting the amount of the new banknotes that can be withdrawn
Demerits of this policy initiative adopted by the CBN.
1. Some Nigerians due to the scarcity of new naira notes started taking advantage by exchanging old notes for new one for huge premium.
2. Bankers began to hoard new notes for their own personal benefit.
3. Due to the riots caused by Nigerians to get hold of the scarce new naira notes, many banks were destroyed.
2. What is the nexus between Naira redesign and money market equilibrium?
The scarcity of new note continues to disrupt business activities in markets, restaurants, banks and major sales outlets across Nigeria.
Findings showed that while the poor circulation of new notes stifle economic activities, pos operators have also had a difficult time getting both the old and new notes from banks in recent weeks. Amid the chaos caused by scarcity of new notes, the CBN extended the deadline for the phasing out of the old notes from 31st January deadline to 10th February.Despite the extension, many Nigerians working in the informal sector of the economy have had to scramble for the new notes while others lamented their inability to withdraw their hard earned money from their bank accounts. The failure by the CBN to foresee this necessary cash demand means that it probably underestimated how much demand there would be for the new currency notes.
This underestimation and other faulty assumptions are design errors, and they fall squarely on the CBN. It would have been better for the CBN to overestimate than underestimate. If anyone that wanted a replacement for their deposit cash could get as much as they need from day 1, the queues, the rush for cash and the sharp practice wouldn’t have started. Naira redesign has reduced the amount of money in the market economy because people now hold less wealth as money.
will this policy promote equilibrium in the market economy?
The demand for money is the relationship between the quantity of money people want to hold and the factors that determine that quantity. The supply of money shows the relationship between the quantity of money supplied and the market interest rate, all other determinants of supply unchanged.
Money market is the interaction among institutions through which money is supplied to individuals, firms and other institutions that demand money. Money market equilibrium occurs at the interest rate at which the quantity of money demanded is equal to the quantity of money supplied. The new policy will promote equilibrium in the money market economy by reducing inflation in the market and also reduce the amount of money in circulation. With the Central Bank of Nigeria policy of giving out #500,000 per individual for a week and #5 000 000 per institutions or firms on a weekly basis, it would reduce hoarding of money by politicians etc
Name: Samuel Francess Kenile
Reg number: 2019/250034
Email: obogwusamuelfrances@gmail.com
Merits of Naira Redesign, Cashless Initiatives.
1. James Emejo writes that the naira redesign and implementation of the cashless policy would plug fiscal leakages, boost government revenues, and aid the economic empowerment of vulnerable Nigerians as well as benefit the country as a whole.
2. Critics of the cashless policy have argued that it would further impoverish Nigerians and create unemployment in the financial value chain. But they lacked evidence to buttress their rejection.
3. It was aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
4. This measure would help to limit the use of cash for illicit activities such as banditry and terrorism financing and help to track the movement of money through electronic channels. If anything, limiting cash handling with reduce the rate of armed robbery and other associated risks.
5. This measure was set to strengthen the performance of key macroeconomic parameters and equally combat social improprieties.
Demerits Of Niara Redesign.
1. The experts argued, would deepen inflationary pressure on Nigeria’s currency. Stating that the government is struggling with a huge debt deficit and would likely borrow massively to fund the currency Redesign
2. Statistics had shown that over 80 per cent of the currency in circulation were outside commercial banks’ vaults, which was fuelling illicit financial flow within the economy.
3. Shortage of clean and fit banknotes, with its attendant negative perception of the CBN, had increased the risk to financial stability.
The nexus between Naira Redesign and Money Market Equilibrium.
This policy is enacted by a central bank to sustain a level economy and keep unemployment low, protect the value of the currency, and maintain economic growth. By manipulating interest rates or reserve requirements, or through open market operations, a central bank affects borrowing, spending, and savings rates.
Will this New policy promote Equilibrium in the money market?
Yes it will.
Because, changes in interest rates influence people’s decisions to invest or consume, which ultimately affects economic growth, employment and inflation.
Name: Henry Victor Ifeanyichukwu
Reg no : 2019/250111
Email : victorhenry274@gmail.com
1). CBN (Central Bank of Nigeria) redesign of naira note has different effect to the aggregate economy, both negativity and positively some of the demerits includes ;
a, Disequilibrium in the money market :- the money in circulation has dropped by 54% of it’s currency, Nigeria only has 1.39trillion out of 2.7trillion of it’s currency in circulation before the policy was adopted. One of the disadvantage of CBN currency policy of redesigning of the 200,500 and 1000 naira note is disequilibrium in money market. Because the supply of money has dropped but the demand for money is only increasing due to inflation, this causes a shift in the equilibrium point from the previous point in the short-run of the money market during the previous month before the CBN naira redesign policy.
b, Reduction Aggregate Borrowing and investment:- CBN policy to redesign the naira note has influenced the aggregate levels of borrowing and investment. The main objective of CBN is to reduce the money in circulation circulation ( money at hand ) .This policy has set some restrictive regulations on banks, discouraging them to lend to public or lending money at a very high interest rate. This discourage borrowing and this in return discourage aggregate investment, because borrowers uses the money gotten from banks to invest in private sectors in economy and increase Nigeria aggregate investment.
b, Reduction in aggregate demand for goods and services:- CBN naira redesign policy has discourage the local market in accepting old currency naira note .while the new money in circulation is less than the old money which is already in the economy. This policy has effected the aggregate demand of goods and services because of less money in circulation, due to that people have less money to spend on consumer goods and services. This cause a decline in the aggregate demand for goods and services.
As we have demerits of new CBN naira policy we also have merit which were the drive behind the CBN naira redesign policy which includes;
a, Reduction of Inflation:- inflation is the unexpected rising of prices of goods and services. One of major of inflation is when large sum of money chasing fewer goods, Nigeria highly depends on import and hardly produce. Presently Nigeria inflation level is 21.82% . One of the objectives and merits of CBN policy is to attack the inflation level by reducing the circulation of money in the economy to reduce the amount of amount chasing goods and services.
b, Reduction of Counterfeit and Laundry:- the political and economic agenda of CBN of redesigning the naira note, is to curb the amount of Counterfeit in economy and also to discourage illegal laundering of naira note. Since 200,500 and 1000 has a new appearance as designed by CBN officials, this limit the ability of people to laundry the naira note and it also makes all the counterfeit of the old naira note to be invalid because of present of the new naira note by CBN currency redesign policy .
c, Encouragement of technology innovation in use of money transaction:- because of effort of CBN to make it difficult to acquire the new currency note in the hands of citizens. This encourage other means of payment and transaction method, one of the objectives of CBN is to encourage digital payments the norm in Africa biggest economy.
These are just few demerits and merits of new CBN redesign currency policy. the money market is highly effect by action of CBN . The relationship/link between the money market equilibrium and the redesign of naira note is the central bank of Nigeria ( CBN ) , Because CBN control the aggregate supply of money in Nigeria economy, and the money market equilibrium is an interaction between Aggregate supply of money and aggregate demand money. The aggregate supply is controlled by CBN while aggregate demand is controlled by the total population of citizens of Nigeria, and equilibrium point in money market is where everyone is satisfied where the Aggregate supply of money = aggregate demand of money.
CBN currency redesign policy won’t maintain the equilibrium in the money market in the Nigeria economy. Because CBN policy main objective is to reduce the circulation of money in Nigeria. The money aggregate supply would drop causing disequilibrium in the money market ,because the supply of money would be less than the aggregate demand for money . Even if CBN reduce supply it won’t really effect the level of demand of money because of present of other variables effecting demand of money , the demand of money might even increase due to inflation causing disequilibrium in the money market in the long-run period .
NAME: Aneke Chinaecherem Emmanuella
REGNOM: 2019/242940
EMAIL: chinecheremaneke21@gmail.com
QUESTION 1
MERITS
1. Reduction and decimation of public funds embezzlement: The policy would serve as a deterrent to politicians whereby they wouldn’t be able to access the raw cash meant for the public with which they embezzle or stash away in their foreign bank accounts.
2. Reduction of monetary related crimes: This would help immensely in curtailing or scraping off societal crimes such as kidnapping, robbery, pick-pocket, ritual, as all these rely extensively on cash use.
3. Inflation regulation: It would help in stabilizing the commodity or monetary value.
4. Contemporary reverencing of the Nigeria’s banking institution to the corporate world: The policy would unarguably spike Nigeria to sit at the pew amongst the civilized world elite nations.
5. It helps in reducing extravagant spending thereby making people who are difficult to save begins to save without an option: In this case, there are people who spend extravagantly once they have cash with them. They buy things which they never plan to buy but, because of this policy, most people are now disciplined in their spending.
DEMERITS
1. Negative impartation on small and medium scale businesses: One of the significant effects of the CBN’s enacted policy is the set backs most small and medium scale businesses are experiencing imminently. Most of these business owners are not conversant, oriented or inclined with digital system of business banking, hence, subjecting the business into retardation or retrogression.
2. Derailment or dampening of commercial production: The commercial production might/would also be constrained due to such policy. These commercial producers would be constrained because of the cash scarcity of which they would exchange in dollars before the external/commercial production and, subsequently, importation.
3. Network and internet banking congestion: it’s no surprise that the internet has congested with chunks of internet transfers; an abnormally caused by cash crunch. It’s happening to lots of us. Most times, when one makes transfer, it’d hang for almost a week before it bounces bank. It’s also a room whereby bankers steals their customers money. When this transactions fail, they neither redeem the money nor credit the supposed person.
4. Affects the livelihood of rural dwellers: This brings about the suffering being meted out to people living in rural or non urbanized areas. Again, banks are not situated in most of this rural areas and, the only way to get cash or buy goods with cash is transporting oneself to the urban area.
QUESTION 2
A money market refers to the type of market where short-term debt obligations are traded between various financial institutions. It is where banks, businesses and other financial institutions can find short-term loans and other types of financial instruments.
The nexus between naira redesign and money market equilibrium is that before the introduction of the new naira, there was enough money in circulation, but, when the new naira was introduced, it wasn’t enough to meet up the needs of people hence, in the demand and supply of money market equilibrium curve, it’ll cause a left shift of the quantity of money supply and again, causes a hike in interest rate thereby making people to borrow less or reach their hands to their money in the banks.
QUESTION 3
Of course, the new policy would promote equilibrium in the money market because since equilibrium in the money market occurs when money demand equals the money supply. There will always be an equilibrium whether the money supply or demand either increases or decreases. If money supply increases, there will be a right shift of the money supply curve which makes people to borrow more money at lower interest rate but, if the money supply curve decreases, it will cause the money supply curve to shift left, causing people to borrow less due to hike in interest rate.
Name: Chibueze Manna Chioma
Reg No: 2019/244094
Department: Eco major
Course: Intermediate to Macro I; Eco 303
Date: March, 2023.
CBN Naira notes redesign policy
On the 26th of October, 2022, the Central Bank of Nigeria received the approval of President Muhammadu Buhari to redesign the N200, N500, and N1000 Nigerian banknotes. The general practice across the globe is that a central bank should normally redesign its currency within 5-8 years as a currency and liquidity management function that has important ramification for the effectiveness of monetary policy. It is clear that for over 19 years, the CBN has not been able to undertake this important The implementation of this policy has caused a lot of controversies in the country; it both has seeet and bitter sides to it and will be seen below as the listed merits and demerits of this initiative.
1.Merits and Demerits of this policy initiative by the CBN
MERITS
• Preventing and combating counterfeiting: To prevent Naira notes counterfeiting, this policy will help to remove about 80% of Naira currency outside of commercial banks, and also to mitigate the inflation rate at has essentially driven Nigeria into recession.
• Managing and reducing the amount of money in circulation: This policy has helped to reduce excess of money supply in circulation, reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices. It will go a long way in ensuring that a lot of naira notes circulating outside the banks are crowded in, by increasing the deposits in the commercial banks, it means the banks will have more money to lend which may reduce interest rates, capital flight and crowd in more investments prospects.
• Reducing inflation: The policy in itself is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation
• Minimize the influence of money on the country’s electoral process: This works by discouraging vote-buying and inducing of electoral officers. The new policy may make vote-buying for the 2023 elections more difficult due to the reduced availability of cash.
• Availability of Loans: Loans will become easier and interest rates may come down. As banks will have more money so more loans will be given out which will increase the money supply in the market and it will create inflation.
DEMERITS
• The huge cost of redesigning: The redesigning of naira will impose huge cost on the economy with the Federal Government already struggling with a huge debt deficit and may likely have to borrow more money from external sources to completely fund the redesigning of the naira currency. This would increase the pressure on the economy. There is a high cost of redesigning the naira, the logistics and printing. This would increase budget deficit, and lead to a high debt rate.
• Illegal activities: The implementation of the policy might exacerbate money laundering and corruption, increase in general public apathy for coin utilization, and inflationary pressures due to ill-informed expectations and cost-push factors, making locally produced tradable goods less competitive, enhanced smuggling, and increased unemployment and crime rates.
• Effect on rural community: This policy has a great toll on rural communities, small-scaled businesses especially those who day-to-day cash transactions, poor Nigerians due to its timing and short transition period.with small-scale businesses heavily reliant on day-to-day cash transactions due to unavailability of banks situated around their areas finding hard to deposit the old Naira notes.
• Fall in level of consumption: The fall in the amount of money in circulation as a result of redesigning the currency following the current economic condition in Nigeria would have a negative impact on the economy as the level of consumption would fall leading to a production decline and eventually, unemployment would rise since a larger percent of the Nigerian population are self- employed and require money (cash-based economy) to run their day-to-day busines
• Rise in price level: As a result of hoarding of money by politicians, they might try converting the naira notes to property since they cannot risk getting caught by the authorities depositing the notes at the bank. They would rather purchase luxury goods like cars, gold, make FOREX transactions that could inflate the economy.
2. Naira redesign policy to equilibrium in the money market?
• My view is that the redesign policy does not cause equilibrium in the money market or rather has a negative impact in the money market.
Currency redesigning by the CBN is a means to reduce excess of money supply in circulation and reinforced more monetary policy effectiveness in curbing inflationary pressure and enhanced the exchange rate policy of the CBN. But there’s a limitation to the policy.
The economic implication of this policies despite the assurance of the CBN governor that the policies will not cause inflation and that excess of money supply in circulation will be reduced. As more currency notes are being introduced in the economy, Currency in Circulation also rises, thereby causing the Narrow Money Supply to escalate. This will promote expected inflation within the economy on one hand and positioning the Nigeria currency as worthless and without real economic value thus promoting movement in the supply and demand for dollars by making people now believes that the dollar is stronger. Also due to possible reluctance to hold coins, most traders are likely to charge higher prices and consequently cause inflation.
Emesih Amaramsinachi Catherine
2019/241318
Eco major
Eco 303
The merits and demerits of the CBN redesign initiative policy in the nation.
The following merits is noted below;
1. Reducing and regulating the excess supply of money in circulation.
2. Reducing inflation in the country
3. Reducing illegal activities sponsored by money liquidity eg productivity of counterfeit money, kidnapping, etc
4. Helps to digitally synthesize people to the importance and use of online banking
5. Helps in increase in interest rates as liquidity reduces
The following are the demerits of this policy;
1. This policy is less favorable to the poor due to the fact that they cannot afford the rates to acquiring money
2. Crowding of banks, disruption and uproar in the country in trying to deposit or withdraw money
3. Corruption and Hoarding of money by banks to favour themselves
4. Discontinuation of small businesses involved in supplying of cash eg POS business, retail stores, etc
2. Will this new policy promote equilibrium in the money market?
I will say yes for the reason below;
Currency redesigning by the CBN is a means to reduce excess of money supply in circulation and reinforced more monetary policy effectiveness in curbing inflationary pressure and enhanced the exchange rate policy of the CBN.
Nwabuebo Success Ekene
2019/248711
300 level
Macro economics
The merits and demerits of the CBN redesign initiative policy in the nation.
The following merits is noted below;
1. Reducing and regulating the excess supply of money in circulation.
2. Reducing inflation in the country
3. Reducing illegal activities sponsored by money liquidity eg productivity of counterfeit money, kidnapping, etc
4. Helps to digitally synthesize people to the importance and use of online banking
5. Helps in increase in interest rates as liquidity reduces
The following are the demerits of this policy;
1. This policy is less favorable to the poor due to the fact that they cannot afford the rates to acquiring money
2. Crowding of banks, disruption and uproar in the country in trying to deposit or withdraw money
3. Corruption and Hoarding of money by banks to favour themselves
4. Discontinuation of small businesses involved in supplying of cash eg POS business, retail stores, etc
2. Will this new policy promote equilibrium in the money market?
I will say yes for the reason below;
Currency redesigning by the CBN is a means to reduce excess of money supply in circulation and reinforced more monetary policy effectiveness in curbing inflationary pressure and enhanced the exchange rate policy of the CBN.
Name: Okafor Chike Charles
Reg No: 2021/241351
Email: okaforchike2005@gmail.com
Question One.
1. The class interval using sturge rule:
Sturge rule formula= k= 1 + 3.322 logN
Where N= Total number of observations.
K= 1 + 3.322 log33
K= 1 + 3.322(1.5185)
K= 1 + 5.0445
K= 6.0445
K= 6~
Class interval= Range/1 + 3.322 logN
Range=Highest value – Lowest value
Range= 28 – 17 = 11
Class interval= 11/ 1+3.322log33
= 11/6
=1.83
= 2~
Class Interval Mid-point F. C.F. R.F. R.C.F
17 – 18 17.5 5 5 15.15 15.15
19 – 20 19.5 6 11 18.18 33.33
21 – 22 21.5 8 19 24.24 57.57
23 – 24 23.5 7 26 21.21 78.78
25 – 26 25.5 4 30 12.12 90.90
27 – 28 27.5 3 33 9.09 100
Total=
33
Question Two.
1. Sample: A sample is a subset of fraction of the population selected as a representative of the population for study. It is also defined as a part of fraction of the population selected from the population in order to study it and use the result obtained from it to make generalization about the population from where it is drawn.
2. Population: Population is a set of existing units (usually people objects or events). Population can also be defined as the totality of all the observations of a particular variable having similar characteristics that a researcher or investigator has chosen for study at a particular point or period of time.
3. Continuous Variable: A continuous variable is one for which, within the limits the variable ranges, any value is possible. Continuous variable can take any value between a certain set of real numbers. The value given to an observation for a continuous variable can include values as small as the instrument of measurement allows.
4. Discrete Variable: Discrete variables or data are also known as categorical variables.They are variables or data that exist only as whole numbers and are not divisible. A discrete variable can take an finite number of numerical values, categories or codes.
5. Statistics: The word ‘Statistic’ refers to numerical facts such as the number of events occurring in time or the number of people living in a particular area. It also involves the study of ways of collecting analysing and interpreting numerical facts or numerical data. Statistic is broadly divided into two main branches which are; descriptive and inferential statistic. Descriptive statistics studies a body of numerical information (data) without using the results obtained to make inference or generalization about the population from where they are drawn. It involves the use of charts; diagrams etc to study a set of data. While inferential statistics study a body statistical data with the intent of using the result obtained to make generalization or inference about the population where they are gotten. It is the science of using sample results to make generalization about the population data.
6. Data: Data are raw facts, sets of numbers, figures or symbols obtained from enumerations or measurements. Data are unprocessed information often in the form of facts of figure obtained from surveys or experiments, used as a basis to making calculation or drawing conclusions. They could be in form of numbers, texts, images, symbols, and sounds, in form that is suitable for processing and storage.
Okechi Chinweoke Maria
2019/250252
Economics Major
MERITS
If anything, there have been early successes of the CBN intervention – the monetary policy committee (MPC) of the central bank recently affirmed that the various policy interventions of the bank had led to a reduction in inflation after months of an uptick in the headline index.
Also, the cashless policy has led to a reduction in banditry and kidnappings, which were rampant in the recent past. Ordinarily, when CBN releases currency into circulation, it is meant to be used and after effluxion of time, it returns to the CBN thereby keeping the volume of currency in circulation under the firm control of the CBN. It should also be noted that the notes in private homes and outside the banking system are not available for economic activities and thus may affect the economy attaining its potential growth.”
In essence, the currency redesign policy has helped to mop up monies outside the banking system that had often contributed to rising inflation and currency speculation, which had resulted in foreign exchange challenges in recent times.
Another important merit of the new redesigned currency is to strengthen the performance of key macroeconomic parameters and equally combat social improprieties.
Also, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth.
DEMERITS
Rapid demonetizations can generate significant short-term costs, with small-scale businesses, and poor and vulnerable households, potentially being particularly affected due to being liquidity-constrained and heavily reliant on day-to-day cash transactions.
Some other demerits are:
1. Shortage of funds.
2. Economic instability.
3. Poor standard of living.
4. Unemployment.
5 Reduction in the rate of productivity
2. Firstly, I will like to state what we mean by money market equilibrium; it’s a situation where the money supplied equals the money demanded.
At the moment, this new policy hasn’t promoted the money market equilibrium because the monetary institutions haven’t been able to equally supply enough money to the public, thereby causing a shortage of money in the economy.
Most times, effectively implemented currency redesign causes a fall in money supply and this usually lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy.
ANYANWU FAVOUR EBUBECHUKWU
REG NO :2029/245648
ECO 303: INTRODUCTION TO MACROECONOMICS
ASSIGNMENT
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to discuss and analyse the merits and demerits of this policy initiative adopted by the CBN. Secondly, what is the nexus between Naira redesign money market equilibrium? Will this new policy promote equilibrium in the money market? Discuss this comprehensively,
The introduction of redesigned 200, 500 and 1,000 naira notes by the Central Bank of Nigeria (CBN) has both merits and demerits. On the one hand, the redesign is aimed at enhancing the security features of the currency and reducing the risk of counterfeiting, which is a major problem in Nigeria. This will increase confidence in the currency and help to maintain its value.
On the other hand, the rollout of the new currency notes has been problematic, with many Nigerians struggling to access them from banks and ATM cash points. This is due to a combination of factors, including insufficient supply, poor distribution channels, and inadequate communication about the availability of the new notes. As a result, the redesign initiative has caused inconvenience and frustration for many Nigerians, particularly those in rural areas and those with limited access to banking services.
Regarding the nexus between Naira redesign and money market equilibrium, the introduction of the new notes can potentially promote equilibrium in the money market by increasing the availability of cash and reducing the risk of counterfeiting. However, this will depend on the effective implementation of the policy, including adequate supply and distribution of the new notes, and effective communication to the public about their availability.
In addition, the redesign of the currency notes could also have implications for inflation and monetary policy. If the supply of new notes is not carefully managed, it could lead to an increase in money supply and inflation, which would be detrimental to the economy. Therefore, it is important for the CBN to carefully monitor the impact of the redesign on the money market and take appropriate measures to maintain stability.
In conclusion, while the redesign of Nigeria’s currency notes has the potential to enhance security and promote equilibrium in the money market, it is important for the CBN to address the challenges in the rollout of the new notes and ensure effective implementation of the policy. Additionally, the CBN must carefully monitor the impact of the redesign on the economy and take appropriate measures to maintain stability.
The introduction of the new naira note has done more harm than good on evolving real monetary policies of the economy. Although it has demerits but its initiative is front for monetary development of the country
Merits:
1. Reduces the amount of hoarded money: money that was supposed to be in circulation amounting to # 3.23 trillion of which #500 billion was within the banking system and #2.73 trillion in people’s home.
Redesign of the new naira note has drastically reduced hoarding of money, hence enhancing free flow of m2-money for transaction and bank deposits
2. Reduces bribery and theft: due to the redesign policy, bribery involving money(cash)has drastically reduced and citizens tend to see the worth of working hard to get cash for transaction, also cases of theft and other social vices has been limited.
3. Reducing inflation: one merit of the new naira policy is the reduction in the prices of goods and services in real market; hence regulating of prices of goods and services through contractionary monetary policy.
Demerits:
1. SME’s negative effect: many small and micro enterprises that deals with cash at hand transaction lost their stance in the trade circle due to shortage of cash for their patronage. Hence, most businesses were forced to shutdown or look for alternate source of cash transaction to stay up in business.
2. Negative impact on economic activities: particularly, those has affected the rural dwellers, most of whom work for daily wages and directly from their earned wage. Due to the redesign policy, rural dwellers find it hard to meet up with economic activities of purchasing essential commodity for consumption, hence causing hardship since they can only afford to purchase in small quantity using cash-at-hand
The nexus between money market equilibrium and naira policy is achieved when the level of money in circulation in the economy dropped to equate the level of bank reserves. Hence, cash at hand (money in circulation) tends to equate cash in bank for equilibrium to occur in the money market. Due to that effect, valuation of money in the financial market tends to increase at geometric order due to an increase in the demand for money leading to a decrease in inflation and higher interest rate
*1* Discuss and analyze the merits of the policy of naira redesign by CBN
Generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties. Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth.
The macroeconomic impacts of currency redesign are multidimensional and could seem uncertain especially at this early stage when its inconvenience is widespread.
By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behavior. It could encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
In addition, the short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.
In the long-term, the policy improves the sophistication of tax collection and would no doubt reduce tax evasion and tax avoidance. As experiences from other jurisdictions have shown, effective currency redesign can support regulatory reform, increased legislative reach and coordinated fiscal and structural policies.
In summary, the general benefits of a currency redesign include:
Reduction of Broad Money Supply: Effectively implemented currency redesign large causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
Lowering Inflation: the policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
Collapse of Illegal Economy Activities: People who have earned money through illegal ways would be afraid to declare the money as they may be prosecuted by the Income tax department on the legitimacy of their income.
Easy Loans: Loans will become easier and interest rates may come down. As banks will have more money so more loans will be given out which will increase the money supply in the market and it will create inflation.
Before concluding this remark, let me state and sadly too, that we have observed some incidences of widespread hoarding and predatory activities of some vendors. We appeal to those involved in these nefarious activities to please desist from such practices. This is because , these actions if left unchecked could derail the achievement the objectives of the naira redesign policy.
*2* Discuss and analyze the demerits of the policy of naira redesign by CBN
The first issue that came to the fore following the policy announcement was the disclaimer presented by the Minister of Finance that the ministry is unaware of the policy and just heard about it on radio and television like other Nigerians. The CBN was quick to issue a statement in the direction of its independence and the fact that it had the approval of Mr. President. This discourse acknowledges the independence of the CBN but affirms that government is one, and effective economic governance requires a concert of independent ministries, departments and agencies of government collaborating to achieve results. There must be a convergence of fiscal, monetary, trade and other policies for economic growth and development to be achieved. Even though the dry letters of the law required just the consent of the President, the magnitude of this policy requires that it should have been discussed at the Federal Executive Council, not just for approval but for fine tuning and ensuring that ministries, departments and agencies of government buy into it and play their own role for its success.
It is imperative to recall the justifications for the policy. According to the CBN, 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. The first specific reason is the significant hoarding of banknotes by members of the public, with statistics showing that over 85 per cent of currency in circulation is outside the vaults of commercial banks. CBN states that N2.73tn out of the N3.23tn currency in circulation is outside the vaults of commercial banks across the country. It states that the currency in circulation has more than doubled since 2015; rising from N1.46tn in December 2015 to N3.23tn in September 2022.The second specific reason is the worsening shortage of clean and fit banknotes, with an attendant negative perception of the CBN, and increased risk to financial stability. The third is the increasing ease and risk of counterfeiting, evidenced by several security reports.
The fact that the currency in circulation has more than doubled between 2015 to date is the handiwork of the CBN and not that of the public. 85 per cent of the currency in circulation being outside the banking system is a troubling development. But it shows that the financial inclusion policy of the CBN and the banking system has, to a great extent, failed. It is estimated that about 45 per cent of adults in Nigeria do not have a bank account, and according to the World Bank, Nigeria has 4.5 bank branches per 100,000 people compared with an average of 10 per 100,000 globally.
*3* What is the nexus between naira redesign and money market equilibrium in the money market?
Money market equilibrium occurs at the interest rate at which the quantity of money demanded equals the quantity of money supplied. All other things unchanged, a shift in money demand or supply will lead to a change in the equilibrium interest rate and therefore to changes in the level of real GDP and the price level.
The nexus between naira redesign and the market equilibrium in the money market is to stabilize the quantity of money flow in the country
*4* Will this new policy promote equilibrium in the money market discuss
Yes, because it will bring back some of the currency back in circulation and it will help in monitoring business transaction
NAME: MOETEKE EBELE LOUISA
REG NO: 2019/244608
COURSE: ECO 303
EMAIL: moetekeebele@gmail.com
1. On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to discuss and analyse the merits and demerits of this policy initiative adopted by the CBN. Secondly, what is the nexus between Naira redesign money market equilibrium? Will this new policy promote equilibrium in the money market? Discuss this comprehensively.
MERITS OF THIS POLICY INITIATIVE
It is explained that the new notes will bring “hoarded currency” into the banking system, thereby making monetary policy more effective. Also further explained that there was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks. As of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks, describing the development as unacceptable as this has the potential to harm monetary policy actions, further leading to higher inflation and currency speculation, thereby exposing vulnerable Nigerians to further economic hardship.
If anything, there have been early successes of the CBN intervention as the monetary policy committee (MPC) of the central bank recently affirmed that the various policy interventions of the bank had led to a reduction in inflation after months of an uptick in the headline index.
Also, the cashless policy has led to a reduction in banditry and kidnappings which were rampant in the recent past.
Specifically, it is noted that the move to redesign the currency was aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
DEMERITS OF THIS POLICY INITIATIVE
While periodic currency redesigns are normal internationally and the naira does appear to be due for it since naira notes have been redesigned for two decades, the timing of and short transition period for this demonetization may have negative impacts on economic activity, in particular for the poorest households.
International experience suggests that rapid demonetizations can generate significant short-term costs, with small-scale businesses, and poor and vulnerable households, potentially being particularly affected due to being liquidity-constrained and heavily reliant on day-to-day cash transactions.
At present, households and firms already face elevated financial pressures from prolonged, high inflation, recently compounded by external food and fuel price shocks, and the severe floods, and phasing out existing naira notes over a short time period may add to their challenges.
There is hardly any week without complaints in the banking hall. You will see people shouting with regard to transfer failures. Have we put enough structure to take care of some of these things? The answer is, we are yet to, we are making progress, yes, but we should give enough room and time for some of these things to play out rather than short-circuit the system.
Worsening shortage of clean and fit banknotes, with attendant negative perception of the CBN and increased risk to financial stability; Increasing ease and risk of counterfeiting, evidenced by several security reports.
THE NEXUS BETWEEN NAIRA REDESIGN MONEY MARKET EQUILIBRUM
The nexus between Naira redesign money market equilibrium is that the redesign aims to address the macroeconomic imbalances that Nigeria has experienced due to the instability of the currency. By redesigning the money market equilibrium, the Central Bank of Nigeria (CBN) seeks to increase liquidity, reduce volatility, and create a more stable currency environment. The new money market equilibrium should also provide a more reliable source of funding for businesses and other institutions, helping to stimulate economic growth. It is the reality that Ghana’s economic policies, regulations and interventions have a direct impact on the Nigerian economy due to their interconnected financial markets. As both countries strive to maintain a stable exchange rate between the Naira and the Cedi, the markets in both countries will be impacted by the actions of the other. As such, the redesign of the Naira can have a direct impact on the money market equilibrium in both countries.
WILL THIS NEW POLICY PROMOTE EQUILIBRUM IN THE MONEY MARKET?
It is not clear how this new policy would promote equilibrium in the money market. It is possible that the new policy would lead to a higher demand for cash, potentially leading to higher interest rates and increased borrowing costs. Alternatively, it is possible that the new policy would lead to a higher supply of cash, potentially leading to lower interest rates and decreased borrowing costs. It is also possible that the new policy would have no measurable impact on the supply or demand for cash, which would lead to no change in the interest rates or borrowing costs. However, cashless policies can help to promote economic equilibrium by reducing transaction costs and increasing access to financial services. Additionally, these policies can help to reduce the costs of money laundering, tax evasion, and other illegal activities by making the financial system more transparent.
Name: Uche Miracle Chiamaka
Reg no: 2019/241948
Department: Economics
Introduction:
On October 26, 2022, the Central Bank of Nigeria (CBN) announced the introduction of newly redesigned 200, 500, and 1,000 naira notes into Nigeria’s financial system. The aim was to make the currency more secure and to reflect Nigeria’s rich cultural heritage. However, since the introduction of the new notes, Nigerians have been struggling to access them from banks and ATMs. In this article, we will discuss and analyze the merits and demerits of this policy initiative adopted by the CBN. We will also examine the nexus between the Naira redesign and money market equilibrium and whether this new policy will promote equilibrium in the money market.
Merits and Demerits of the Redesigned Naira Notes:
Merits:
Enhanced Security: The newly designed naira notes come with improved security features that make them more difficult to counterfeit. These security features include a new watermark, security thread, and improved paper quality.
Cultural Identity: The new notes reflect Nigeria’s rich cultural heritage and showcase the country’s diverse cultural symbols and landmarks.
Improved Durability: The new notes are made from polymer material, making them more durable than the old paper notes. This would help to reduce the cost of printing new notes and reduce the circulation of torn and worn-out notes.
Demerits:
Difficulty in Accessing the New Notes: Since the unveiling of the new notes, Nigerians have been finding it difficult to access them from banks and ATMs. This has led to long queues in banking halls and frustration among customers.
Cost of Implementation: The cost of implementing the new currency redesign initiative is high. The CBN has to print new notes, distribute them across the country, and retrain bank staff on how to handle the new notes.
Resistance to Change: Some Nigerians have expressed their dissatisfaction with the new notes, saying that they prefer the old notes. This has led to resistance to the new policy initiative.
The Nexus between Naira Redesign and Money Market Equilibrium:
The introduction of the newly redesigned naira notes has the potential to promote equilibrium in the money market. Equilibrium in the money market is achieved when the demand for money is equal to the supply of money. The redesign of the naira notes can affect the money market equilibrium in the following ways:
Improved Confidence in the Naira: The redesign of the naira notes can help to improve confidence in the Nigerian currency, making it more attractive to investors. This can lead to an increase in the demand for the naira, leading to an increase in its value.
Reduction in Counterfeiting: The improved security features of the new notes can help to reduce counterfeiting, making the currency more credible and reducing the likelihood of inflation caused by an oversupply of fake notes.
Improved Efficiency: The use of polymer material in printing the new notes can reduce the cost of printing new notes and reduce the circulation of worn-out notes. This can improve the efficiency of the money market and reduce the cost of doing business in Nigeria.
Conclusion:
The introduction of newly redesigned 200, 500, and 1,000 naira notes into Nigeria’s financial system has both merits and demerits. While the enhanced security features, improved durability, and cultural identity are positive, the difficulty in accessing the new notes, the cost of implementation, and the resistance to change are negative. However, the introduction of the new notes has the potential to promote equilibrium in the money market by improving confidence in the naira, reducing counterfeiting, and improving efficiency. The CBN should work to address the challenges faced by Nigerians in accessing the new notes and educate the public on the benefits of the new currency redesign initiative.
Nwankwo Faith Obiageli
Economic…..2019/244721
ANSWERS
:The merits: central bank recently affirmed that the various policy interventions of the bank had led to a reduction in inflation after months of an uptick in the headline index.
– it led to a reduction in banditry and kidnapping which were rampant in recent past
– It aimed to checking the increasing ease and risk of current counterfeit evidenced by several security report, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
-CBN policy will aid in accelerating the monetary policy objectives and will positively enhance the monetary and fiscal space as well as improve the profitability of the banking sector.
-The new CBN policy will certainly aid in accelerating the monetary policy objectives, whilst also tackling the insecurity challenges and encouraging financial inclusion.
-The policy could address the current exchange rate gaps. “The policy will also be a good step in strengthening the value of the naira. At this rate, if this is played right and it is sustained, we may see a scenario where the naira/dollar rate comes down and the naira can strengthen a little bit against the dollar when there is not much money flowing after the dollar.”
– The naira redesign and implementation of the cashless policy would plug fiscal leakages, boost government revenues, and aid the economic empowerment of vulnerable Nigerians as well as benefit the country as a whole.
:Demerits: As of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks, describing the development as unacceptable as this has the potential to harm monetary policy actions, further leading to higher inflation and currency speculation, thereby exposing vulnerable Nigerians to further economic hardship.
-Reduction of Broad Money Supply: Effectively implemented currency redesign large causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
-The new policy would negatively affect small businesses especially those who day-to-day cash transactions. “While periodic currency redesigns are normal internationally and the naira does appear to be due for it since naira notes have been redesigned for two decades, the timing of and short transition period for this demonetization may have negative impacts on economic activity, in particular for the poorest households.
:According to the central bank governor, the main objectives of the cashless policy and currency redesign were to make monetary policy decisions more effective, deepen financial inclusion in the country, curb terror financing and banditry, and discourage vote-buying by politicians and money laundering, among others. Politicians were stocking money for election activities, according to the CBN governor. the naira redesign policy is expected to curb the inflation in the market as less cash holding reduces currency outside banks and retard money circulation, stressing that the accompanying decline in the money supply would slow the pace of inflation.We should note that, money plays a crucial role in a country’s economy. It determines such things as the general price levels, aggregate national income, production and productivity, labour and capital employment levels, exchange rates. and the balance of payments. policy are basically to control inflation, maintain a healthy balance of payment position in order to safeguard the external value of national currency and promote adequate and sustainable level of economic growth and development. These goals are achieved by controlling money supply in order to enhance price stability (low and stable inflation) and economic growth.
: The CBN monitors the use of scarce foreign exchange resources to ensure that foreign exchange disbursements and utilization are in line with economic priorities and within the annual foreign exchange budget in order to ensure available balance of payments position as well as the stability of the Naira.The effectiveness of any central bank in executing its functions hinges crucially on its ability to promote monetary stability. Price stability is indispensable for money to perform its role of medium exchange, store of value, standard of deferred payments and unit of account. Attainment of monetary stability rests on a central bank’s ability to evolve effective monetary policy and to implement it effectively. Since June 30, 1993 when the CBN adopted the market-based mechanism for the conduct of monetary policy, Open Market Operations (OMO) has constituted the primary tool of monetary management supported by reserve requirements and discount window operations for enhanced effectiveness in liquidity management. Specifically, liquidity management by the Central Bank of Nigeria involves the routine control of the level of liquidity in the system in order to maintain monetary stability. Periodically, the CBN determines target growth rates of money supply, which are compatible with overall policy goals. It also seeks to align commercial and merchant banking activities with the overall target. The CBN through its surveillance activities over banks and non-bank financial institutions seeks to promote a sound and efficient financial system in Nigeria
MERITS OF THE POLICY ADOPTED BY CBN
1) to control inflation,all money in circulation will be brought into the banking system,thereby making use of monetary policy instrument like federal reserve to regulate the quantity of money in the economy.
2)to catch looters of the national treasury, people will be forced to reveal their stolen money:eg was at orba,nsukka.ghana must go filled with the old 1000 naire note was seen in the middle of the road and some parts of orba.
3) to help the federal government reduce counterfeit notes.
DEMERITS
1) it affected people who run small busines, especially those who need cash to pay for their day to day goods bought eg people who sell foodstuffs, vegetables in most of the rural areas.
2) inconveniences for the people,the scarcity of the new notes has made citizens spend hours in queues at banks and ATMs to access new naira note.
3)the electronic failure rate became much more as everyone is trying to get on this platforms.
4)the POS agents who had access to the new money either by buying from bank officials hiked their charges times two of what they charge, eg withdrawing 10k will cost me 3k so sad.
2) changes in money supply leads to changes in the interest rate.the naire redesign made money supply small which will increase interest rate and a shift of the money supply curve to the left.this will stifle competition between banks and overall amount of money being held in banks.thus interest rate will increase and lending will be disencouraged.
3) this new policy won’t promote equilibrium in the money market because the interest rate at which the quantity of real money demanded is not equal to the quantity of money supplied.
1,merits
A, some politicians who usually loot away cash will find it difficult to do so this time around because the new notes are not out to everyone’s reach
B, introducing a new change of currency will help the country’s currency not to depreciate as fast as possible in the foreign market
C,it also helps to boost exports, shrink trade deficits and reduce the cost of interest payments on its outstanding government debts
D,the policy will positively enhance the monetary and fiscal space as well as improve the profitability of the banking sector.
1B, DEMERITS
A,citizens all over the country are in hardship as the new redesigned cash is scarce and nowhere to be seen even in banks
B, protests, destruction
In the midst of the uncertainties, many Nigerians have taken to the streets on major cities to protest the hardship caused by the policy.
In parts of southern Nigeria, many protesters were said to have sustained injuries and some were arrested for vandalising bank properties.
C, it has also slowed transactions in the international and domestic markets all over the country as people can’t pay for goods and services already rendered to them
2, what is the nexus between naira redesign Money market equilibrium?
During the recent global financial crisis and the recession, unorthodox monetary policy interventions helped salvage the economy where conventional practices have failed.
Recently, the central bank’s efforts at curtailing rising inflation had proved nearly fruitless amidst growing food and commodity prices.
In the same vein, attempts to stabilise the naira against the US dollar had been difficult partly due to speculative activities and other challenges.
However, the recent engagement between the CBN governor and the diplomatic community exposes the primary intent of the bank’s cashless and naira redesign programmes
If anything, it showed the benefits of the cashless policy, whose implementation began in 2012; and that the currency redesign programme was initially underestimated.
Emefiele’s interaction with the diplomatic community was particularly critical to shed more light on the policies and disabuse their minds of wrong perceptions following some antagonism by some political class members.
According to the central bank governor, the main objectives of the cashless policy and currency redesign were to make monetary policy decisions more effective, deepen financial inclusion in the country, curb terror financing and banditry, and discourage vote-buying by politicians and money laundering, among others. Politicians were stocking money for election activities, according to the CBN governor.
According to Emefiele, the naira redesign policy is expected to curb the inflation in the market as less cash holding reduces currency outside banks and retard money circulation, stressing that the accompanying decline in the money supply would slow the pace of inflation.
3,will this new policy promote equilibrium in the money market, discuss this comprehensively?
Recently, the Central Bank of Nigeria (CBN) issued a statement that it has concluded plans to redesign the Naira. The CBN Governor cited money hoarding, inflation, and counterfeiting as major reasons for its unusual decision. The CBN claims that about N2.73 trillion of the N3.23 trillion currency in circulation in Nigeria, is outside the bank vaults. This is about 85% of the total money in circulation. Also, the Naira is not as secured as it ought to be, as it is easier to counterfeit theN500 and N1000 denominations.
It is agreed that redesigning currencies could curb counterfeiting, especially where the existing design is very worn and its security can be easily bypassed. It is also a fact that, redesigning and printing of new currencies will cost billions of Naira of public funds. CBN should show through credible statistics, the percentage of counterfeit to each Naira, to warrant this design and printing of new Naira. The CBN in its most recent report, 2020 Currency Report, states that a total of 67,265 pieces of counterfeit notes with a nominal value of N56.83 million was confiscated in 2020, indicating a 20.80% decrease in volume and 12.18% decrease in value, compared with 84,934 pieces valued at N64.71 million in 2019. The Global standard for number of counterfeits per million, is 100. The ratio of counterfeit notes to volume of banknotes in circulation was 13 pieces per million in 2020, compared to 20 pieces per million banknotes in 2019. This shows that the issue of currency counterfeit, is not as rampant as to warrant a currency redesign.
CBN believes that the redesign of the currency will help deepen our drive to entrench a cashless economy, as it will be complemented by increased minting of our eNaira. This will 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 minimised, 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.
James Emejo writes that the naira redesign and implementation of the cashless policy would plug fiscal leakages, boost government revenues, and aid the economic empowerment of vulnerable Nigerians as well as benefit the country as a whole.
NAME: EZEH PATTICK EZENWA
DEPT: ECONOMICS MAJOR
REG-NO: 2019/244053
EMAIL: Saintpatrickforchrist@gmail.com
THE MERITS
THE REDUCTION OF BROAD MONEY SUPPLY: Effectively implemented currency redesign at large causes a fall in money supply. This increase will eventually lead to reduction of value of money in circulation and a deceleration or fall of the velocity of money in the economy thereby leading to less pressures on domestic prices.
IT REDUCES OR LOWERS INFLATION: it is expected that the policy would cause deflation in the market because less cash holding reduces the currency outside banks and slows money circulation. The accompanying decline in money supply will thus slow pace of inflation.
THE FALL OF ILLEGAL ECONOMY ACTIVITIES: People who have earned money through illegal ways would be afraid to declare the money or deposit them at banks as they may be prosecuted by the Income tax department on the legitimacy of their income thereby exposing their crimes.
IT LEADS TO EASY LOANS: Loans will become easier and interest rates may come down. This is due to banks having more money, therefore more loans will be given out which will increase the money supply in the market and likewise create inflation.
DEMERITS
IMPACT ON THE PUBLIC
Given the short time frame of the policy, there was a trigger and rush by the public to banks to deposit their old naira notes it is feared that the rural dwellers who live far from where banking services are available would experience difficulty and hardship dumping the old notes, as well as, initially, obtaining the new ones. Eventually when the new notes started circulating, the circulation process was low making it difficult for the public to acquire the new notes which they need to run their day to day business. Furthermore, transfers and transactions became difficult because there were experiences of slow online transfers, even the ATMs were not dispensing money and POS vendors increased their transaction charge to more than 100% of the initial charge making it difficult for the public to acquire money from these vendors, their only option was the Banks, there will be lots of long queues in the banking hall and It creates lots of inconveniences for the people. The unbanked and the elderly may not be able to cope since we don’t have banks in most local government area. The burden or impact borne on the public was more than they can bear.
IMPACT ON THE ECONOMY
It is going to impose lots of costs on the economy and it is not going to be cheap. Imagine the logistics of such printing when we are borrowing to fund our budget deficits. How would we scale through the 774 local governments when some of them don’t even have banking halls? The redesign policy was a good move, by considering the time and situation of the economy it may pose more harm than good especially on the populace.
WILL THIS NEW POLICY PROMOTE EQUILIBRIUM IN THE MONEY MARKET?
We have learnt that equilibrium in the money market occurs individuals alter their portfolios of assets and in the process alter the interest rate which will reflect their money supply and demand.
The policy can affect equilibrium because the policy will lead to more money being in the bank and less money held as cash. This will eventually lead to an increase in money demand and decrease in money supply. Due to the scarcity of money, individuals will have to adjust their portfolios to be able to meet with the current situation. when the money supply is low and real money demanded is high there will be more money held in banks than at hand and we know that when more money is held in banks than at hand it will lead to high interest rate on those money deposits at bank and enable the banks or bond issuers to reduce the interest on loans in order to respond to the excess supply of money, thereby leading to equilibrium in the money market.
But with the new policy on naira redesign, affected the equilibrium because instead of the normal factors that would lead to more money at banks, the redesign caused an abnormal deposit of money on banks with no change or effect by interest rate and due to lack of money supply it lead to the scarcity of money in the economy, people have money in banks not because of increase in interest rate on those money but due to the compulsory imposition by the CBN to avoid their money been an illegal tender, and for the public to access these money and have them as cash as they wish to if proving difficult. There by affect the equilibrium of money market NOT positively but negatively because interest rate in this sense is fixed but due to the policy, people are depositing their money in banks against their wish and can’t access their money as cash.
Name;Chidiebere James. C
Reg no:2019/249120
Dep; COMBINED SOCIAL SCIENCES (Economics/Sociology)
Introduction of redesigned currency notes is a policy initiative that can have both merits and demerits. In the case of Nigeria’s CBN introducing redesigned 200, 500, and 1,000 naira notes, the following are the possible merits and demerits of this policy initiative.
Merits:
1). Improved Security Features: The introduction of redesigned currency notes often comes with improved security features, making it difficult for counterfeiters to replicate. In the case of Nigeria, the new notes come with enhanced security features such as machine-readable security threads, raised print, and other features that make it difficult to counterfeit.
2). Improved Aesthetics: The new notes are designed to be visually appealing and attractive, making them easier to identify and distinguish from other notes. This will make it easier for people, especially those who are visually impaired, to identify and use them.
3). Reduction in Money Laundering: The introduction of new currency notes can also help to reduce money laundering and other criminal activities, as it becomes more challenging to launder large sums of money using new notes that are more easily traceable.
Demerits:
1). Shortage and Accessibility: The introduction of new currency notes can lead to a temporary shortage of cash in the economy, especially if there is not enough supply of the new notes to meet demand. This can lead to long queues at banks and ATMs, making it difficult for people to access their money.
2). Cost Implications: The introduction of new currency notes often comes with a high cost implication, including the cost of printing, distributing, and exchanging the old notes for the new ones. This cost can be significant, and it may take some time before the benefits of the new notes are felt.
3). Disruption to Business: The introduction of new currency notes can disrupt business activities, especially for those who rely heavily on cash transactions. The time taken to exchange old notes for new ones can result in significant disruptions to business activities, leading to lost revenue.
Conclusion:
In conclusion, the introduction of redesigned currency notes is a policy initiative that can have both positive and negative impacts. While the new notes come with improved security features and aesthetics, it can also lead to temporary shortages of cash, high cost implications, and disruptions to business activities. Therefore, the CBN needs to take proactive measures to ensure that the new notes are made readily available to the public and that there is a smooth transition from the old notes to the new
ones.
Redesigned Naira Notes Impact
The introduction of redesigned 200, 500, and 1,000 naira notes by Nigeria’s Central Bank could potentially affect the market equilibrium in the country’s financial system.
Market equilibrium is the point where the demand for a product or service is equal to the supply of that product or service, resulting in a stable price. In the case of currency, the market equilibrium is the point where the demand for money is equal to the supply of money, resulting in a stable exchange rate.
The introduction of new banknotes can affect the market equilibrium in several ways. Firstly, if the new notes are perceived as being of higher quality or more secure than the old notes, then demand for the new notes may increase, which could cause the exchange rate of the Naira to appreciate. On the other hand, if the new notes are perceived as less valuable than the old notes, then demand for the new notes may decrease, which could cause the exchange rate of the Naira to depreciate.
Additionally, the introduction of new notes can also affect the supply of money in the economy. If the Central Bank decides to print more money to replace the old notes with the new notes, then the supply of money in the economy will increase, which could potentially lead to inflation if the increase in the money supply is not matched by an increase in the supply of goods and services.
Overall, the introduction of redesigned Naira notes could potentially have an impact on the market equilibrium in Nigeria’s financial system, depending on how the public perceives the new notes and the actions taken by the Central Bank to manage the money supply.
It is possible that the introduction of redesigned Naira notes could promote equilibrium in the money market in Nigeria.
If the new notes are perceived as being more secure and of higher quality than the old notes, it could increase demand for the new notes, which could increase the value of the Naira and promote stability in the exchange rate. Additionally, if the Central Bank manages the money supply carefully and ensures that the increase in the money supply due to the introduction of the new notes is matched by an increase in the supply of goods and services in the economy, it could help prevent inflation and promote stability in the economy.
However, it is important to note that the introduction of new notes alone may not be sufficient to promote equilibrium in the money market. Other factors such as government policies, international trade, and economic growth will also have an impact on the stability of the economy and the exchange rate of the Naira.
In summary, the introduction of redesigned Naira notes could potentially promote equilibrium in the money market in Nigeria, but it is not a guaranteed outcome and will depend on several factors beyond just the introduction of new notes.
Merits and Demerits of the introduction of redesigned 200, 500 & 1000 naira notes into the country’s financial system, by the CBN.
Merits:
• Reduction of Broad Money Supply: Effectively implemented currency redesign large causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
• Lowering Inflation: the policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
• Collapse of Illegal Economy Activities: People who have earned money through illegal ways would be afraid to declare the money as they may be prosecuted by the Income tax department on the legitimacy of their income.
• Easy Loans: Loans will become easier and interest rates may come down. As banks will have more money so more loans will be given out which will increase the money supply in the market and it will create inflation.
Demerits:
• Hoarding – Some members of the public are hoarding the new notes thereby restricting their flow through the economy. Cash kept at home will not circulate but may fuel a perception of scarcity which leads to higher demand for the currency, signalling to those who don’t have an urgent or immediate cash need to store cash.
• Panic Queues – The CBN has also noticed long queues at some bank ATMs and banking halls. Whilst some of these withdrawal requests are genuine and DMBs continue to load the ATMs only with new notes, monitoring suggests that there appears to be some opportunistic and panic queuing.
• Damage of Bank Branches & Assault of Bank Personnel – At some branches, customers have become aggressive, verbally and/or physically abusing bank staff. They have also damaged or destroyed bank property, premises, and assets.
• Incidences of Economic Opportunism – Some Nigerians are capitalising on the transition to charge exorbitant fees or demand cash payment on the false pretext that POSs don’t work, especially at petrol stations. These selfish actions for personal monetary gain is creating hardship for Nigerians and may come at the expense of fellow citizens lives and livelihood.
The Nexus between naira redesign and money market equilibrium
While announcing the naira notes redesigns, over 80 percent of currency in circulation was outside the vaults of commercial banks even as the issue “takes money supply out of the hands of the central bank”.
However, with the development, the CBN can circulate the new notes, controlling the level of liquidity in the system for monetary stability.
When the CBN regains control over money supply, Emefiele said the soaring inflation, which reached 20.77 percent in September 2022, might be controlled.
“As at September 2022, we had N3.23 trillion in circulation. Out of that, N2.73 is outside the vaults of the banks,” the CBN governor said.
“First of all, what we want to do is mop up all these N3.32 trillion back into the CBN so we can take control of money supply again, and begin to see how this will help rein in inflation. No doubt, we believe it has positive impact on inflation.”
Although, in the medium to long term (three to six months), depending on the timing, the naira notes redesign will ultimately enhance monetary policy.
Effectively implemented currency redesign largely causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressure on domestic prices.
The central bank said that the redesign would help bring down inflation, control the amount of money in circulation.
So the new policy of redesigned naira notes will promote equilibrium in the money market.
Name: Eligwedire Victor Ozioma
Reg No.: 2019/249216
Introduction:
On October 26, 2022, the Central Bank of Nigeria (CBN) announced the introduction of redesigned 200, 500, and 1,000 naira notes into the country’s financial system. This policy initiative was aimed at improving the security features of the banknotes and making it more difficult for counterfeiters to produce fake notes. However, since the notes were unveiled, Nigerians across different parts of the country have been struggling to access them from banks and ATM cash points. In this response, we will discuss and analyze the merits and demerits of this policy initiative adopted by the CBN. We will also examine the nexus between Naira redesign and money market equilibrium, and whether this new policy will promote equilibrium in the money market.
Merits of Redesigned Naira Notes:
The introduction of redesigned Naira notes has several potential benefits for the Nigerian economy. Firstly, the enhanced security features of the new banknotes will help to reduce counterfeiting and protect the value of the currency. This will instill confidence in the financial system and encourage more investment in the country. Secondly, the new notes have improved durability, which will reduce the need for frequent replacement and lower the cost of printing and circulating currency. Finally, the new notes will help to modernize the currency system and bring it in line with global standards.
Demerits of Redesigned Naira Notes:
Despite the potential benefits of the redesigned Naira notes, there are also some drawbacks to this policy initiative. Firstly, the implementation of the new notes has been fraught with difficulties, as Nigerians have struggled to access them from banks and ATM cash points. This has led to frustration and complaints from the public, and may damage public confidence in the financial system. Secondly, the cost of producing and distributing the new notes may be high, which could result in increased costs for the CBN and commercial banks. Finally, the introduction of new notes may lead to confusion and disruption in the financial system, particularly for those who are not familiar with the new designs.
Nexus Between Naira Redesign and Money Market Equilibrium:
The redesign of Naira notes can potentially affect the money market equilibrium in several ways. Firstly, if the new notes are successful in reducing counterfeiting and improving confidence in the currency, this could lead to an increase in demand for Naira, which would lead to an appreciation of the currency. Conversely, if the introduction of new notes leads to confusion and uncertainty in the financial system, this could lead to a decrease in demand for Naira and a depreciation of the currency. Secondly, the cost of producing and distributing the new notes could lead to an increase in the money supply, which could lead to inflation if not managed carefully by the CBN. Finally, the introduction of new notes may lead to changes in the demand for other forms of money, such as digital currencies, which could have knock-on effects on the broader economy.
Will the New Policy Promote Equilibrium in the Money Market?
It is too early to determine whether the introduction of redesigned Naira notes will promote equilibrium in the money market. The success of this policy initiative will depend on several factors, including the public’s acceptance of the new notes, the effectiveness of the enhanced security features, and the CBN’s ability to manage the money supply effectively. If these factors are managed well, the introduction of new notes could help to stabilize the Naira and promote equilibrium in the money market. However, if these factors are not managed well, the new policy could lead to disruptions and instability in the financial system.
In addition to the potential benefits and drawbacks of the redesigned Naira notes and their impact on the money market equilibrium, there are several other factors to consider.
One issue that has arisen since the introduction of the new notes is the challenge of distributing them to all parts of the country. As the notes are not yet widely available, this has created an uneven distribution of money, which could potentially lead to inflation in some areas where the supply of new notes is limited. To address this challenge, the CBN has announced plans to increase the supply of the new notes and ensure that they are distributed more widely.
Another important consideration is the impact of the redesigned Naira notes on the informal economy. Many Nigerians rely on cash transactions, particularly in rural areas, and may not be able to access the new notes if they are not widely available. This could lead to a situation where the informal economy continues to use old banknotes, creating a two-tier currency system that could potentially lead to inflation and currency devaluation.
Furthermore, the introduction of the new notes may also impact the international value of the Naira. If the enhanced security features of the new notes are successful in reducing counterfeiting, this could lead to an increase in demand for Naira from international investors. This could potentially lead to an increase in the value of the currency, which could have a positive impact on the Nigerian economy.
In conclusion, the introduction of redesigned Naira notes has both potential benefits and drawbacks for the Nigerian economy. The success of this policy initiative will depend on a variety of factors, including the public’s acceptance of the new notes, the CBN’s ability to distribute them widely, and their impact on the money market equilibrium. Ultimately, if managed carefully, the introduction of new notes could help to stabilize the Naira and promote equilibrium in the money market, leading to a more stable and prosperous Nigerian economy.
Name:- Onwukwe Joseph Nwachukwu
Reg Number:- 2019/243773
Dept:- Economics Major.
(A). MERITS OF THE NAIRA REDESIGN:-
1. Printing of the old currency being too expensive:- The printing of the old naira notes which are the 200 naira, 500 naira and 1000 naira notes are said to be very expensive. If we look at the old 200 naira note, 500 naira note, and 1000 naira note in details, we can see that they all have multiple colour design on them; This means that to print each of these notes, different colors are required thereby making the printing of this note expensive. Therefore, the redesigning of this currencies has cut down the expenses on acquiring different colors to print the naira notes. As we can see on the new naira notes, that they all have single colors used in printing them; For instance, the 200 naira note was printed with only red color, the 500 naira note with green color and 1000 naira note with blue color.
2. the redesigned denominations of N200, N500 and N1,000 naira will help curb money laundering(the illegal process of making large amounts of money generated by criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source).
3. The redesigned naira notes will also solve the challenge of prolonged savings in piggy banks, cash hoarding(the practice of holding or piling up of assets, namely money, goods, or securities) and incidences of fake currencies.
4. The newly designed naira notes will stop, if not permanently but temporarily “illicit”Funding(the movement of money across borders that is illegal in its source (e.g. corruption, smuggling), its transfer (e.g. tax evasion), or its use (e.g. terrorist financing) and will also stop embezzlement on the part of political leaders who steal public funds.
(B). DEMERITS OF THE NAIRA REDESIGN:-
1. The redesign of the naira notes and the quick implementation of it’s use and the immediate abandonment of the old currency is a problem to the rural dwellers who live far from where banking services are available, they will experience hardship dumping the old notes and also collecting the new notes.
2. Due to the inefficiency in the distribution and allocation of the new naira note by the CBN, it’s has led to decrease in trading of goods and services in the domestic market within the country and this will have a negative effect on the country’s (Nigeria) GDP.
3. The redesign and printing of the new naira notes will cause a deficit on Nigeria budget and this will lead the country to borrowing funds from external sources to balance the excess expenditure on the budget of the country.
4. As a result of the new naira notes being hard to get, there has been lots of queueing in lots of banking locations; This has created lots of inconveniences for the citizens of Nigeria because people leave their daily businesses and spend the whole day at the bank just to get the new notes and by the end of the day, they might end up not getting the new notes thereby meaning, they will come the following day to queue again.
(C). WHAT IS THE NEXUS BETWEEN NAIRA REDESIGN AND MONEY MARKET EQUILIBRIUM?:-
* The naira redesign is a policy used by CBN (Central Bank of Nigeria) to curb and control the excess supply of money in the money market.
* The Money Market Equilibrium shows or explains how the decision of money suppliers (CBN) and the demand for money by the people ( controlled by interest rate) can arrive at equilibrium in the money market.
*The nexus or connection between the Naira Redesign and Money Market Equilibrium is:- While the CBN is reducing or decreasing the supply of money in the money market by redesigning the naira notes; The Money Market Equilibrium is explaining how the responds of the people (Demand for money) to the policy of CBN will bring the money market to equilibrium (Where the people are content with their portfolio of monetary and unmonetary assets).
(D). WILL THIS NEW POLICY PROMOTE EQUILIBRIUM IN THE MONEY MARKET?:-
* Due to the difficulty in accessing the newly designed notes, we can see that the Demand for money is greater than the Supply of money in the money market, which means that the Interest Rate is below the equilibrium point in the Liquidity Preference Model.
This brings us back to the question; Will this new policy promote equilibrium in the money market?
Well, my answer is yes.
The CBN has seen that the supply of money in the money market of Nigerian economy is high and have decided to do something about it. If we consider the Liquidity Preference theory propounded by John Maynard Keynes; We see that when there is decrease in the supply of money, there will be an increase in Interest Rate. By fixing a limit on the amount of money people are allowed to withdraw from the ATM machine (#5000 at maximum) by CBN, We can say that the CBN is decreasing the supply of money thereby making the demand for money to rise. For equilibrium to occur in the money market, there has to be an increase in the Interest Rate by the banks and bond issuers, since demand is driven by Interest Rate, people will be compelled to leave their money in the banks due to the increase in Interest Rate. This will cause or promote equilibrium in the money market
Name: Okeke Michael Obinna
Dept: Combined social science(Eco/pol)
Reg no: 2019/250019
Course: Eco 303
1. The recent naira redesign policy initiative adopted by the CBN has been met with challenges since the introduction of the new notes. Here are the merits and demerits of the policy initiative:
Merits:
1. Improved security features: The new notes have improved security features, such as a window thread with holographic effects, that make it more difficult to counterfeit. This will enhance the security of the currency and prevent fraud.
2. Enhanced durability: The new notes are made of polymer material, which is more durable than paper money. This will increase the lifespan of the currency, reduce the need for frequent replacement, and save the government money on printing costs.
3. Modernized design: The new notes have a modernized design that reflects Nigeria’s culture and heritage. This gives the currency a new identity and a sense of pride to Nigerians.
4. Improved international perception: The new notes can improve the international perception of Nigeria’s currency, projecting the country as a modern and technologically advanced nation that is committed to fighting corruption and economic crimes.
Demerits:
1. Poor distribution: The new notes have not been evenly distributed across the country, leading to a shortage of cash in some areas. This has made it difficult for people to access the new currency from banks and ATM cash points.
2. Inadequate public education: The CBN has not adequately educated the public on the new notes’ features and how to differentiate between the old and new notes. This has resulted in confusion and suspicion among the public, making it difficult for some people to transact business using the new currency.
3. Resistance to change: Some Nigerians may be resistant to the new notes, preferring the old currency, which they are more familiar with. This can make it challenging for the CBN to phase out the old currency and fully implement the new currency.
4. Cost: The cost of redesigning and printing the new notes is high, and the CBN may have to spend a considerable amount of money on the project that could have been used for other developmental projects.
In conclusion, the naira redesign policy initiative adopted by the CBN has both merits and demerits. While the improved security features, enhanced durability, modernized design, and improved international perception are commendable, the challenges of poor distribution, inadequate public education, resistance to change, and cost need to be addressed. The CBN should ensure that the new currency is adequately distributed, and the public is educated on the features of the new notes. This will ensure a smooth transition to the new currency and increase public confidence in the financial system.
2. The nexus between naira redesign money and market equilibrium is primarily through the impact that the introduction of the new currency has on the market forces of demand and supply.
Firstly, the redesign of the naira can affect the demand and supply of money in the economy. When the CBN introduces a new currency, people tend to hold on to their old currency, causing a temporary decrease in the demand for the new currency. This can lead to a reduction in the supply of the new currency, which can cause an increase in its value or exchange rate.
Secondly, the distribution of the new currency can impact the market equilibrium. If the new currency is not evenly distributed across the country, it can lead to a shortage of cash in some areas, leading to a decrease in demand for goods and services in those regions. This can cause a temporary shift in the market equilibrium, with prices and output adjusting to the new market conditions.
Thirdly, the introduction of the new currency can impact inflation and interest rates, which can, in turn, affect the market equilibrium. If the new currency reduces inflation and interest rates, it can lead to an increase in demand for goods and services, leading to an upward shift in the market equilibrium.
Finally, the introduction of the new currency can impact the confidence of investors and consumers in the economy, leading to changes in their behavior that can affect the market equilibrium. If investors and consumers are confident in the new currency, they may invest more in the economy, leading to an increase in output and prices, which can cause an upward shift in the market equilibrium.
3. The new naira redesign policy by the CBN can promote equilibrium in the money market if it is implemented effectively. However, whether or not it will promote equilibrium in the money market depends on various factors, including the distribution of the new currency, its impact on inflation and interest rates, and its effect on investor and consumer confidence.
If the distribution of the new currency is well-planned and executed, it can ensure that there is an adequate supply of cash in the economy, reducing the risk of a shortage of cash in some areas that can lead to market instability. This can help to promote equilibrium in the money market.
The impact of the new currency on inflation and interest rates is also critical. If the new currency reduces inflation and interest rates, it can lead to an increase in demand for goods and services, leading to an upward shift in the market equilibrium. However, if it has the opposite effect, it can lead to market instability and disequilibrium.
Finally, the new currency can impact investor and consumer confidence in the economy. If investors and consumers are confident in the new currency, they may invest more in the economy, leading to an increase in output and prices, which can cause an upward shift in the market equilibrium.
In conclusion, whether or not the new naira redesign policy by the CBN will promote equilibrium in the money market depends on several factors, including the distribution of the new currency, its impact on inflation and interest rates, and its effect on investor and consumer confidence. If the CBN can manage these factors effectively, it can promote equilibrium in the money market and contribute to overall economic stability.
NAME: MADUKA CHINAZOM DIVINE-GIFT
REG NO: 2019/245033
DEPARTMENT: ECONOMICS/PHILOSOPHY
INTRODUCTION
Speaking strictly legally, all policies and programmes of government should be tailored towards the provisions of section 14 (2) (b) of the Constitution of the Federal Republic of Nigeria, 1999 which state that the security and welfare of the people shall be the primary purpose of government. In other words, all plans and actions of government at any point in time should be targeted towards achieving the common good.
In this regard, once the programmes and policies of any administration lead to hardship, suffering, sorrows, calamity and general disenchantment, then that administration is not fulfilling the purpose of pursuing the security and welfare of the people that it was elected to serve. Bringing this to the redesign of the Naira, let me speak from my own personal experiences.
On my way from Lagos back to school. The starting point was the transport company, they always prefer cash payment. The cashier pleaded with me that they needed the cash to give the driver to be able to buy fuel along the journey to keep his bus on the road. On getting to Ore, I tried patronizing a public restaurant, I was told point blank that the management of the restaurant has outlawed online transfers and their POS was out of service too.
You cannot blame the management really. Imagine a situation whereby the customer has been served good food only to realize much later that the sum of money transferred was not delivered due to network issues from the banks.
No matter the rationale for the cashless policy by the Central Bank of Nigeria or indeed the federal government, once the end result is agony, suffering and even death in certain cases, it should be reconsidered. The proper implementation under section 20 of the Central Bank Act is for the old and new notes to run concurrently until such a time that there will be a seamless alignment. To mop up the old notes in the absence of the new notes is disaster waiting to happen.
The cashless policy should be supported with requisite infrastructure to make it work. Whilst it is crystal clear that it will take the banks months to fully grapple with the policy, the end result is that customers would have to bear the hardship for that period, which is totally unfair, unacceptable and unwarranted. Banking transaction is more of a contract between the bank and the customer and there can be no justification for the breach of that contract whereby the bank is unable to honour the request of the customer for the use and enjoyment of his/her money already deposited with the bank.
The proper thing for the federal government to do in this instance is to allow the old notes to continue to circulate whilst the banks develop and upgrade their infrastructure to cope with the deluge of online transactions between customers. At the same time, the CBN would have enough time to print the new notes for mass distribution to the banks and ultimately to their customers.
Merits of Naira redesign
1. Many people have suggested that the new measure could restore confidence in the local currency as the bulk of the naira note stacked away by politicians, criminals and other illegal operators would be returned to the banking system, helping the CBN to monitor the currency in the economy.
2. It is also expected that with the new notes, most tattered naira notes currency pushed into the system would be eliminated while counterfeiters would be refrained for a couple of years in carrying out their illicit business.
3. Another angle to look at the measure is the positive effect it will have on crime in the country. Currently, Nigeria is having challenges with terrorists and banditry across the country with money being paid to kidnappers as ransom running to billions of naira. It is expected that the ransom money that is yet to find its way into the banking system would be brought out to be exchanged for the newly redesigned notes. This could also lead to crime detection and probable prosecution as many who could not explain the sources of their wealth may find themselves in trouble with law enforcement agencies.
4. Increases financial inclusion in the country by reducing the number of the unbanked population.
5. To increase the amount of naira in a bank vault, that is for proper management of the Nigerian currency.
6. Redesigning the naira is another strategic way the apex bank monitors the financial system and Nigeria’s economy
Demerits of Naira redesign
1. Affects small scale businesses especially those that do day to day cash transactions. According to the world bank, the redesigning of currency is normal internationally but the Naira is not due for redesign owing to the fact that Naira has been redesigned for two decades and the timing, short transition of this demonetization will have negative impact on economic activities.
2. The challenge of logistics of such printing due to the fact that Nigeria is borrowing to fund the budget deficits. In addition, to navigate the 774 local governments when some of them don’t have banking halls present in the local governments.
3. Checkmating electioneering spending: CBN dream of checkmating electioneering spending by redesigning the naira notes could only be achieved if the new notes were limited in supply, a task he considered would be quite tall for the apex bank.
4. Overcrowding in the banking halls: There will be lots of long queues in the banking hall. It’s going to create lots of inconveniences for the people. The unbanked and the elderly may not be able to cope since we don’t have banks in most local government areas.
5. The huge cost of printing the new note which costs trillions of naira, the economy will be least prepared for with the current state of the economy, the state of the nation’s foreign reserves since the currency is printed abroad and the implications for the balance sheet of the central bank.
Money market basically refers to a section of the financial market where financial instruments with high liquidity and short-term maturities are traded. Money market has become a component of the financial market for buying and selling of securities of short-term maturities, of one year or less, such as treasury bills and commercial papers. The redesign of Naira will affect demand and supply of money in the sense that CBN wants to reduce the amount of money in circulation and advance the idea of cashless policy. The will help in detecting fraud, illegal money being transferred and deposited by politicians and also get rid of counterfeit money in circulation.
The release of the new notes is anticipated to increase the money supply, which could result in a drop in money market interest rates. As a result, borrowing costs will decline and credit demand will rise. The decline in interest rates will also make saving less appealing, which will increase consumption.
The economy could experience inflationary pressures, though, if the increase in the money supply is not accompanied by an increase in the demand for money. As a result, the value of the naira will decline and the cost of living will rise.
The CBN may need to implement monetary policies that will control the supply and demand for money in order to promote equilibrium in the money market. This might entail raising the minimum reserves needed by banks
Merits:
1. Reduces the amount of hoarded money: money that was supposed to be in circulation amounting to # 3.23 trillion of which #500 billion was within the banking system and #2.73 trillion in people’s home.
Redesign of the new naira note has drastically reduced hoarding of money, hence enhancing free flow of m2-moneynfor transaction and bank deposits
2. Reduces bribery and theft: due to the redesign policy, bribery involving money(cash)has drastically reduced and citizens tend to see the worth of working hard to get cash for transaction, also cases of theft and other social vices has been limited.
3. Reducing inflation: one merit of the new naira policy is the reduction in the prices of goods and services in real market; hence regulating of prices of goods and services through contractionary monetary policy.
Demerits:
1. SME’s negative effect: many small and micro enterprises that deals with cash at hand transaction lost their stance in the trade circle due to shortage of cash for their patronage. Hence, most businesses were forced to shutdown or look for alternate source of cash transaction to stay up in business.
2. Negative impact on economic activities: particularly, those has affected the rural dwellers, most of whom work for daily wages and directly from their earned wage. Due to the redesign policy, rural dwellers find it hard to met up with economic activities of purchasing essential commodity for consumption, hence causing hardship since they can only afford to purchase in small quantity using cash-at-hand
The redesign policy could potentially impact the money market equilibrium in several ways. For example, if the new Naira design includes enhanced security features that reduce counterfeiting, this could increase confidence in the currency and lead to an increase in demand for Naira. This increase in demand could result in an increase in the value of the Naira relative to other currencies, leading to a decrease in inflation and interest rates.
Conversely, if the redesign policy leads to a significant increase in the supply of Naira, this could lead to an oversupply of money in the economy, potentially leading to inflation and higher interest rates.
The introduction of the new naira note has done more harm than good on evolving real monetary policies of the economy. Although it has demerits but its initiative is front for monetary development of the country
Merits:
1. Reduces the amount of hoarded money: money that was supposed to be in circulation amounting to # 3.23 trillion of which #500 billion was within the banking system and #2.73 trillion in people’s home.
Redesign of the new naira note has drastically reduced hoarding of money, hence enhancing free flow of m2-moneynfor transaction and bank deposits
2. Reduces bribery and theft: due to the redesign policy, bribery involving money(cash)has drastically reduced and citizens tend to see the worth of working hard to get cash for transaction, also cases of theft and other social vices has been limited.
3. Reducing inflation: one merit of the new naira policy is the reduction in the prices of goods and services in real market; hence regulating of prices of goods and services through contractionary monetary policy.
Demerits:
1. Increased cost: The redesign of the Naira involves the printing of new currency notes and coins, which can be an expensive process. The increased cost can put pressure on the central bank to adjust its monetary policy to raise more revenue to fund the redesign process.
2. Inflationary pressures: The redesign of the Naira can increase the money supply, which can lead to inflationary pressures. To counter this, the central bank may have to adjust its monetary policy to reduce the money supply through measures such as increasing interest rates.
3. Negative impact on economic activities: particularly, those has affected the rural dwellers, most of whom work for daily wages and directly from their earned wage. Due to the redesign policy, rural dwellers find it hard to met up with economic activities of purchasing essential commodity for consumption, hence causing hardship since they can only afford to purchase in small quantity using cash-at-hand.
The nexus between money market equilibrium and naira policy is achieved when the level of money in circulation in the economy dropped to equate the level of bank reserves. Hence, cash at hand(money in circulation) tends to equate cash in bank for equilibrium to occur in the money market. Due to that effect, valuation of money in the financial market tends to increase at geometric order due to an increase in the demand for money leading to a decrease in inflation and higher interest rate
Monetary policy refers to the actions taken by a country’s central bank to regulate the supply of money and credit in the economy, with the goal of achieving certain economic objectives such as controlling inflation, stabilizing the exchange rate, and promoting economic growth.
NAME: IDAJOR, JOHN AYUOCHIEYI
DEPARTMENT: ECONOMICS (MAJOR)
REG. NUMBER: 2019.248707
EMAIL: idajorjohnmario@gmail.com
The onset of the news about the printing of new naira notes was so desiring by people due to the objectives following it, but on the contrary, things changed drastically from what the main objective was to something unbelievable which up till now Nigeria is still suffering it.
For want of time, I would if permitted say that, this change of naira notes has no advantage or merit anywhere.
(a) Merits of the new naira notes
Reduction of corruption: one of the objectives of redesigning of the Nigerian naira notes was to cube corruption in the financial system. Most Nigerian politicians are fund of embezzling money from the government and this has gotten to the climax, in regards to this, the CBN came up with the new naira notes so that those old notes may cease to be in use and this will cube the huge amount of money in the hands of politicians and others.
Boosting of government revenue: The coming of the new naira notes was aimed at boosting government revenue in all dimensions because with the new naira notes, the government would be able to checkmate and balance the money flow in the economy and to see how it would be well utilized in different sectors of the economy. This is said to be done when the government would with the new naira notes, reallocate them into areas that would fetch enough revenue for the country under the guidance of the federal government with a comprehensive account of how well the money is being utilized.
To serve as empowerment for Nigerians: The advent of the new naira notes was meant to serve as empowerment to all Nigerians since there would be a decease of the old naira notes, this would in a way serve as avenue for every Nigerian to have access to the new naira notes, with this, the would sem to be a redistribution of the currency between the poor and the rich if not equitably, then, closely related, also, this would make people to work more in order to get at high quantity the new naira notes.
NOTE: All the merits mentioned above are abstract, they were just there to fulfil all righteousness. For me, the new naira notes do not have merits.
Demerits of the new naira notes
Scarcity of money: The policy of introducing new naira notes in Nigeria has turned down the purpose for which it was meant to be. The policy became a means of taking money from the poor and leaving them with nothing. The new naira notes instead of being circulated is now being sold out to some set of people who can bribe bsnk managers such as politicians in order to use it for their selfish motives.
It affected the economy of the country: The policy that shows the introduction of new naira notes which turned out to hiding both the new and the old notes has led to decrease in the production and consumption level of the economy. Since there is little supply of money, the need to purchase more goods for consumption is lost likewise the acquisition of raw materials for production. With this going on in the country, the economy of the country is at stake.
Increase in poverty: The advent of the new naira notes left the whole nation with poverty because it has in a way managed to cease the supply of money in the country without the release of the new notes. This has left the people with an increased level of poverty which in contrast makes the poor to become poorer and the rich to get richer. This is shown as politicians get more of the currency from the bank paying a huge amount to bankers while those of the low class are left without money. This shows that the money was meant for a particular set of people in the country.
Increase in corruption: This policy brought about increase in the stealing of Nigerian money by politicians and corrupt leaders which for the moment has led to bad practices such as rigging of election results since the money was used by politicians to bribe INEC officials to gain positions which they are not qualify to occupy.
Extreme stress on the masses: The policy brought about stress on the masses whereby you see people piling up at the ATM machine to withdraw the new naira notes and most at times the ATM is empty and if in a given opportunity there seemed to be money, hence, the withdrawal at a very little and unsustainable amount. This has affect a whole lot of people in the nation that the cries of both the young and the old about the current situation in the country is now heard upon the housetops of foreign nations.
It is a form of stealing money from people: The outcry of Nigerians for help on the issue of money is high, this policy brought about stealing not from the rich but from the poor ones, this is why the cry of the people is becoming alarming. Since there is no supply of the new naira notes, it seems the country is operating a cashless system, hence, when and individual carryout a transaction on his or her account, the charges levied on the individual is almost close to or more than the transactioade. For instance, if I make a transfer for the purchase of two hundred naira bread, the charges from the bank cannbe one hundred and fifty naira. Even those at the Point Of Sale (POS) cannot save the masses when they are being consulted. Withdrawal of ten thousand naira takes the charge of five thousand naira, dividing the money equally, this has brought an embezzling spirit not only on our leaders but also on the poor masses learning to steal from the fellow poor ones.
(b). The nexus between the naira redesigned notes and the money market equilibrium
From the onset, the view of money market equilibrium is seen to occur at the interest rate level whereby the quantity of money demanded is equal to the quantity of money supplied or that is in circulation in the economy. This in an attempt tries to show people’s motives for holding money as a financial asset either in cash with them or as a demand deposit in the bank or as a bond which would yield interest to the people.
For an economy to grow and for people to get interest to the asset they hold, they have to be rational in thought, this can be in a way for the people, when there is high interest rate in keeping money as an asset in bond, people tend to withdraw their money from the bank and keep it as bond in order to get an interest from it, this means that the demand for holding of money in the country is low compared to interest rate, also, in a situation where the is high need of money in the country due to interest rate from it maybe for purchase of raw materials and for production and consumption in the country, then, demand for holding of money at hand is high in the economy due to interest rate gotten from it. Now the function of the government and the Central Bank is to checkmate and balance the supply and demand of money in the economy in order for the economy to move smoothly. When there is equal supply and equal demand of money in the economy, then, the economy is said to be in equilibrium with the money market. Thus, when there is equilibrium supply and demand for money, there is a well utilization of the supply of money. I’m a situation whereby there is need for money to be held as bond whereas the is surplus supply of money, then, there is disequilibrium, also, in a situation whereby there is need for money to be held by the people and also by the bank in order to carryout production and consumption in the economy, and whereas thre is little supply of money, this is also said to be a disequilibrium money market.
Haven looked at what money market equilibrium is all about, now comparing it with the situation on ground vis-a-vis the redesigned naira notes and the aftermath of what it has left behind we go this way.
Looking at the condition of the country now, we can deduce that people especially the poor and the work force of the country are highly in need or demand for the supply of money in the country because the money at hand with the people before the introduction of the new naira notes have all been ceased by the government and the Central Bank, leaving the people with nothing to hold unto, but on the contrary, we see the the demand deposit in the bank has been withheld from the people not even minding the high and clarion need for the money. Thus, instead of the economy growing in a speedy rate, it is decreasing because the urgent need for the supply of money has been withheld. Unlike holding the money as bond which should have generated interest for the people, all the money in at demand deposit which at the money is said to be in a fixed state or in a fixed account which has an infinity term of release. Looking at this critically, we can say that the economy is drastically suffering from a highly and negatively disequilibrium state of money supply in the economy, and at this level, there is no other option to be made since holding the money in bond is not there and the demand deposit has been withheld.
I’m summary, we can boldly say that, the nexus or the link between the redesigned naira notes and the money market equilibrium is negative which is adversely affecting the economy of Nigerian.
(c) Will this new policy promote equilibrium in the money market?
It is well to say that haven seen the effect of the policy and the outcome of it in the nation within a short period of its manifestion, it will not in anyway make way for an equilibrium money market. A point of reference to back up my statement can be traced to my local market here in cross river state, where an astonishing shock overwhelmed me to see that on the market day that formerly used to be filled with many buyers and sellers, behold, I was able to count the number of people who were able to come to the market for purchase of goods that day. The.market was scanty as never before, while there were few buyers and sellers due to lack of money.
This shows how drastic the economy is falling away because, people are willing to produce and sell goods but the purchasing power and capital has being withheld by the government, also people are willing to buy goods and consume from producers but their assets have being withheld by the government making it difficult to access.
In summary, this policy cannot bring about equilibrium in the money market unless the government of this country can look into it, making readjustment and following suite the adjustment made.
NAME: OJOMAH FAVOUR ONYEKACHUKWU
REG NUMBER: 2019/244245
DEPARTMENT: ECONOMICS
COURSE CODE: ECO 303 MACRO ECONOMICS.
On 26 October 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500, and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to discuss and analyse the merits and demerits of this policy initiative adopted by the CBN. Secondly, what is the nexus between Naira redesign money market equilibrium? Will this new policy promote equilibrium in the money market? Discuss this comprehensively.
ANSWER
The introduction of the redesigned 200, 500, and 1,000 naira notes by the Central Bank of Nigeria (CBN) has generated mixed reactions among Nigerians. While some have praised the initiative, others have expressed concerns over its implementation and impact. Here are some of the merits and demerits of this policy initiative:
Merits:
1. Improved Security Features: One of the main reasons behind the introduction of the new notes is to enhance their security features, making it harder for counterfeiters to replicate them. The redesigned notes come with additional security features, including enhanced graphics, raised print, and other features that are difficult to reproduce.
2. Improved Efficiency: The introduction of the new notes is expected to improve the efficiency of transactions and reduce the cost of printing and distributing currency in Nigeria. The new notes are expected to be more durable and last longer, thereby reducing the frequency of replacement.
3. Boost to Economic Growth: The introduction of the new notes could potentially boost economic growth in Nigeria. The new notes are expected to encourage more savings and reduce the risk of inflation. They could also increase the level of confidence in the Nigerian currency, which could attract more foreign investment into the country.
Demerits:
1. Poor Implementation: The CBN has been criticized for the poor implementation of the policy. Despite the announcement of the new notes, many Nigerians have been unable to access them from banks and ATMs, leading to frustration and complaints. This has led to a lack of confidence in the CBN and the government’s ability to manage the economy.
2. Increased Cost: The introduction of the new notes could potentially lead to increased costs for banks and other financial institutions. The cost of upgrading their systems and equipment to accommodate the new notes could be significant, which could ultimately lead to higher transaction fees for customers.
3. Potential for Corruption: The introduction of the new notes could potentially create opportunities for corruption and money laundering. The higher denominations could be used by corrupt officials to hide and transfer illicit funds, making it harder for law enforcement agencies to track and recover stolen assets.
In conclusion, while the introduction of the new notes has the potential to improve the security and efficiency of Nigeria’s financial system and boost economic growth, the poor implementation and potential for corruption could undermine these benefits. The CBN needs to address the challenges facing the implementation of this policy and ensure that it is fully transparent and accountable in its management of the country’s currency.
Secondly, what is the nexus between the Naira redesign money market equilibrium?
The redesign of the Nigerian naira and the money market equilibrium are interconnected through the impact of currency design on the demand and supply of money, and ultimately on the equilibrium interest rate.
Firstly, the redesign of the naira notes could affect the demand for money in the economy. If the new notes are seen as more secure and reliable, it could increase the demand for cash transactions, which could, in turn, increase the demand for money. This could lead to an upward shift in the demand for money curve.
Secondly, the redesign could also affect the supply of money in the economy. The CBN is responsible for issuing and controlling the supply of money, and the redesign of the naira notes could impact the level of the money supply. If the CBN prints more of the new notes to meet the demand for cash transactions, it could increase the money supply, leading to an outward shift in the money supply curve.
The impact of these changes in demand and supply of money could lead to changes in the equilibrium interest rate in the money market. For instance, an increase in the demand for money could lead to an increase in the equilibrium interest rate, while an increase in the money supply could lead to a decrease in the equilibrium interest rate.
Overall, the nexus between the redesign of the Nigerian naira and the money market equilibrium lies in the impact of currency design on the demand and supply of money, and ultimately on the equilibrium interest rate. The success of the redesign policy will depend on the ability of the CBN to manage the supply and demand of money in a way that promotes macroeconomic stability and fosters growth in the Nigerian economy.
Will this new policy promote equilibrium in the money market?
The introduction of redesigned 200, 500, and 1,000 naira notes by the Central Bank of Nigeria (CBN) has the potential to promote equilibrium in the money market, depending on how it is implemented and its impact on the demand and supply of money.
The money market is a financial market where short-term borrowing and lending of funds takes place. The equilibrium in the money market is achieved when the demand for money is equal to the supply of money at a particular interest rate. The demand for money is determined by the transactional, precautionary, and speculative motives for holding money, while the supply of money is controlled by the central bank.
Here are some ways that the new policy could promote equilibrium in the money market:
1. Improved Efficiency: The new notes are expected to be more durable and last longer, reducing the cost of printing and distributing currency in Nigeria. This could lead to a reduction in the cost of transactions and ultimately reduce the demand for money. The improved efficiency could also lead to an increase in the supply of money, as the CBN may be able to print and distribute the new notes more efficiently.
2. Increased Confidence in the Currency: The introduction of the new notes could increase the level of confidence in the Nigerian currency, which could encourage more people to hold and use the naira. This could lead to an increase in the demand for money, which could increase the equilibrium interest rate in the money market.
3. Reduced Risk of Inflation: The new notes could reduce the risk of inflation by encouraging more savings. The higher denominations of the new notes could encourage people to save more money, leading to a reduction in the demand for money and a decrease in the equilibrium interest rate.
However, there are also potential challenges that could hinder the promotion of equilibrium in the money market. For instance, if the CBN prints more of the new notes than necessary, it could lead to an oversupply of money, leading to a decrease in the equilibrium interest rate. Additionally, poor implementation of the policy could lead to frustration ana d lack of confidence in the Nigerian financial system, which could negatively affect the demand and supply of money.
In conclusion, the introduction of the new notes has the potential to promote equilibrium in the money market, depending on how it is implemented and its impact on the demand and supply of money. The CBN needs to carefully manage the money supply and demand to achieve macroeconomic stability and foster growth in the Nigerian economy.
Some merits and demerits of the policy of the new Naira note enacted by the Central bank of nigeria are:
Merits:
1. Enhanced Security: One of the primary reasons to redesign currency is to enhance security features. Advanced security features like watermark, holograms, and other features can be added to prevent counterfeiting and forgery.
2. Improved Accessibility: Redesigning currency can improve accessibility for people with visual impairments. Large denomination numbers, raised printing, and different color schemes can make it easier for people with low vision to differentiate between different denominations.
3. Better Aesthetics: A redesign can be used to create a more attractive and modern look for the currency, which can make it more appealing to people and potentially increase national pride.
4. Reduced Costs: Redesigning currency can reduce the costs associated with printing, transporting, and processing currency. If the new design is more durable, it may also reduce the frequency of replacing worn-out notes.
Demerits:
1. Increased Cost: While a redesign can potentially reduce costs in the long run, the initial costs of redesigning and printing new currency can be significant. This includes costs associated with research, design, printing, and distribution.
2. Disruption to Business: Redesigning currency can disrupt the operations of businesses that rely heavily on cash transactions. For example, vending machines, ATMs, and cash registers may need to be reprogrammed or replaced to accept the new currency.
3. Public Resistance: Changing currency is a sensitive issue, and people may resist the change. They may feel attached to the current currency, and changing it may cause confusion, inconvenience, and even resentment.
4. Potential for Error: Redesigning currency can lead to errors, such as incorrect denominations or printing errors. These errors can cause confusion and mistrust in the new currency.
The nexus of currency redesign and money market equilibrium refers to the relationship between the redesign of currency and its impact on the equilibrium in the money market.
Currency redesign which is the changes in physical features or characteristics of a currency, such as the size, shape, color, and security features. These changes can affect the demand for and supply of the currency, which can, in turn, affect the equilibrium in the money market. The demand for money is primarily determined by the level of economic activity, interest rates, and the inflation rate. The supply of money, on the other hand, is determined by the actions of the central bank and the banking system. If a currency redesign increases the demand for the currency, the demand for money will increase, which can lead to an increase in the interest rate. Conversely, if the currency redesign decreases the demand for the currency, the demand for money will decrease, which can lead to a decrease in the interest rate.
Furthermore, a currency redesign can also affect the supply of money. For example, if a new currency design requires additional security features, it may increase the cost of producing the currency, which can decrease the supply of money.
In summary, currency redesign can affect the equilibrium in the money market by altering the demand for and supply of money. The magnitude and direction of these effects depend on the specific characteristics of the currency redesign and the underlying economic conditions.
The policy won’t promote equilibrium in the money market because of the lack of supply of the new currency. For equilibrium to be achieved, the demand for and supply of the new currency should be equal but since the policy of the use of the new Naira note the supply of the new Naira note has be very low and poor which has caused a lot of problem for its consumers.
Some merits and demerits of the policy of the new Naira note enacted by the Central bank of nigeria are:
Merits:
1. Enhanced Security: One of the primary reasons to redesign currency is to enhance security features. Advanced security features like watermark, holograms, and other features can be added to prevent counterfeiting and forgery.
2. Improved Accessibility: Redesigning currency can improve accessibility for people with visual impairments. Large denomination numbers, raised printing, and different color schemes can make it easier for people with low vision to differentiate between different denominations.
3. Better Aesthetics: A redesign can be used to create a more attractive and modern look for the currency, which can make it more appealing to people and potentially increase national pride.
4. Reduced Costs: Redesigning currency can reduce the costs associated with printing, transporting, and processing currency. If the new design is more durable, it may also reduce the frequency of replacing worn-out notes.
Demerits:
1. Increased Cost: While a redesign can potentially reduce costs in the long run, the initial costs of redesigning and printing new currency can be significant. This includes costs associated with research, design, printing, and distribution.
2. Disruption to Business: Redesigning currency can disrupt the operations of businesses that rely heavily on cash transactions. For example, vending machines, ATMs, and cash registers may need to be reprogrammed or replaced to accept the new currency.
3. Public Resistance: Changing currency is a sensitive issue, and people may resist the change. They may feel attached to the current currency, and changing it may cause confusion, inconvenience, and even resentment.
4. Potential for Error: Redesigning currency can lead to errors, such as incorrect denominations or printing errors. These errors can cause confusion and mistrust in the new currency.
The nexus of currency redesign and money market equilibrium refers to the relationship between the redesign of currency and its impact on the equilibrium in the money market.
Currency redesign which is the changes in physical features or characteristics of a currency, such as the size, shape, color, and security features. These changes can affect the demand for and supply of the currency, which can, in turn, affect the equilibrium in the money market. The demand for money is primarily determined by the level of economic activity, interest rates, and the inflation rate. The supply of money, on the other hand, is determined by the actions of the central bank and the banking system. If a currency redesign increases the demand for the currency, the demand for money will increase, which can lead to an increase in the interest rate. Conversely, if the currency redesign decreases the demand for the currency, the demand for money will decrease, which can lead to a decrease in the interest rate.
Furthermore, a currency redesign can also affect the supply of money. For example, if a new currency design requires additional security features, it may increase the cost of producing the currency, which can decrease the supply of money.
In summary, currency redesign can affect the equilibrium in the money market by altering the demand for and supply of money. The magnitude and direction of these effects depend on the specific characteristics of the currency redesign and the underlying economic conditions.
The policy won’t promote equilibrium in the money market because of the lack of supply of the new currency. For equilibrium to be achieved, the demand for and supply of the new currency should be equal but since the policy of the use of the new Naira note the supply of the new Naira note has be very low and poor which has caused a lot of problem for its consumers.
Name: Ugah Chikaodili Udodili
Reg. Number: 2019/243002
Department of Economics
1. Currency management is a key function of the Central Bank of Nigeria, as enshrined in Section 2(b) of the CBN Act 2007. Indeed, the integrity of a local legal tender, the efficiency of its supply as well as its efficacy in the conduct of monetary policy are some of the hallmarks of a great Central Bank.
Besides, the general practice across the globe is that a central bank should normally redesign its currency within 5-8 years. From the on-set of this currency redesign program, we made it clear that for over 19 years, the CBN has not been able to undertake this important currency and liquidity management function that has important ramification for the effectiveness of monetary policy. It is aimed to increase financial inclusion in the country by reducing the number of the unbanked population. , and then to support the efforts of our security agencies in combating banditry and ransom-taking in Nigeria.
Available data at the Central Bank of Nigeria showed that in 2015, Currency-in-Circulation was only N1.4trillion. As of October 2022, currency in circulation had risen to N3.23 trillion; out of which only N500 billion was within the Banking System and N2.7 trillion held permanently in people’s homes. Ordinarily, when CBN releases currency into circulation, it is meant to be used and after effluxion of time, it returns to the CBN thereby keeping the volume of currency in circulation under the firm control of the CBN. It should also be noted that the Notes in private homes and outside the banking system are not available for economic activities and thus may affect the economy attaining its potential growth.
So far and since the commencement of this program, they have collected about N2.1 trillion; leaving us with about N900 billion .
Benefits of A Currency Redesign Policy
Generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties. Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth.
The macroeconomic impacts of currency redesign are multidimensional and could seem uncertain especially at this early stage when its inconvenience is widespread.
By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behavior. It could encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
In addition, the short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.
In the long-term, the policy improves the sophistication of tax collection and would no doubt reduce tax evasion and tax avoidance. As experiences from other jurisdictions have shown, effective currency redesign can support regulatory reform, increased legislative reach and coordinated fiscal and structural policies.
In summary, the general benefits of a currency redesign include:
Reduction of Broad Money Supply: Effectively implemented currency redesign large causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
Lowering Inflation: the policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
Collapse of Illegal Economy Activities: People who have earned money through illegal ways would be afraid to declare the money as they may be prosecuted by the Income tax department on the legitimacy of their income.
Easy Loans: Loans will become easier and interest rates may come down. As banks will have more money so more loans will be given out which will increase the money supply in the market and it will create inflation.
Before concluding this remark, let me state and sadly too, that it has been observed of some incidences of widespread hoarding and predatory activities of some vendors.These actions if left unchecked could derail the achievement the objectives of the naira redesign policy.
a.Hoarding – Some members of the public are hoarding the new notes thereby restricting their flow through the economy. Cash kept at home will not circulate but may fuel a perception of scarcity which leads to higher demand for the currency, signalling to those who don’t have an urgent or immediate cash need to store cash.
Panic Queues – The CBN has also noticed long queues at some bank ATMs and banking halls. Whilst some of these withdrawal requests are genuine and DMBs continue to load the ATMs only with new notes.
Damage of Bank Branches & Assault of Bank Personnel – Some branches, customers have become aggressive, verbally and/or physically abusing bank staff. They have also damaged or destroyed bank property, premises, and assets.
Incidences of Economic Opportunism: Nigerians are capitalising on the transition to charge exorbitant fees or demand cash payment on the false pretext that POSs don’t work, especially at petrol stations. These selfish actions for personal monetary gain is creating hardship for Nigerians and may come at the expense of fellow citizens lives and livelihood.
2.The Policy will promote equilibrium only in the long run rather than the short run because of the sudden news about the money redesign, the country will be in a state of panic as the demand for money in cash will be more than the money supplied because the people will want cash in hand especially those who are not technological inclined like the old men and women unable to use the USSD code or bank app in their phone so once they received the new money, they tend to bring out an absurd amount and keep the money as a precautionary motive inorder not to go through the stress of the huge queue in banks. So the Nexus between naira redesign money market equilibrium is the quantity supplied if the quantity of money that’s supplied in a particular area is equal to the quantity of money that’s demanded in that area then it will help promote the economy both in the short run and long run.
NAME: Anyanwu Paschal Ositadinma
REG NO: 2019/244008
DEPARTMENT: Economics
EMAIL: Ositadinmapaschal0@gmail.com
The Central Bank of Nigeria (CBN) redesign policy of the naira notes despite with all the good reasons put in place for it’s production and circulation has caused enormous injuries on the economy. Let us begin from one of the major reasons of the redesign policy;
HOARDING OF MONEY BY THE PUBLIC.
85% of currency in circulation are outside the vaults of commercial banks. As at September 2022, data indicated that N2.73 trillion out of N3.23 trillion currency in circulation was outside the vaults of commercial banks. This is a very good reason for redesigning the naira, especially with the 2023 election forth coming, many politicians prepared themselves to buy vote of the citizens to win at all costs but this was going to put that to a stop but this is Nigeria, even with the limited amount of cash withdraw, forcing people to go cashless via electronic transfer of funds which will leave a trail of bank transactions which politicians will not like still, many candidates of the ruling parties (we know who) have unfettered access to the new banknotes. Bank officials may be the ones that will take advantage of this situation to make some cool cash you know, for themselves. Leaving the rest of the masses to suffer with the excuse that new mint is not available. I remember seeing fathers and mothers sleeping in front of bank gates just so they will be the first to be attended to the next day.
COUNTERFEITING OF THE OLD CURRENCY.
The CBN in its most recent report, 2020 Currency Report, states that a total of 67,265 pieces of counterfeit notes with a nominal value of N56.83 million was confiscated in 2020, indicating a 20.80% decrease in volume and 12.18% decrease in value, compared with 84,934 pieces valued at N64.71 million in 2019. The Global standard for number of counterfeits per million, is 100. The ratio of counterfeit notes to volume of banknotes in circulation was 13 pieces per million in 2020, compared to 20 pieces per million banknotes in 2019.
This is another reason for the redesign of the Nigerian bank notes, to stop this level of corruption which is cool but the so called new notes are not even safe. From latest records the new notes are much easier to counterfeit than the old ones.
COST.
With the idea that the cost of printing the old mint is expensive which is true, it costs N58,618.50 million to print banknotes in 2020, that is for an existing design, then imagine that of a new design. This policy has elicited serious debate amongst Economists, Lawyers, and other policy experts. Many of them hold the view that this policy change holds no significant economic benefits for the people, and is a distraction in the midst of serious economic crises buffeting. The Minister of Finance, appearing before the National Assembly, disowned the policy and slammed it as valueless in fiscal and monetary terms. But, the President has reaffirmed his approval of the policy and its benefits, as a tool to control inflation and fight corruption. The question is whether this policy is the right policy at this time, considering its costs and benefits. Naira has depreciated in exchange to Dollar for about N850 – 1$ or even more who knows.
OTHERS
The fact that the Naira bears an Arabic inscription has become a contentious issue, in view of Nigeria’s religious pluralism. The point is that Arabic is the language of Islam, and therefore, that inscription “advances… religion in its principal or primary effect” and therefore, fosters “an excessive entanglement with religion”. We all have heard rumors of how the Fulani wants to Islamize Nigeria. If this is truly one Nigeria, why the Arabic inscription? Why not make it three inscriptions since there are 3 major ethnic groups? Or at least English since that is the common tongue of the nation? In this case, a legal practitioner sued the CBN, the Federal Government, the Nigerian President and the Attorney- General of the Federation (AGF), praying the court to declare as unlawful the provisions of Section 53(1) of the Banks and other Financial Institutions Act (BOFIA), CAP B3, LFN, 2004, which absolves the Government and CBN of any legal action in connection to exercising their mandate of printing, issuing, supplying and circulating Naira notes bearing Arabic inscriptions as legal tender for a secular State that has English as its official language, and thereby, robbing the courts of jurisdiction to entertain such case. He wants the court to declare that by virtue of Section 6(6)(b) of the 1999 Constitution (as amended), the court has the jurisdiction to entertain the Plaintiff’s action for the interpretation of Sections 10 and 55 of the 1999 Constitution, as they relate to the powers of the Defendants to issue legal tender with Arabic inscriptions. The Plaintiff also wants the court to declare that the Constitution is supreme and a binding force on all the Defendants by virtue of Section 1(1).“Section 53(1) of the Banks and other Financial Institutions Act, CAP B3, LFN, which ousts the jurisdiction of the court to entertain this suit, is inconsistent with the provisions of Section 6(6)(b) of the 1999 Constitution (as amended), which gives the plaintiff right to access the court for the interpretation of the Constitution and therefore, by virtue of Section 1(3) and 315 (3) of the Constitution, null and void to the extent of the inconsistency”, He relied on the true letters and spirit of Section 55 of the Constitution, Nigeria’s official language is English, as well as Hausa, Igbo and Yoruba in special circumstances.”.
CBN currency redesign policy won’t maintain the equilibrium in the money market in the Nigerian economy. Because CBN policy main objective is to reduce the circulation of money in Nigeria. The money aggregate supply would drop causing disequilibrium in the money market ,because the supply of money would be less than the aggregate demand for money . Even if CBN reduce supply it won’t really effect the level of demand of money because of present of other variables effecting demand of money , the demand of money might even increase due to inflation causing disequilibrium in the money market in the long-run period .
1: The Merits Of Naira Redesigning Policy
????. It reduced the tendency for money Laundering:As a result of corruption,bad elements in the society and corrupt politicians hold up large amounts of money in their private homes,thereby making it difficult for the currency to circulate to the masses.
???? It helped the banks more especially the central bank to regain control of the money in circulation by reducing the amount of money outside the vaults of the banks.
???? It increased the Value of The Naira in the International Market: Before the Redesigning Policy,naira has a low value at the international market market as a result of the inflation and large chunks money outside the banks but then the Redesigning Policy worked on this to increase the value of Naira
DEMERITS
????. Increased Hardship On The People: As a result of the Redesigning Policy,the new Currency was not properly circulated in the country thereby making it hard for people to access Cash and also inturn made life hard for the people
???? It reduced the pace and level of Economic activities in the country: As a result of the low circulation of currencies , Economic activities in the country was a little bit grounded and also suffered setbacks
???? It Placed The Nation Into A State Of Unrest: As a result of the Frenzy To Access the New Naira Notes, Stampede and overcrowding occurred in the commercial bank including the commercial cities creating a state of unrest
???? A lot of Operational Pressure was placed on The Commercial Banks and The Financial System in General.
2 The Nexus Between The Redesigning Policy and The Money Market Equilibrium is a Positive relationship
???? The New Naira Redesigning might not promote money market equilibrium in the Short Run considering a whole lot of Economic Factors but in the Long Run,it will promote Money Market Equilibrium because some of those Economic Factors have become variable thus subject to Change.
A. The Merits Of The Naira Redesign
1. It aids and promotes a good monitoring of the currency in the economy. Naira Notes that were stored away by corrupt politicians, criminals and illegal operators would be returned back to the banks,hereby helping the Central Bank of Nigeria to monitor the circulation of the currency in the economy. It also helps in eliminating the most tattered and torn naira Notes that was pushed into the system.
2. It brought about a reduction in crime rate. Since the redesign of the naira Notes, challenges with terrorists and banditry across the states of the nation reduced drastically. The money normally paid for ransom which are in old naira notes, will be brought out to be exchanged for the newly redesigned notes. This would lead to crime detection and prosecution of many individuals who could not explain the sources of their income.
3. It facilitates a free and fair election. In order to have and conduct a free and fair election this year,the redesign of naira notes frustrated the purpose of politicians who have planned to buy votes during the election. They may have a hard time in changing their notes into the new naira notes, which will scatter their plans.
4. The redesign of naira notes is a way of controlling money supply, which means withdrawing currency from circulation,due to the high rate of inflation (high rise in prices)
THE DEMERITS OF THE NARIA REDESIGN
1. The Redesign and printing of the new naira notes has brought a lot of implications on the balance sheet of the Central Bank of Nigeria. The cost of printing abroad is very high, which led to the current state of the economy.
2. The prices of food materials and other necessary items rose as the new naira notes became scare,hereby making so many people go hungry because they cannot access the new naira notes to buy anything.
3. There are challenges in the distribution of the new notes across the states of the country,due to high rate of corruption.
4. There is high risk of circulating fake money in the country especially in areas where the original money is not well known,due to the challenges in the distribution of the new naira notes.
5. People in rural areas who live far from the location of financial systems experience difficulty in accessing and obtaining the new naira notes.
B. The nexus between naira redesign and money market equilibrium is this:
The naira redesign is the monetary policy formulated by the Central Bank of Nigeria to control the supply of money while money market equilibrium occurs when the quantity of money supplied equals the quantity of money demanded. The both contributes and determine the supply of money in the economy.
This new policy promotes equilibrium in the money market in the long run period. This is so because in long run, the new naira notes must have been properly distributed, which would lead to an equilibrium in money market ( quantity supplied equals the quantity demanded). As it is now (that is short run), there is disequilibrium in the money market. The new naira notes is scarce both to the financial houses and individuals.
Name: Ogbuagu Chiamaka Rosita
Reg no: 2019/241915
Department: Economics department
Course code: Eco 303
Course title: intermediate macroeconomics
October 26, 2022 policy decision by the Central Bank of Nigeria (CBN) to redesign the N200, N500 and N1,000 denominations, and the subsequent announcements including the cash withdrawal limit that have continued to generate reactions.
Merits or positive impact:
It reduced corruption: Considering the timing of the policies (being an election year) some Nigerians particularly politicians believed that the apex bank’s move was targeted against certain individuals and have refused to see beyond their noses that the actions are in the best interest of Nigerians and the economy if the country must address the current gale of insecurity, corruption and economic sabotage among other actions of some privileged elites who continued to take advantage of a dysfunctional system to short-changed the country.
Reduced crimes: The cashless policy has led to a reduction in banditry and kidnappings which were rampant in the recent past.
Getting rid of counterfeit: The move to redesign the currency was aimed at checking the increasing ease and risk of currency counterfeiting(mostly in #500 & #1000) evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
Appropriate circulation of currency: There was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks. According to the CBN governor, explained that as of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks, describing the development as unacceptable as this has the potential to harm monetary policy actions, further leading to higher inflation and currency speculation, thereby exposing vulnerable Nigerians to further economic hardship.
Demerit or negative impact:
Due to some certain rule given by the CBN to the public and banks, it affected some people, businesses and other organizations; starting with poor network services that delay or fail to make digital transaction efficient.
Those who do not have smart phones find it difficult to adapt to such policy thereby hindering the efficiency of this policy among all.
The naira redesign has a lot to do with money market equilibrium, as citizens deposit their old naira notes to the bank and withdraw less amount of the new naira notes,it will help the bank to control the money in circulation and prevent hoarding of naira notes and counterfeit money.
Yes. With this new CBN policy, it will promote money market equilibrium that is where the interest rate at which the quantity of money demanded is equal to quantity of money supplied and also will aid in accelerating the monetary policy objectives. The policy will positively enhance the monetary and fiscal space as well as improve the profitability of the banking sector. The effectiveness of monetary policy hinged on being able to mop up excess liquidity and having the majority of the population included in the financial system and the policy could address the current exchange rate gaps.
1). CBN (Central Bank of Nigeria) redesign of naira note has different effect to the aggregate economy, both negativity and positively some of the demerits includes ;
a, Disequilibrium in the money market :- the money in circulation has dropped by 54% of it’s currency, Nigeria only has 1.39trillion out of 2.7trillion of it’s currency in circulation before the policy was adopted. One of the disadvantage of CBN currency policy of redesigning of the 200,500 and 1000 naira note is disequilibrium in money market. Because the supply of money has dropped but the demand for money is only increasing due to inflation, this causes a shift in the equilibrium point from the previous point in the short-run of the money market during the previous month before the CBN naira redesign policy.
b, Reduction Aggregate Borrowing and investment:- CBN policy to redesign the naira note has influenced the aggregate levels of borrowing and investment. The main objective of CBN is to reduce the money in circulation circulation ( money at hand ) .This policy has set some restrictive regulations on banks, discouraging them to lend to public or lending money at a very high interest rate. This discourage borrowing and this in return discourage aggregate investment, because borrowers uses the money gotten from banks to invest in private sectors in economy and increase Nigeria aggregate investment.
b, Reduction in aggregate demand for goods and services:- CBN naira redesign policy has discourage the local market in accepting old currency naira note .while the new money in circulation is less than the old money which is already in the economy. This policy has effected the aggregate demand of goods and services because of less money in circulation, due to that people have less money to spend on consumer goods and services. This cause a decline in the aggregate demand for goods and services.
As we have demerits of new CBN naira policy we also have merit which were the drive behind the CBN naira redesign policy which includes;
a, Reduction of Inflation:- inflation is the unexpected rising of prices of goods and services. One of major of inflation is when large sum of money chasing fewer goods, Nigeria highly depends on import and hardly produce. Presently Nigeria inflation level is 21.82% . One of the objectives and merits of CBN policy is to attack the inflation level by reducing the circulation of money in the economy to reduce the amount of amount chasing goods and services.
b, Reduction of Counterfeit and Laundry:- the political and economic agenda of CBN of redesigning the naira note, is to curb the amount of Counterfeit in economy and also to discourage illegal laundering of naira note. Since 200,500 and 1000 has a new appearance as designed by CBN officials, this limit the ability of people to laundry the naira note and it also makes all the counterfeit of the old naira note to be invalid because of present of the new naira note by CBN currency redesign policy .
c, Encouragement of technology innovation in use of money transaction:- because of effort of CBN to make it difficult to acquire the new currency note in the hands of citizens. This encourage other means of payment and transaction method, one of the objectives of CBN is to encourage digital payments the norm in Africa biggest economy.
These are just few demerits and merits of new CBN redesign currency policy. the money market is highly effect by action of CBN . The relationship/link between the money market equilibrium and the redesign of naira note is the central bank of Nigeria ( CBN ) , Because CBN control the aggregate supply of money in Nigeria economy, and the money market equilibrium is an interaction between Aggregate supply of money and aggregate demand money. The aggregate supply is controlled by CBN while aggregate demand is controlled by the total population of citizens of Nigeria, and equilibrium point in money market is where everyone is satisfied where the Aggregate supply of money = aggregate demand of money.
CBN currency redesign policy won’t maintain the equilibrium in the money market in the Nigeria economy. Because CBN policy main objective is to reduce the circulation of money in Nigeria. The money aggregate supply would drop causing disequilibrium in the money market ,because the supply of money would be less than the aggregate demand for money . Even if CBN reduce supply it won’t really effect the level of demand of money because of present of other variables effecting demand of money , the demand of money might even increase due to inflation causing disequilibrium in the money market in the long-run period .
Name: Paul Emmanuel Okwuchukwu
Reg No: 2015/197559
Department: Economics
The introduction of the redesigned currency which will take off from December 15, 2022, will have the exit of the old design by January 31, 2023; this will lead to the attraction of huge currency, put at over 80 per cent currently outside the banking system back to the economy.
The CBN governor, Godwin Emefiele, said that for the purpose of the transition from existing to new notes, bank charges for cash deposits had been suspended with immediate effect. He added that no bank customer should bear any charges for cash returned/paid into their accounts.
MERITS
Statistics had shown that over 80 per cent of the currency in circulation were outside commercial banks’ vaults, which was fuelling illicit financial flow within the economy:
A significant hoarding of banknotes by members of the public, worsening shortage of clean and fit banknotes and increasing cases and risk of counterfeiting informed the decision.
DISMERITS
Statistics had shown that over 80 per cent of the currency in circulation were outside commercial banks’ vaults, which was fuelling illicit financial flow within the economy:
A significant hoarding of banknotes by members of the public, worsening shortage of clean and fit banknotes and increasing cases and risk of counterfeiting informed the decision.
Equilibrium in the money market occurs when the money demand equals the money supply. At that point, the equilibrium interest rate is formed.
For the equilibrium interest rate to change, either the money supply curve or the money demand curve should shift. A change in the interest rate out of equilibrium comes from a movement along the curves rather than a shift in the curves.Equilibrium in the money market provides the equilibrium rate in an economy. Equilibrium in the money market can change only when there is a shift in either the money demand or the money supply.
Therefore how the redesign of naira currency is connected with equilibrium of money market is that the shortage of new naira will make the demand of money excess leading to a rightward shift in the demand curve and the money market is no longer at equilibrium.
Odo Linda Amarachi
2019/244376
Economics
Merits:
According to Emefiele, the central bank’s principal objective for the currency redesign initiative was to make our monetary policy decisions more efficacious, saying: “We have started to see inflation trending downwards and exchange rates relatively stable.
Is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market
Redesigning the currency was also aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports.
Redesigning the Nigeria currency will plug fiscal leakages, boost government revenues, and aid the economic empowerment of vulnerable Nigerians as well as benefit the country as a whole.
Demerit:
According to the World Bank the newly redesigned naira which went into circulation 22 October 2022 will have negative effect on economic activity especially poor Nigerians due to its timing and short transition period.
The redesign of the new nair has a negative affect on small businesses especially those who engage in day-to-day cash transactions.
Existing naira notes being phased out over a short period could make things more difficult for households and businesses, who already face significant financial pressures from prolonged, high inflation, which have recently been exacerbated by external shocks on the price of food and fuel, as well as the severe floods.
2.what is the nexus between Naira redesign money market equilibrium?
Money market equilibrium occurs at the interest rate at which the quantity of money demanded equals the quantity of money supplied.
Naira redesign is aimed at reducing the circulation of money in the economy and therefore reducing Money suppy, and all other things remaining unchanged, a shift in money supply will lead to a change in the equilibrium interest rate and therefore changes in the level of real GDP and the price level.
Will this new policy promote equilibrium in the money market? Discuss this comprehensively,
The new policy will not promote equilibrium, because it brings about a big gap between money supply and money demanded, bringing about a shift in equilibrium.
The naira redesign brings about a decrease in money supply because of the policy to control the circulation of money in the economy and this will bring about the demand for money outgrowing the suppy of money bringing about a change in the equilibrium interest rate.
Orji Emeka Joseph
2015/200587
Economics
The Governor of the Central Bank of Nigeria, Godwin Emefiele, said the decision to redesign the selected naira notes was to give the apex bank more control over the amount of money in circulation. Emefiele also hinted that when the new notes effectively go into circulation, their quantity in circulation will be greatly controlled. Less of the N500 and N1,000 denominations will be in circulation compared to what obtains now.
MERITS
This policy will help to control inflation as the exercise will bring the hoarded currency into the banking system, thereby making monetary policy more effective, it will also help with better design and implementation of monetary policy as we would have much more accurate data on money supply and monetary aggregates.
“We believe that this exercise would help in increasing financial inclusion, moving towards a more cashless economy, and ensuring greater formalization of the Nigerian economy.
DISMERITS
A significant implication is that the redesign is anticipated to cause an economic upswing, which will frustrate and keep businesses in Nigeria under stress. The brief window for the issuance of the revised notes is primarily to blame for this expected economic flurry. The growing crowds anticipated at banking halls are predicted to overwhelm commercial banks.
Those who live in rural areas may be the most affected. It is disappointing to learn that some communities in Nigeria, particularly rural communities, do not have a bank within 70 kilometres of them. There will likely be a transport rush in these areas once the redesigned currencies are available, as people will travel to the cities to exchange their old currencies.
Additionally, with an already high inflation rate of over 20%, the strengthening dollar, and Moody’s downgrading of Nigeria’s economic growth forecast from B2 to B3, choosing to spend billions on printing new currencies may cause untold hardship to the country’s economy.
Equilibrium in the money market occurs when the money demand equals the money supply. At that point, the equilibrium interest rate is formed.
For the equilibrium interest rate to change, either the money supply curve or the money demand curve should shift. A change in the interest rate out of equilibrium comes from a movement along the curves rather than a shift in the curves.
The redesign of naira notes has caused disequilibrium in the money market.
NAME: AGBO ANNASTECIA ONYEDIKACHI
REG NO: 2019/246655
DEPARTMENT: SOCIAL SCIENCE EDUCATION
UNIT: ECONOMIC EDUCATION
COURSE TITLE MACROECONOMICS ( ECO 303)
ANSWERS
A. MERIT AND DEMERIT OF THE REDESIGNED OF
200, 500 AND 1000 NAIRA NOTES:
1. The redesign of the new naira notes help to strengthen the economy and enhance the CBN’s visibility of the money supply, promote financial inclusion and reduce the expenditure on cash management.
2. It has reduced exposure to bacteria from the handling of naira notes from one Individual to another, Since robbers are attracted by large volume cash movements by banks, the use of alternative electronic payment system has reduced the need for cash movement and other cash-related crimes in Nigerian society as most people no longer carry physical cash with them or keep it in their homes.
3. Customers can now transact their banking businesses at any place and at any time with the use of the various alternatives provided in the cashless society rather than going to the bank branch where their accounts are domicile, Same as the payments to government agencies like customs duties are now made electronically and directly to the government account, thereby reducing leakages and other fraudulent incidents.
4. There has been a significant increase in sales and purchases since the purchases are no longer determined by the amount of cash a customer has in their wallet but rather based on how much funds they have in their accounts at the time.
5. The cashless system offers Nigerians a number of top-up options including use of credit and debit cards, reduction in payroll, etc. thereby reducing the use of cash and the related security risks
6. E-banking improves the time within which transactions are settled both locally and Internationally and It has significantly improved the speed at which banking services are rendered.
7. Loss of physical cash during fire and flooding incidents.
B. DEMERIT OF NEW REDESIGNED OF 200, 500
AND 1000 NAIRA NOTES:
1. FRUSTRATION: Banks are not dispensing enough naira and this makes it very difficult for us to access the notes and Nigeria does not have the adequate financial infrastructure needed to effectively run a cashless society. The cashless options like Automated Teller Machines (ATMs), Point-of-Sales (POS) terminals, mobile banking and other mediums should reach at least 40% of the Nigerian population.
2. SCARCITY OF THE NEW NOTES:
The CBN extended the deadline for the phasing out of the old notes from 31 January deadline to 10 February. Despite the extension, many Nigerians working in the informal sector of the economy have had to scramble for the new notes while others lamented their inability to withdraw their hard earned money from their bank accounts.There have equally been allegations of hoarding on the part of the Deposit Money Banks, while some mobile cash point vendors are said to be exploiting the situation by dispensing the new notes to customers at skyrocketed prices and There is an inadequate banking system in Nigeria.This is bound to hamper the cashless policy
3. Bank charges on E-transactions are high, thereby discouraging customer from using it
and many customers are discouraged to use ATMS as it takes a long time to reverse a wrong debit entry into their accounts. At times, it ends up not resolved and the customer has to physically go to the banking halls.
4. BAD MARKET AND HARDSHIP: Since the unveiled of the new naira notes with the struggle to withdraw it, people in the market have been in a bad market in selling their goods and services due to the cashless policy everyone has been experiencing. Especially the uneducated men and women who do not have any account in bank to use in transaction of the goods and even those that have cannot get or even do transfer because of network issues. So therefore leading to hardship in many families, no cash at hand, no sell in the business to feed the family and other needs of the family.
5. Many customers, especially the less- educated, have been duped by fraudsters via their ATM cards, and most ATM locations in Nigeria are not secured and the cameras on the ATM machines do not work, leaving fraudsters to successfully carry out their illegal activities without any arrest.
6. Nigerians, especially the elderly and uneducated population is accustomed to cash transactions. already and Some of the Nigerian banks are as conservative as their customers; they are slow to embrace innovative products too.
7. Internet network issues due to the developing telecommunication infrastructure impede its effectiveness and the epileptic power supply in Nigeria and the developing telecommunication links significantly and negatively affect e-banking infrastructures especially when an individual want to make a transaction.
8. One other major deterrents of cashless policy are the frequent system/internet downtime in banks which make it difficult for customers to access their account.
C. THE NEXUS BETWEEN NAIRA REDESIGN MONEY MARKET EQUILIBRIUM
The nexus between a money market equilibrium and the redesign of the Nigerian Naira is that the redesign of the currency can help to create a more stable and efficient money market. The new design of the Naira will help to reduce counterfeiting, which can lead to improved market efficiency, as well as increased confidence in the currency and the Nigerian economy. Additionally, the redesign of the currency can help to reduce inflation and increase the spending power of the currency. This can lead to a more efficient and stable money market equilibrium.
D. WILL THE NEW CASHLESS POLICY PROMOTE EQUILIBRIUM IN THE MONEY MARKET? YES IT WILL
If there is a supply of money (supply of real money) by the central bank. According to the liquidity preference we assume that bank increase the money supply in a fixed proportion to the reserves because the quantity of reserves is determine by federal Reserve policy, thus supply of money does not depend on interest rate but on quantity of bank reserves.
Secondly, The new cashless policy may help to promote equilibrium in the money market by increasing the efficiency of money transfers and reducing the cost of transactions. Additionally, the policy could help to reduce the risk of counterfeiting and money laundering, which could have a positive effect on the money market. It is also possible that the policy could lead to more efficient pricing and allocation of resources, which could help to increase the overall efficiency of the money market.
Anya-martin judith, 2019/245381, Eco dept.
naira redesign and monetary equilibrium .
Currency redesign
Its an act of the monetary policy expected to be carried out by central bank of the country wiccording to Emefiele, statistics had shown that over 80 per cent of the currency in circulation were outside commercial banks’ vaults, which was fuelling illicit financial flow within the economy.
thin the space of say 5 years or more.
Naira redesign.
And in this case, in nigeria, On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash points.
The naira redesign policy of the central bank of nigeria aimed at driving the objectives of the country’s ongoing migration from a cash-dominated economic environment to an electronic payments markets, otherwise known as cashless economy.
Objectives of naira Redesign
The central bank gave reasons for the naira redesign policy. According to mr Emefiele, the policy would enable the CBN to take control of the following :
1 naira circulation ;
As of October 2022, currency in circulation had risen to N3. 23 trillion; out of which only N500 billion was within the banking system and N2. 7 trillion held permanently in people’s homes.
One the characteristics of money is limited supply, and acceptability : the cashless policy has made it difficult fo customer to buy goods in local markets due to non acceptance of transfer as means of payment by the local/ rural traders for goods like rice, beans, garri etc.
According to the punchng, The total amount of currency-in-circulation in the country dropped from N3.29tn as of the end of October 2022 to N1.38tn as of the end of January 2023 as a result of the naira redesign policy of the Central Bank of Nigeria.
2.manage inflation
3. Increase the number of bank owners and bank users
4.combat banditry
5. Combat ransom payment
6. Combat counterfeiting.
Merits of naira Redesign
According to James Emejo writes that the naira redesign and implementation of the cashless policy would plug
1.fiscal leakages
2. boost government revenues, and
3. aid the economic empowerment of vulnerable Nigerians as well as benefit the country as a whole.
Demerits of naira Redesign
1. Increased hunger, poverty and poor sales.
2. Long queueing at banks.
3.over charge by POS agents for financial transactions
4. Network glitch
.buying of money with money
5. Reduced value of personal money due to high fees on electronic transactions.
6.buying of money with money
7.transactions are not completed; alerts fail to arrive and all sorts of strange messages occur.
Monetary equilibrium
Monetary equilibrium describes the condition under which actual money balances are equal to desired money balances.
This is a situation where demand of money by individuals is equal to the supply of money by the central bank.
As stated above , one of the objectives of the naira redesign is to reduce the amount of money in the hands of people, in circulation .
Therefore currency redesign brings about reduction in broad money circulation.
Effectively implemented currency redesign largely causes a fall in money supply. This leads to reduction of value of money in circulation and deceleration of the velocity of money in the economy leading to less pressure on domestic prices.
I will conclude by saying that the current redesign of naira, 200,500 and 1000 has brought about the recent monetary disequilibrium, where the demad is extremely higher than the supply.
There is short in the new naira notes and the old ones have been deposited in the banks, individuals demand for money is increasing on daily basis, but the money supply is very low.
Recommendations
1. One more thing, the CBN must also look at removing ALL charges for online and POS transactions in the short term. It can later look at a reduced fee for these transactions as volume has risen.
2. Print and increase the amount of money to circulate to commercial banks .
References
https://www.premiumtimesng.com › …
https://businessday.ng › article › cur..
https://www.monday.com.
https://punchng.com › currency-in-.
UGWUANYI NKEONYE LAUREL
2019/243315
ECO 303
ASSIGNMENT
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to discuss and analyse the merits and demerits of this policy initiative adopted by the CBN. Secondly, what is the nexus between Naira redesign money market equilibrium? Will this new policy promote equilibrium in the money market? Discuss this comprehensively,
ANSWER
MERITS
Reduction of Broad Money Supply: Effectively implemented currency redesign large causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
Lowering Inflation: the policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
Collapse of Illegal Economy Activities: People who have earned money through illegal ways would be afraid to declare the money as they may be prosecuted by the Income tax department on the legitimacy of their income.
Easy Loans: Loans will become easier and interest rates may come down. As banks will have more money so more loans will be given out which will increase the money supply in the market and it will create inflation.
CBN to monitor the currency in the economy: Many people have suggested that the new measure could restore confidence in the local currency as the bulk of the naira note stacked away by politicians, criminals and other illegal operators would be returned to the banking system, helping the CBN to monitor the currency in the economy.
Elimination of old tattered naira note and counterfeiters would be refrained: It is also expected that with the new notes, most tattered naira notes currency pushed into the system would be eliminated while counterfeiters would be refrained for a couple of years in carrying out their illicit business.
Crime detection: It is expected that the ransom money that is yet to find its way into the banking system would be brought out to be exchanged for the newly redesigned notes. This could also lead to crime detection and probable prosecution as many who could not explain the sources of their wealth may find themselves in trouble with law enforcement agencies.
politicians who have stacked away money for the purpose of vote buying during the forthcoming election may have a difficult time changing their notes into the new naira while bringing such money back to the system could upset some of their plans.
Another angle to look at the measure is the positive effect it will have on crime in the country. Currently, Nigeria is having challenges with terrorists and banditry across the country with money being paid to kidnappers as ransom running to billions of naira.
DEMERITS
Logistics challenge: The challenge of logistics of such printing due to the fact that Nigeria is borrowing to fund the budget deficits. In addition, to navigate the 774 local governments when some of them don’t have banking halls present in the local governments.
Checkmating electioneering spending: CBN dream of checkmating electioneering spending by redesigning the naira notes could only be achieved if the new notes were limited in supply, a task he considered would be quite tall for the apex bank.
Overcrowding in the banking halls: There will be lots of long queues in the banking hall. It’s going to create lots of inconveniences for the people. The unbanked and the elderly may not be able to cope since we don’t have banks in most local government areas
Rural dwellers factor: It is feared that rural dwellers who live far from where banking services are available would experience hardship dumping the old notes, as well as, initially, obtaining the new ones.
Fear of persistent inflation: the step would solve inflation, “because there also are other major reasons for inflation such as the forex crisis, which this new move can exacerbate, as well as the impact of the security crisis on food price inflation.”
The cost of food and other items will shoot up as the naira notes for transactions will become scarce while many people may go hungry because they could not get new naira to make necessary purchases.
Armed robbery could escalate with criminals targeting bullion vans to be used in the distributions of the new notes in some rural areas in a bid to minimize their losses on the old naira notes stacked away previously in order to evade the law.
There is the possibility that counterfeiters may take advantage of the lag in distribution to circulate their own notes in some parts of the country, which may not be effectively covered by the publicity around the new notes.
Secondly, what is the nexus between Naira redesign money market equilibrium? Will this new policy promote equilibrium in the money market?
ANSWER
According to the theory of liquidity preference, the supply and demand for real money balances determine what interest rate prevails in the economy. That is the interest rate adjusts to equilibrate the money market. As the figure shows, at the equilibrium interest rate; the quantity of real money balances demanded equals the quantity supplied. The equilibrium in the money market happens through the interactions of money demand and money supply. Whenever the two are equal, the equilibrium occurs. But what happens if the money demand or the money supply changes for some external reason? That would cause a change in the equilibrium in the money market. To better understand what causes the equilibrium in the money market to change, we need to understand what causes shifts in money supply and money demand.
There are three main tools through which the Fed can influence the money supply:
required reserve ratio: When the required reserve ratio is high, banks need to keep a more considerable portion of their deposits in reserves, which leads to fewer loans generated. This then leads to less money circulating in the economy, which shifts the money supply curve to the left, resulting in a higher interest rate.
open-market operations: Whenever the Fed buys securities from the market, it injects more money into the economy, increasing the overall money supply. This then shifts the money supply curve to the right resulting in lower interest rates. On the other hand, when the Fed wants to reduce the money supply in the economy, they sell these securities back to the market and collect the cash from the public in return. This causes the money supply curve to shift to the left, resulting in an overall increase in the interest rate in the economy.
discount rate: , when there is a high discount rate, the cost of borrowing money is high for commercial banks, which means that they aren’t going to borrow as much money from the Federal Reserve Bank. As commercial banks borrow less from the Federal Bank, they will generate fewer loans. This then translates into an overall fall in the money supply in the economy, shifting the money supply curve to the left. In general, whenever the Fed increases the discount rate, the money supply curve would shift to the left, increasing the overall interest rate. On the other hand, when the Fed lowers the discount rate, the money supply curve will shift to the right, and there will be a decrease in the overall interest rate in the economy.
Factors that shift the money demand include:
price level: The price level reflects the rate of inflation in the economy. Whenever there is an increase in the overall price level, the money demand curve will shift to the right. People need more money to cover the additional expenses resulting from inflation
real GDP: Real GDP refers to the overall goods and services produced in the economy. Whenever there is an increase in the real GDP, more goods and services are produced in the economy. This will cause households to increase their consumption, which shifts the money demand curve to the right, resulting in a higher interest rate.
Technology: Technology refers to how easy new inventions make it for individuals to access cash. The money demand curve will be influenced whenever new technologies make it easier for individuals to change between money and savings.
changes in institutions: Whenever there is a change in government legislation that impacts the preference of individuals for cash, it will cause the demand curve to shift to the left or the right.
In summary, all these factors combined are the causes of the equilibrium in the money market. If any of these factors change, affecting either the money supply or demand, a new equilibrium in the money market will occur.
We all know that inflation has increased in the Nigeria. The Fed is concerned with how events are unfolding and are thinking of controlling inflation by increasing the interest rate in the economy. we will assume that the Fed will increase the discount rate, making it more expensive for commercial banks to borrow from the Federal Bank.
As it becomes more expensive for banks to borrow from the Federal Bank, they will generate fewer loans to clients. This will cause the money supply curve to shift to the left. As a result, the equilibrium interest rate will rise in the economy.
NAME: UZOCHUKWU CHIDINMA VIVIAN.
REG NO: 2017/250786.
DEPARTMENT: ECONOMICS MAJOR.
1) The Naira Redesign Policy has no doubt caused a steer in the socio-economic activities of Nigerians since its enactment. The redesign is expected to strengthen the economy, reduce the expenditure on cash management, promote financial inclusion, and enhance the CBN’s visibility of the money supply. The policy was stated to have been introduced by the CBN to profer possible solutions to the existing economic mishaps in the nation, strengthen the performance of key macroeconomics parameters and equally combat social improprieties but however there have been some observed lapses as to the implementation of the program. Below shows a brief outline of the advantages and disadvantages of the new policy.
Advantages.
a) It helps the CBN to ascertain the total amount of money in circulation: Available data at the Central Bank of Nigeria showed that in 2015, Currency-in-Circulation was only N1.4trillion. As of October 2022, currency in circulation had risen to N3.23 trillion; out of which only N500billion was within the Banking System and N2.7trillion held permanently in people’s homes. It should also be noted that the notes in private homes and outside the banking system are not available for economic activities and thus may affect the economy attaining its potential growth. So far and since the commencement of this program, we have collected about N2.1 trillion leaving us with about N900 billion.
b) Collapse of Illegal Economy Activities: The new policy has to curtail or limit crime in our societies. People who have earned money through illegal ways would be afraid to declare the money as they may be prosecuted by the Income tax department on the legitimacy of their income.
c) Reduction of Broad Money Supply: Effectively implemented currency redesign large causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
d) Lowering Inflation: The policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
e) It discourages hoarding of money in the economy: By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behaviour. It could encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
Disadvantages.
Just as there are advantages as to which this New Naira design policy is to serve, so far so good, there have been some lapses since the implementation of this policy. It been said that at present, households and firms already face elevated financial pressures from prolonged, high inflation, recently compounded by external food and fuel price shocks, and the severe floods, and phasing out existing naira notes over a short time period may add to their challenges.”Some of them can be stated below:
a)In a developing country like Nigeria, the default in the technological knowhow of most Nigerians brings about an impediment to the actualization of this policy. For example; Illiterate or Vulnerable citizens who feed on daily income and who do not have smart phones to access the e-channel mechanism are disadvantaged at this. This leaves quite a number of the population at great disadvantage.
b) The price in the cost of food and other basic items at the market skyrocketed as the new naira notes for spending became scarce where many people go hungry as to lack of naira notes to make necessary purchases.
c) There is hardly any week without complaints in the banking hall. You will see people shouting with regard to transfer failures and failed transactions. The CBN have failed to put in adequate structure to take care of some of these things.
2) The nexus or connection between Naira redesign money market equilibrium.
Money market equilibrium occurs at the interest rate at which the quantity of money demanded equals the quantity of money supplied. All other things unchanged. The interest rate is the opportunity cost of holding money. The interest rate adjusts to balance the supply and demand for money. When interest rate is high, people want to hold less of their wealth in the form of money. It is worth noting that in the money market people increase or decrease the money they hold by selling short-term bonds that carry a fixed rate of interest. These bonds may be of corporate companies, generally called corporate bonds or debentures or may be securities of government, which are called treasury bills. With this new naira design policy, there will be equilibrium in the money market because people will be discouraged to hold cash as they will want to benefit from the interest rate of other financial assets.
On 26th October 2022, the Nigerian government introduced the redesign of the new 200, 500 and 1000 naira notes. A month after the decision to redesign the naira, and N165 billion cash deposited in compliance with the instructions of the CBN, President Muhammadu Buhari unveiled the redesigned naira notes.
Some of the pros of the new naira note include:
1.) Plug fiscal leakages: fiscal leakage is the controllable, out-of-pocket expense currently eroding an insurance buyers operational or business efficiency. The CBN introduced the new naira notes to check and stop fiscal leakages.
2.) Boost government revenues: The CBN used the redesigned naira notes to boost government revenues.
3.) Aid the economic empowerment of vulnerable Nigerians as well as benefit the country as a whole.
4.) The CBN said it introduced the new notes to reduce the inflation rate in the country.
Some of the cons of the redesigned naira notes include:
1.) Hunger and Starvation: The new notes introduced by the CBN was soooo hard to come by. People couldn’t access the money they had there by making it difficult to make purchases.
2.) Suffering: The introduction of the new naira notes brought about a lot of suffering. People had to sleep in banks and fight in banks just to get access to their own money. This leaves the common man with one question: where are we headed to in this country?
3.) Incompetence of the Central Bank of Nigeria and Commercial banks: On plenty occasions you hear banks say they don’t have cash and the money has finished in the bank and you ask yourself how can money finish in banks? Why did the CBN make the new notes the only official legal tender? why wasn’t it done like when the new N100 note was introduced?
4.) Rise in the inflation rate: Inflammation is a general increase in prices and fall in the purchasing value of money. We all saw that the introduction of the redesigned naira notes brought about a skyrocketing increase in inflation. I think it is safe to say that the inflation rate in Nigeria did not only double but triple.
5.) The buying of money: Because of how scarce the new notes were Nigerians had to use money to buy money. While this may sound unbelievable or even impossible it is very very important to note that it actually happened and is still happening till date.
WHAT IS THE NEXUS BETWEEN THE NEW NAIRA REDESIGN AND MARKET EQUILIBRIUM?
Market equilibrium is a situation in which the demand for a commodity is exactly equal to its supply, corresponding to a particular price. At this point, the market is stable and no one wishes to move from this position.
I don’t think there is any relationship between marker equilibrium and the new naira notes. This new note has in fact shifted as farther away from achieving market equilibrium in Nigeria.
WILL THIS NEW POLICY PROMOTE EQUILIBRIUM IN THE MARKET?
The answer to this question is NO. NO the new naira policy will not promate market equilibrium at all.
NAME: SIBEUDU CHUKWUEBUKA RALUCHUKWU
REG. NO: 2019/244735
DEPARTMENT: ECONOMICS
COURSE CODE: ECO 303
1.1 CBN’s NAIRA REDESIGN POLICY.
What do we need to know about this policy?
The Governor of the Central Bank of NIgeria (CBN), Mr Godwin Emefiele on October 26, 2022, announced policy initiatives to redesign the N200, N500 and N1000 denominations, and subsequently introduced the cash withdrawal limits to regulate the movement of cash in the system as well as solve other challenges including currency counterfeiting among others.
In announcing the Naira redesign programme, the CBN governor said the move was aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean fit currency, with the attendant negative perception of the central bank.
There is the issue of serious scarcity of the new Naira notes, and the CBN cannot be absolved of the blame. The CBN governor has been busy talking about how much the apex bank has pulled in from the currency circulation but has never mentioned how much money CBN has printed or distributed to the banks. Nigerians easily picked up the signal that CBN was rationing the new notes. Those who have access to the new notes assign a margin. Those who get or buy the new notes are not letting go of them, so the new notes are getting back into the banks or are not going into circulation.
1.2 MERITS OF THIS POLICY.
Reduction of Broad Money Supply: Effectively implemented currency redesign largely causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
Lowering Inflation: the policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow the pace of inflation.
Collapse of Illegal Economy Activities: People who have earned money through illegal ways would be afraid to declare the money as they may be prosecuted by the Income tax department on the legitimacy of their income.
Easy Loans: Loans will become easier and interest rates may come down. As banks will have more money so more loans will be given out which will increase the money supply in the market.
1.3 DEMERITS OF THIS POLICY.
Hoarding: We have noticed that some members of the public are hoarding the new notes thereby restricting their flow through the economy. Cash kept at home will not circulate but may fuel a perception of scarcity which leads to higher demand for the currency, signaling to those who don’t have an urgent or immediate need to store cash. The CBN would like to encourage the public to use alternative channels as much as possible for their transactions and hold minimal cash in line with the cashless policy.
Panic Queues: The CBN has also noticed long queues at some bank ATMs and banking halls. Whilst some of these withdrawal requests are genuine and DMBs continue to load the ATMs only with new notes, monitoring suggests that there appears to be some opportunistic and panic queuing. The Bank wishes to reassure the public that the new notes are available for all who need it at the appointed time. There is no need to queue for new notes if you have alternative channels of payment and don’t have an emergency cash need. We reiterate that the new redesigned notes are more than enough to go round for legitimate needs.
Damage of Bank Branches & Assault of Bank Personnel: It has also come to our notice that at some branches, customers have become aggressive, verbally and/or physically abusing bank staff. They have also damaged or destroyed bank property, premises, and assets. We enjoin Nigerians to be peaceful and law abiding when they visit bank branches as this wanton destruction will be counterproductive, reducing the number of financial access points in these communities.
Incidences of Economic Opportunism: We have also noticed that some Nigerians are capitalizing on the transition to charge exorbitant fees or demand cash payment on the false pretext that POSs don’t work, especially at petrol stations. These selfish actions for personal monetary gain are creating hardship for Nigerians and may come at the expense of fellow citizens’ lives and livelihood.
2.1 NAIRA REDESIGN AND MARKET EQUILIBRIUM.
One may ask, “what is the nexus between naira redesign and market equilibrium?”
The naira redesign policy has caused a disequilibrium in the market at the short run. How is this so? The scarcity of the new naira notes have affected trade in the economy at large. People have little or no valid currency (new notes) to carry out their normal day-to-day transactions. This has also caused fluctuations in the general price levels across the economy thereby causing a disequilibrium as demand for goods is falling due to the inability to acquire such goods. This would cause the demand curve to deviate from equilibrium. Firms tend to decrease prices because of surpluses caused. This is all experienced in the short run because scarcity of the new notes is present. However, in the long run the market tends to experience equilibrium as the new notes have circulated around the economy. People now have access to certain amounts of the new notes making them able to carry out their normal day-to-day transactions at ease. At this point, demand equals supply in the market causing an equilibrium.
2.2 EQUILIBRIUM IN THE MONEY MARKET.
Money market equilibrium occurs at the interest rate at which the quantity of money demanded is equal to the quantity of money supplied. The demand curve for money shows the quantity of money demanded at each interest rate. Its downward slope expresses the negative relationship between the quantity of money demanded and the interest rate. This means people demand lesser quantities of money when the interest rates are high. An increase in the demand for money will raise interest rates. The Naira Redesign policy however, has caused an increase in the demand for the new notes which, ceteris paribus, causes interest rates to rise. Nevertheless, people were not discouraged to acquire those new notes. They had to pay premiums in most cases to third party agents (POS) to get hold of the new notes. They had to pay higher interests in getting those new notes also at acquiring loans from the commercial banks and other financial institutions. The Naira Redesign policy inadvertently caused higher interest rates which means higher borrowing costs, people will eventually start spending less in the long run. The demand for goods and services will then drop, which will cause inflation to fall. This means the Naira Redesign policy will promote equilibrium only in the long run when the quantity of money demanded equals the quantity of money supplied. This means people can go to banks and other financial institutions to collect any amount of money or loan they want.
Name: Onyishi Cynthia Chetachi
Registration Number: 2019/243107
Department: Economics
Course Code: ECO 303
Merits of the Naira redesign policy
Generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties. Chiefly, it is expected to reduce the amount of cash in the underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market.
By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth.
According to experts, the macro-economic impacts of currency redesign are multidimensional and could seem uncertain especially at this early stage when its inconvenience is widespread.
By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behavior.
It could encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
In addition, the short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy.
With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.
In the long-term, the policy will improve the sophistication of tax collection and would no doubt reduce tax evasion and tax avoidance. As experiences from other jurisdictions have shown, effective currency redesign can support regulatory reform, increased legislative reach and coordinated fiscal and structural policies.
Experts have also said that effectively implemented currency redesign causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
Demerits of the Naira redesign policy
The Central Bank of Nigeria unveiled new N,1000, N500 and N200 notes as part of measures to mop up excess cash in circulation, ransom payment for kidnapping, terrorism financing, counterfeiting, among others.
The new policy has negatively affected small businesses especially those who day-to-day cash transactions. While periodic currency redesigns are normal internationally and the naira does appear to be due for it since naira notes have been redesigned for two decades, the timing of and short transition period for this demonetization may have negative impacts on economic activity, in particular for the poorest households.
At present, households and firms already face elevated financial pressures from prolonged, high inflation, recently compounded by external food and fuel price shocks, and the severe floods, and phasing out existing naira notes over a short time period may add to their challenges.
The second thing is that the government wants to drive the use of online banking, which is good for our economy. Unfortunately, there have been so many complaints about failed transactions.
There is hardly any week without complaints in the banking hall. You will see people shouting with regard to transfer failures.
The huge cost of printing the new note could run to trillions of naira, which the economy may be least prepared for with the current state of the economy, the state of the nation’s foreign reserves since the currency is expected to be printed abroad and the implications for the balance sheet of the central bank.
Armed robbery could escalate with criminals targeting bullion vans to be used in the distributions of the new notes in some rural areas in a bid to minimize their losses on the old naira notes stacked away previously in order to evade the law.
Both the CBN and the banks will face logistical challenges in the distribution of the new notes across the country with the rate of crime in the form of banditry and terrorism across the country escalating. Also, security around the banks would be threatened because of the huge demand for the new notes as criminals could also take advantage of the change-over to commit their illicit trade.
There is the possibility that counterfeiters may take advantage of the lag in distribution to circulate their own notes in some parts of the country, which may not be effectively covered by the publicity around the new notes.
The Nexus between the Naira Redesign policy and market equilibrium.
A market is in equilibrium if at the market price the quantity demanded is equal to the quantity supplied. The price at which the quantity demanded is equal to the quantity supplied is called the equilibrium price or market clearing price, and the corresponding quantity is the equilibrium quantity.
However, the Naira Redesign policy has inadvertently caused scarcity of the notes as they are limited in supply. The implication of this is that in the market, demand would not equal supply. The scarcity of the new notes had caused fluctuations in the general price levels causing demand and supply to move out of equilibrium causing a market disequilibrium. Well, these implications can only be experienced now in the short run when the new notes have not been fully circulated in the economy. In the long run, the new notes must have been circulated round the economy causing people to be able to make their daily transactions. Now, price levels are not fluctuating. In the market, demand and supply would automatically fix the prices. The implication of this is a market equilibrium.
Equilibrium in the money market.
The money market is the interaction among institutions through which money is supplied to individuals, firms, and other institutions that demand money. Money market equilibrium occurs at the interest rate at which the quantity of money demanded is equal to the quantity of money supplied.
Just as in the market for goods and services, the money market would only be in equilibrium in the long run when the demand for money is equal to the supply for money. In the short run, interest rates are rising due to an increase in the demand for money. This increase in demand is caused by the scarcity of new notes. People tend to pay higher interest rates in order to acquire the new notes and also when acquiring loans from credit institutions.
In the long run, the naira redesign policy would promote equilibrium in the money market as the CBN must have printed enough notes to circulate in the economy and withdrawn the old ones.
Name: Osuiwu Adimchinobi Peace
RegNo: 2017/249570
Email:osuiwuadimchi@gmail.com
Redesign can also be used to improve the efficiency and effectiveness of the monetary system. For example, the use of digital currencies or blockchain technology can increase the speed and security of transactions, while reducing the cost and complexity of the system. Redesign can also be used to address issues such as financial inclusion and access to credit, which can have a significant impact on economic growth and development.
In summary, redesign and monetary equilibrium are closely related concepts in economics. Redesign can be used to achieve monetary equilibrium and improve the efficiency and effectiveness of the monetary system. Achieving monetary equilibrium is important for maintaining price stability and supporting economic growth and development.
Name: Onyechuwku Blossom Chinyere
Registration Number: 2019/242141
Department: Economics
Course Code: ECO 303
The Naira Redesign Policy: Merits
Many people have suggested that the new measure could restore confidence in the local currency as the bulk of the naira note stacked away by politicians, criminals and other illegal operators would be returned to the banking system, helping the CBN to monitor the currency in the economy.
It is also expected that with the new notes, most tattered naira notes currency pushed into the system would be eliminated while counterfeiters would be refrained for a couple of years in carrying out their illicit business.
Another angle to look at the measure is the positive effect it will have on crime in the country. Currently, Nigeria is having challenges with terrorists and banditry across the country with money being paid to kidnappers as ransom running to billions of naira.
It is expected that the ransom money that is yet to find its way into the banking system would be brought out to be exchanged for the newly redesigned notes. This could also lead to crime detection and probable prosecution as many who could not explain the sources of their wealth may find themselves in trouble with law enforcement agencies.
Also, politicians who have stacked away money for the purpose of vote buying during the forthcoming election may have a difficult time changing their notes into the new naira while bringing such money back to the system could upset some of their plans.
Statistics had shown that over 80 per cent of the currency in circulation were outside commercial banks’ vaults, which was fuelling illicit financial flow within the economy:
A significant hoarding of banknotes by members of the public, worsening shortage of clean and fit banknotes and increasing cases and risk of counterfeiting informed the decision.
“The CBN obviously wants to force all those notes back into the banking system. Those with the notes must surrender them to get new ones or else it becomes illegal tender.
“This is also a way to withdraw currency from circulation, an unorthodox way of tightening the money supply since the country is battling high inflation.
“The flip side is that people who are holding huge amounts of cash outside the banking system for nefarious reasons will go to the parallel forex market to buy hard currency, putting further downward pressure on the value of the Naira as too much Naira will be chasing too few dollars.”
Other merits include:
A strengthening of our macro economic parameters
Reduction of broad money supply leading to a deceleration of the velocity of money in the economy which should result in less pressures on domestic prices
Lowering of Inflation as a result of the accompanying decline in money supply that will slow the pace of inflation
Collapse of Illegal Economic Activities which would help to stem corruption and acquisition of money through illegal ways
Exchange Rate stability
Availability of Easy Loans and lowering of interest rates
Greater visibility and transparency of our financial actions translating to efficient enforcement of our anti-money laundering legislations.
The Demerits of the Naira Redesign Policy.
Logistics challenge: The challenge of logistics of such printing due to the fact that Nigeria is borrowing to fund the budget deficits. In addition, to navigate the 774 local governments when some of them don’t have banking halls present in the local governments.
Checkmating electioneering spending: CBN dream of checkmating electioneering spending by redesigning the naira notes could only be achieved if the new notes were limited in supply, a task he considered would be quite tall for the apex bank.
Overcrowding in the banking halls: There will be lots of long queues in the banking hall. It’s going to create lots of inconveniences for the people. The unbanked and the elderly may not be able to cope since we don’t have banks in most local government areas
Rural dwellers factor: It is feared that rural dwellers who live far from where banking services are available would experience hardship dumping the old notes, as well as, initially, obtaining the new ones.
Fear of persistent inflation: the step would solve inflation, “because there also are other major reasons for inflation such as the forex crisis, which this new move can exacerbate, as well as the impact of the security crisis on food price inflation.”
The nexus between Naira redesign money market equilibrium.
When the supply and demand curves intersect, the market is in equilibrium. This is where the quantity demanded and quantity supplied are equal. The corresponding price is the equilibrium price or market-clearing price, the quantity is the equilibrium quantity.
However, the Naira Redesign policy has inadvertently caused scarcity of the notes as they are limited in supply. The implication of this is that in the market, demand would not equal supply. The scarcity of the new notes had caused fluctuations in the general price levels causing demand and supply to move out of equilibrium causing a market disequilibrium. Well, these implications can only be experienced now in the short run when the new notes have not been fully circulated in the economy. In the long run, the new notes must have been circulated round the economy causing people to be able to make their daily transactions. Now, price levels are not fluctuating. In the market, demand and supply would interact and fix prices. The implication of this is a market equilibrium.
Equilibrium in the money market.
The money market is the interaction among institutions through which money is supplied to individuals, firms, and other institutions that demand money. Money market equilibrium occurs at the interest rate at which the quantity of money demanded is equal to the quantity of money supplied.
In the long run, the naira redesign policy would promote equilibrium in the money market as the CBN must have printed enough notes to circulate in the economy and withdrawn the old ones.
Just as in the market for goods and services, the money market would only be in equilibrium in the long run when the demand for money is equal to the supply for money. In the short run, interest rates are rising due to an increase in the demand for money. This increase in demand is caused by the scarcity of new notes. People tend to pay higher interest rates in order to acquire the new notes and also when acquiring loans from credit institutions.
Name: Odo Lovelyn Chioma
Reg no: 2019/241246
Department: education economics
Merits of the new redesign policy initiative adopted by the CBN
1.Reduction of Broad Money Supply: Effectively implemented currency redesign large causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
2.Lowering Inflation: the policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
3.Collapse of Illegal Economy Activities: People who have earned money through illegal ways would be afraid to declare the money as they may be prosecuted by the Income tax department on the legitimacy of their income.
4.Easy Loans: Loans will become easier and interest rates may come down. As banks will have more money so more loans will be given out which will increase the money supply in the market and it will create inflation.
Demerits of the initiative
1.Hoarding – some members of the public are hoarding the new notes thereby restricting their flow through the economy. Cash kept at home will not circulate but may fuel a perception of scarcity which leads to higher demand for the currency, signalling to those who don’t have an urgent or immediate cash need to store cash.
2.Panic Queues – There are long queues at some bank ATMs and banking halls. Whilst some of these withdrawal requests are genuine and DMBs continue to load the ATMs only with new notes, monitoring suggests that there appears to be some opportunistic and panic queuing.
3.Damage of Bank Branches & Assault of Bank Personnel – at some branches, customers have become aggressive, verbally and/or physically abusing bank staff. They have also damaged or destroyed bank property, premises, and assets.
4.Incidences of Economic Opportunism – some Nigerians are capitalising on the transition to charge exorbitant fees or demand cash payment on the false pretext that POSs don’t work, especially at petrol stations. These selfish actions for personal monetary gain is creating hardship for Nigerians and may come at the expense of fellow citizens lives and livelihood.
The nexus between the Naira redesign and money market equilibrium:
The federal government through the CBN has decreased the money supply. A fall in M reduces real money balances because P which is the price level is fixed in the model. The supply of real money balances shifts to the left . The equilibrium interest rates rises from r1 to r2 and the higher the interest rates makes people satisfied to hold the smaller quantity of real money balances . The opposite would occur if the CBN had suddenly increased the money supply. Therefore, according to the theory of liquidity preference, a decrease in the money supply raises the interest rate, and an increase in the money supply lowers the interest rate.
Yes the new policy will promote equilibrium in the money market
Central banks can use the new Naira redesign policy to manage economic fluctuations and achieve price stability, which means that inflation is low and stable. Central banks in many advanced economies set explicit inflation targets. Many developing countries also are moving to inflation targeting. Central banks conduct monetary policy by adjusting the supply of money, usually through buying or selling securities in the open market. Open market operations affect short-term interest rates, which in turn influence longer-term rates and economic activity. When central banks lower interest rates, monetary policy is easing. When they raise interest rates, monetary policy is tightening.
References
https://www.vanguardngr.com/2023/02/benefits-of-naira-redesign-policy-by-emefiele/#:~:text=Reduction%20of%20Broad%20Money%20Supply,less%20pressures%20on%20domestic%20prices.
https://www.imf.org/en/About/Factsheets/Sheets/2023/monetary-policy-and-central-banking
Name: Odo Lovelyn Chiom
Reg no: 2019/241246
Department: Education Economics
Merits of the new redesign policy initiative adopted by the CBN
1.Reduction of Broad Money Supply: Effectively implemented currency redesign large causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
2.Lowering Inflation: the policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
3.Collapse of Illegal Economy Activities: People who have earned money through illegal ways would be afraid to declare the money as they may be prosecuted by the Income tax department on the legitimacy of their income.
4.Easy Loans: Loans will become easier and interest rates may come down. As banks will have more money so more loans will be given out which will increase the money supply in the market and it will create inflation.
Demerits of the initiative
1.Hoarding – some members of the public are hoarding the new notes thereby restricting their flow through the economy. Cash kept at home will not circulate but may fuel a perception of scarcity which leads to higher demand for the currency, signalling to those who don’t have an urgent or immediate cash need to store cash.
2.Panic Queues – There are long queues at some bank ATMs and banking halls. Whilst some of these withdrawal requests are genuine and DMBs continue to load the ATMs only with new notes, monitoring suggests that there appears to be some opportunistic and panic queuing.
3.Damage of Bank Branches & Assault of Bank Personnel – at some branches, customers have become aggressive, verbally and/or physically abusing bank staff. They have also damaged or destroyed bank property, premises, and assets.
4.Incidences of Economic Opportunism – some Nigerians are capitalising on the transition to charge exorbitant fees or demand cash payment on the false pretext that POSs don’t work, especially at petrol stations. These selfish actions for personal monetary gain is creating hardship for Nigerians and may come at the expense of fellow citizens lives and livelihood.
The nexus between the Naira redesign and money market equilibrium:
The federal government through the CBN has decreased the money supply. A fall in M reduces real money balances because P which is the price level is fixed in the model. The supply of real money balances shifts to the left . The equilibrium interest rates rises from r1 to r2 and the higher the interest rates makes people satisfied to hold the smaller quantity of real money balances . The opposite would occur if the CBN had suddenly increased the money supply. Therefore, according to the theory of liquidity preference, a decrease in the money supply raises the interest rate, and an increase in the money supply lowers the interest rate.
Yes the new policy will promote equilibrium in the money market
Central banks can use the new Naira redesign policy to manage economic fluctuations and achieve price stability, which means that inflation is low and stable. Central banks in many advanced economies set explicit inflation targets. Many developing countries also are moving to inflation targeting. Central banks conduct monetary policy by adjusting the supply of money, usually through buying or selling securities in the open market. Open market operations affect short-term interest rates, which in turn influence longer-term rates and economic activity. When central banks lower interest rates, monetary policy is easing. When they raise interest rates, monetary policy is tightening.
References
https://www.vanguardngr.com/2023/02/benefits-of-naira-redesign-policy-by-emefiele/#:~:text=Reduction%20of%20Broad%20Money%20Supply,less%20pressures%20on%20domestic%20prices.
https://www.imf.org/en/About/Factsheets/Sheets/2023/monetary-policy-and-central-banking
Name: Odo Lovelyn Chiom
Reg no: 2019/241246
Department: Education Economics
Merits of the new redesign policy initiative adopted by the CBN
1.Reduction of Broad Money Supply: Effectively implemented currency redesign large causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
2.Lowering Inflation: the policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
3.Collapse of Illegal Economy Activities: People who have earned money through illegal ways would be afraid to declare the money as they may be prosecuted by the Income tax department on the legitimacy of their income.
4.Easy Loans: Loans will become easier and interest rates may come down. As banks will have more money so more loans will be given out which will increase the money supply in the market and it will create inflation.
Demerits of the initiative
1.Hoarding – some members of the public are hoarding the new notes thereby restricting their flow through the economy. Cash kept at home will not circulate but may fuel a perception of scarcity which leads to higher demand for the currency, signalling to those who don’t have an urgent or immediate cash need to store cash.
2.Panic Queues – There are long queues at some bank ATMs and banking halls. Whilst some of these withdrawal requests are genuine and DMBs continue to load the ATMs only with new notes, monitoring suggests that there appears to be some opportunistic and panic queuing.
3.Damage of Bank Branches & Assault of Bank Personnel – at some branches, customers have become aggressive, verbally and/or physically abusing bank staff. They have also damaged or destroyed bank property, premises, and assets.
4.Incidences of Economic Opportunism – some Nigerians are capitalising on the transition to charge exorbitant fees or demand cash payment on the false pretext that POSs don’t work, especially at petrol stations. These selfish actions for personal monetary gain is creating hardship for Nigerians and may come at the expense of fellow citizens lives and livelihood.
The nexus between the Naira redesign and money market equilibrium:
The federal government through the CBN has decreased the money supply. A fall in M reduces real money balances because P which is the price level is fixed in the model. The supply of real money balances shifts to the left . The equilibrium interest rates rises from r1 to r2 and the higher the interest rates makes people satisfied to hold the smaller quantity of real money balances . The opposite would occur if the CBN had suddenly increased the money supply. Therefore, according to the theory of liquidity preference, a decrease in the money supply raises the interest rate, and an increase in the money supply lowers the interest rate.
Yes the new policy will promote equilibrium in the money market
Central banks can use the new Naira redesign policy to manage economic fluctuations and achieve price stability, which means that inflation is low and stable. Central banks in many advanced economies set explicit inflation targets. Many developing countries also are moving to inflation targeting. Central banks conduct monetary policy by adjusting the supply of money, usually through buying or selling securities in the open market. Open market operations affect short-term interest rates, which in turn influence longer-term rates and economic activity. When central banks lower interest rates, monetary policy is easing. When they raise interest rates, monetary policy is tightening.
References
https://www.vanguardngr.com/2023/02/benefits-of-naira-redesign-policy-by-emefiele/#:~:text=Reduction%20of%20Broad%20Money%20Supply,less%20pressures%20on%20domestic%20prices.
https://www.imf.org/en/About/Factsheets/Sheets/2023/monetary-policy-and-central-banking
Name: Ucheama Calista Ngozi
Reg. No : 2019/243039
Course Code: ECO 303
INTRODUCTION
The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele on October 26, 2022, announced policy initiatives to redesign the N200, N500, and N1,000 denominations, and subsequently introduced the cash withdrawal limits to regulate the movement of cash in the system as well as solve other challenges including currency counterfeiting among others.
In announcing the Naira redesign programme, the CBN governor said the move was aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank. He, further explained that there was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks.
We should note that, money plays a crucial role in a country’s economy. It determines such things as the general price levels, aggregate national income, production and productivity, labour and capital employment levels, exchange rates and the balance of payments.
THE MERITS OF THE NEW REDESIGNED NAIRA NOTES POLICY
Addressing of insecurity, corruption and economic sabotage: However considering the timing of the policies – being an election year – some Nigerians, particularly politicians, believed that the apex bank’s move was targeted against certain individuals and have refused to see beyond their assumptions to know that the actions are in the best interest of Nigerians and the economy if the country must address the current gale of insecurity, corruption and economic sabotage among other actions of some privileged elites who continued to take advantage of a dysfunctional system to short-changed the country.
Reduction of inflation: If anything, there have been early successes of the CBN intervention – the monetary policy committee (MPC) of the central bank recently affirmed that the various policy interventions of the bank had led to a reduction in inflation after months of an uptick in the headline index.
Reduction in banditry and kidnappings: Also, the cashless policy has led to a reduction in banditry and kidnappings, which were rampant in the recent past.
Increase monetary policy decisions: According to Emefiele, the central bank’s principal objective for the currency redesign initiative was to make our monetary policy decisions more efficacious, saying: “We have started to see inflation trending downwards and exchange rates relatively stable.
Support to security agencies: This policy aims to increase financial inclusion in the country by reducing the number of the unbanked population. Also, to support the efforts of our security agencies in combating banditry and ransom-taking in Nigeria through this program.
Mopping-up of money outside the banking system: Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth.
Boosting of wealth creation: If anything, the number of employment opportunities already created by the policies further demonstrates that rather than impoverishing Nigerians, the cashless policy has the potential to boost wealth creation across the country. Already over 30,000 super agents had been engaged to carry out mobile services across the country.
Strengthening the performance of key macroeconomic parameters: Further highlighting the benefits of the cashless policy, Emefiele pointed out that generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties. According to him, the macroeconomic impacts of currency redesign are multidimensional and could seem uncertain especially at this early stage when its inconvenience is widespread.
Enhances savings: Emefiele said, “By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behaviour, and further encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
Boosting of fiscal policy: In addition, the short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.
Reduction of tax evasion and avoidance: Speaking on the long-term benefits of the cashless policy, the Central Bank Governor said the policy improves the sophistication of tax collection and would no doubt reduce tax evasion and tax avoidance.
Curbing of counterfeiting: It is agreed that redesigning currencies could curb counterfeiting, especially where the existing design is very worn and its security can be easily bypassed. It is also a fact that, redesigning and printing of new currencies will cost billions of Naira of public funds. The CBN in its most recent report, (2020 Currency Report), states that a total of 67,265 pieces of counterfeit notes with a nominal value of N56.83 million was confiscated in 2020, indicating a 20.80% decrease in volume and 12.18% decrease in value, compared with 84,934 pieces valued at N64.71 million in 2019.
DEMERITS OF THE NEW REDESIGNED NAIRA NOTES POLICY
Increased poverty and scarcity of products/services: Following the naira redesign, the CBN had limited cash withdrawals to N500,000 per week for individuals and N5 million for corporate organisations and this has increased the poverty rate of the masses and have increased in creating joblessness since the masses now uses bank as their everyday visit inorder to withdraw cash for daily basis.
Low production capability: It seemed obvious that the local capacity to produce new currency was low for an economy like Nigeria. Or rather, it could be that the CBN underestimated things. It is acceptable however that in policymaking, new lessons are quickly learnt and adjustments made. Policy success will depend on the speed and accuracy of the learning and response.
Our banking superstructure and modernity: A keen observer will conclude that Nigeria has fewer banks in the rural areas today than we had in 1984, 39 years ago, and that is a tragedy. The currency redesign exercise again exposed this, and this is good information for the Central Bank of Nigeria. Banks were consolidated in 2005/6 because we wanted them to do bigger transactions and be stronger. But we ended up creating too big-to-fail banks which had to be rescued with taxpayers’ monies after overtrading in 2011. Subsequently, there seems some calm on that front, but these big banks had rolled back their branches in rural areas due largely to insecurity. Many branches deemed unprofitable had also been closed. The currency swap exercise also revealed that the alternatives to normal banking have not yet taken root as they could not back up quickly. Many local governments in Nigeria have no bank presence at all.
Widening income divide and the wages of illiteracy/poverty: One other lesson from the currency swap exercise is the fact that the income divide seems to have widened into a gorge. People queued (or rather mobbed) up en masse at ATMs across the country – where they are available — to withdraw very negligible amounts. The poverty problem was further laid open as those who were more comfortable have no cash to tip those who had little. Even when they had, they were naturally slower in spending. The exercise laid bare the fact that little had been done on the issues of illiteracy and poverty as well. Many of those who destroyed bank branches probably had no money in their accounts – that is if they had accounts.
Polymer vs colour change: Whereas many countries around the world are transiting to polymers for their cash, Nigeria did not get that luxury this time. Perhaps this is because we don’t have the local capacity (though that may be acquired). Polymer notes are more difficult to handle in bulk and that provides its own disincentive. It is also more difficult to forge/counterfeit.
Psychologies unanticipated/mismanaged: Some psychologies were mismanaged or unanticipated until they caused crises. First is the issue of ‘spraying’. Even as Nigerians struggled to get some cash for daily needs, connected partygoers got their hands on large amounts of new notes which they went and displayed and danced upon. There is also a certain curiosity about obtaining the new cash given that a change such as this had not occurred since basically 1984 (39 years ago under the same leader). Some Nigerians hoped the policy will be reversed and so did not move until the last moment. And most people who obtained some were slow in spending. The new currency was treated as prized possession rather than means of exchange. By the time a scarcity developed, panic set in. Also, the greed of bank operatives who hoarded the cash was underestimated until the CBN and anti-corruption agencies started making the rounds. Politicians who were targeted with the policy also outsmarted the system by reaching mutually-lucrative deals with bank managers.
Politics: The political twist added complication to the policy. The President, in trying to leave a legacy of a free and fair election, stated that he hoped to deprive politicians of cash for the upcoming election. This amounts to using the CBN as a political tool and further complicates the fate of the CBN Governor who had himself tried to contest for a presidential ticket in the ruling party. A lot of flak was directed the way of Emefiele. However, politicians got the better of the system all the same. They struck deals and cleared the first few disbursements, allegedly without passing their stashes through any accounts in the banks.
Demographic and sociological changes since 1984: From the immediate outcomes of the policy, we could see how Nigeria had changed demographically and sociologically since the last time such an exercise was performed. From Point of Sale (PoS) operators taking advantage of fellow Nigerians to the blowing out of proportion of issues which then resulted in panics and riots, to the fact that Nigerians are now much less patriotic and more impatient, these are changes to note. Also, Nigerians have become more fearless and more disdainful of authority hence more difficult to control.
Effect of social media: Social media has had a tremendous impact on us even though we hardly analyze the extent of this influence. Nigerians have thus become a lot more vocal since everybody seeks an advantage to become social superstars. Policies must be made, having in mind the new realities of our times. Small issues can be blown out of proportion and become national issues in a moment of infectious anger. But good news travels slower. Nigerians are said to spend the second-highest average time on social media behind Filipinos. With such ‘performance’, many believe that we could actually be the greatest social media users. Many who say they are without jobs have made social media a haven. And somehow data is never their issue. Nigeria must decide its national policy on social media which will actively promote productivity.
No totally cashless society anywhere in the world: Currency redesign is one thing. Forcing all Nigerians to go totally cashless is another. The cashlessness of economies is achieved gradually. Literacy helps a lot. Our informal economy is however still quite large and formidable, and cannot be reined in by force and in a short span of time. We cannot toy with a fully cashless economy, not now, not in some while to come. It is more than evident that other banking channels have broken down the moment Nigerians piled pressure on them. Banks must however be encouraged to invest more in those online platforms and make their systems more reliable if we are to make progress along that line. The CBN should push for banks to lower their charges if it wants more people to adopt cashless options.
The law of unintended consequences: Every policy comes with unintended sequences. Many times, where a policy berths is not where policymakers intended. In this instance and thus far, the cash swap policy has resulted in a constriction in the business space. Transaction velocity has reduced but will bounce back with a vengeance once things are normalised. Also, higher transaction costs may result in a reversal of the downward inflation trend which the CBN wants to encourage. On the flip side, however, the naira has gained against the US Dollar in the black market. Non-availability of cash is the reason adduced by forex dealers and some have quoted N600-N650, down from N730 two weeks ago. Also, with the arrest of those caught spraying and dancing on money, that habit may permanently be on its way out. Anyone organising such parties now must be careful. And you cannot be too careful because you may never be able to tell who will leak your video. The more highly placed in society, the higher the risk you run.
Conclusion
In spite of the above issues and points, I believe strongly that the fact that the CBN is having to learn many things in the process, the radical shifts in the demography and social psychology since 1984 (39 years ago), the unintended consequences that only emerges after the fact, this policy is a good one, and we need to perhaps begin to scale up to polymer notes that are now better done, harder to forge, and that the next time, we should probably give a longer deadline and start early to infuse new notes in the system. Indeed, there is no single staff of the CBN who was there in 1984 remaining there today who could share some institutional memory. Our focus should probably begin to shift to loftier goals rather than the pursuit of kidnappers and forgers. Those ones should be footnotes.
More than anything else, we can see that the abandoned rural areas still contain a lot of value that can be unleashed if we hadn’t taken this philistine approach of abandoning them and narrowly focusing on where the velocity of money will come from. It is a noted fact that the presence of small banks that can lend money locally for the explosion of productivity around value addition to what a people produce, is a sure way to economic development. That is how they did it in Germany, Japan, and even the USA and the United Kingdom. Our community banks did not do this when they had the chance, but they could be repositioned and reintroduced. Those banks should also be able to chase liquidity from the same system and organically grow their balance sheet.
It’s been very stressful for many Nigerians. Apologies are well deserved from the policymakers and implementers, and even from those who wanted to insert politics into it. Indeed, with hindsight and given the several new issues coming up as a result of our peculiar sociopsychology as a people, apologies are fitting from those of us who supported the policy in its infancy. The timing is too touchy for who we have become. And that is a scary prospect. We are a nation whose people are evolving into very strange creatures… a nation where we may not be able to effect any beneficial policy successfully even for our own good. Also, the policy has too many moving parts which sometimes run out of control.
The option left to the CBN is to flood the banking sector with as much currency as possible. No longer can we afford the luxury of waiting for the old money to come in before issuing new ones. New money will have to drive out old. The new currency must soon enough become ubiquitous, and within limits, easy for anyone to get in approved quantities. As policies go, this is one tough one. A shock therapy, it must be called. But I believe that poor Nigerians stand to gain eventually from the increased discipline, increased value for money in public procurement, and indeed the confidence that we may now gain from printing currency locally, among other advantages
THE NEXUS BETWEEN NAIRA REDESIGN MONEY MARKET EQUILIBRIUM
In the midst of another recession in Nigeria which began in 2016 after 25 years is a worsen exchange rate and a low return on investment, that is, interest rate, given the high level of inflation. Historically, Nigeria’s exchange rate began to crash in1986 when the Structural Adjustment Program (SAP) was introduced. Thirty one years after, the exchange rate did not improve. It has rather gone bad with a US dollar exchanged at about NGN500 in the parallel market as at fourth quarter of 2016 and NGN380 in the second quarter of 2017. There are indications that if the governments of the country are not serious in handling the economic matters of the country, the recession may persist for more than three years and exchange rate might to continue to depreciate with low interest rate. Although there are also forecasts that the country would grow by 2.2 percent in 2017 since the oil market has gradually recovered and there is relative peace in the Niger Delta. The recession was largely due to the crash in the international oil market in 2015 and heavy drop in oil production in the country. The unfortunate scenario is that Nigerian economy remains fragile with its growth being largely financed by oil revenue (Babatunde, 2015, Olagbaju & Akinbobola, 2016).There remains theoretical concerns as well as constraints in the choice of exchange rate regime in both developed and developing countries. This is because the choice of exchange rate regime as well as theoretical model of exchange rate ought to consider the link with financial discipline, inflation and economic development. It implies that commitment to an exchange rate policy should be compatible with the main macroeconomic equilibrate; otherwise it will not be sustainable (Dordunoo & Njinkeu, 1996; Bohl, Michaelis & Siklos, 2016).
Exchange rate policy has a long history in Nigeria. Between 1959 and 1967, Nigeria implemented fixed parity exclusively using the British pound and this was abrogated in 1972. The aftereffects of the devaluation of pound in 1967 and the onset of a powerful US dollar led to the insertion of US dollar in the exchange rate parity. In 1973, the US dollar was devaluated and Nigeria returned to fixed parity with the pound. As a way of reducing the counter bounce effect of devaluation of the individual currency parity, both British pound and US dollar were considered. In 1978, the central bank reverted to import weighted basket of currency method which was considered due to the tie of seven currencies: US dollar, British pounds, Japanese Yen, French Franc, German Mark, Swiss franc and Dutch guilder. In sum, between 1980 and 2016, the fixed and flexible exchange rate systems were used interchangeably. This paper seeks to investigate the nexus between exchange rate and interest rate in Nigeria. Specifically, it tests the long run relationship among exchange rate, world interest-cum- domestic-interest rate, output level, inflation, and money supply. The relevance of this study is that it would provide a recent and additional empiric on the issue of exchange rate crisis in Nigeria, thereby giving a timely foundation for targeting both the exchange and interest rates. This is pertinent because the Central Bank of Nigeria in recent times seems not to have an enduring solution to the exchange rate crises. The study is therefore a timely one. The remaining part of this paper is broken into five segments. Segment 2 provides a synopsis of the literature review. Following is the theoretical framework and methodological approaches in part 3. Results of the study are presented and discussed in part 4 while section 5 contains the conclusion including policy suggestions.
Connection between naira and money market
The design and implementation of monetary policy globally in the past three decades have witnessed significant changes, apparently reflecting the challenges in establishing the appropriate link of monetary policy to price and output. For instance, the transition from a strictly monetary to inflation targeting framework of monetary policy showed the underlying instability in the demand for money function in the wake of recession. Several countries have implemented different variants of monetary policy regimes, either combining monetary with output targeting or adopting a modified inflation targeting regime that also targets interest rate. Similarly, Nigeria’s monetary policy management strategy underwent significant changes, from predominantly direct controls to a relatively liberalized environment of indirect controls. The major objectives of policy, however, has remained unchanged, that is, price stability and sustainable growth of the economy. In recent times, however, the task of monetary management has come under severe pressures from developments in the global financial system. Financial innovations, sustained by the influences of globalization, played a key role in molding the influence of monetary policy on financial assets during the period.
Consequently, the complex nature of the evolving global financial system requires the central bank to strictly anchor its monetary policy strategy on an established theoretical framework. While theoretically, monetary policy was seen to impact on the real economy through the direct and indirect mechanisms, the complex nature of the evolving transmission mechanism with increased globalization and financial innovation lent credence to the continual refining of the Bank’s monetary policy management strategy. Thus, the monetary policy strategy of the Bank over the period 1959 to 1973 was exchange rate targeting; designed to provide a sound basis for the national currency introduced soon after independence. Monetary policy, therefore, was designed to nurture the international acceptability of the newly introduced legal tender currency. In the period 1968 to 1979, the direct control strategy of monetary policy management, which coincided with massive injection of petrodollars into the economy arising from huge oil windfalls of the period, directed funds to critical sectors of the economy. The Bank was not very effective in stabilizing inflationary swings around single digit as inflation was not a major goal of monetary policy. During this period, the goals of monetary policy were stimulating output growth with high employment. Since the 1980s, however, inflationary developments in Nigeria created fundamental challenges to the task of monetary management. The various monetary policy strategies of the Bank were not very effective in containing the upward trending inflation. Domestically, the CBN began to seriously examine the implications of rising inflation on the efficacy of monetary policy and, thus, began to rethink the direct approach to monetary management. In 1993, the Bank adopted the indirect approach to monetary management where emphasis was on observing money market conditions to examine the behaviour of variables such as nominal interest rates, CBN credit to deposit money banks (DMBs) and the free reserves of the banking system (excess reserves minus borrowings). Attempt to fine-tune the economy from this Keynesian macroeconometric framework by exploiting the Phillips curve long-run trade-off between unemployment and inflation for achieving low inflation led to increased monetary and fiscal policy activism at the Bank during the period 1993 to 2006. These developments led to unintended consequences as inflation accelerated.
Consequently, the Bank resorted to targeting the monetary aggregates premised on Friedman‟s thesis that fluctuations in the growth rate of the money supply were far more capable of explaining economic fluctuations and inflation than nominal interest rates. This monetarist view provided the framework used by the Bank that monetary policy should focus on controlling inflation through a pursuit of steady growth in money supply consistent with the development objectives of the economy. The challenge of monetary policy, therefore, was obviously ensuring that the transmission mechanism supported the preference of the monetary authorities. The major area of concern in Nigeria, however, is the commitment of the fiscal authorities to adhere in the future to prudent fiscal operations which will rule out financing by the banking system, especially the CBN. This raised the question of dynamic inconsistency in monetary policy that became one of the thorny issues in the way central banks attempt to „manipulate‟ economic agents or choose to „lean against the wind‟ and the delicate balance of finding the right policy target or identifying the right nominal anchor. In order to assist policy makers in formulating and implementing policies, the need to develop and utilize various types of models to aid the understanding of the inter-linkages between the sectors and the economy becomes imperative. At the CBN, efforts at modeling the monetary sector in the past merely focused on the estimation of money demand and money supply functions. However, there has been a preliminary study on the monetary sector model of the Nigerian economy by Asogu and Mordi, (unpublished). Against this backdrop, in order to sufficiently capture the inter-relationship and dynamics between the major monetary variables and other macroeconomic indicators, the Bank found it necessary to initiate the construction of the monetary sector model that would enhance policy simulation and analysis among sectors.
Demand for money is determined by the behavior of economic agents, especially by households and firms. Keynes (1936) highlighted three motives for the demand for money namely; transactionary, precautionary and speculative motives According to him while the transactionary motive for holding money is premised on economic agents‟ need to meet daily contractual obligations, the precautionary motive is related to the need to hold money for emergencies and other unforeseen situations. As a store of value or wealth, money is held for speculative purposes so as to take advantage of prevailing market opportunities. In other words, during regimes of high interest rate, bond prices would rise, making it more attractive to hold bonds than money. Similarly, during a low interest rate regime, bond prices fall making it more attractive to hold money than bonds. Money demand, therefore, is inversely related to the interest rate under the speculative demand. Money held for transactions and precautionary purposes is primarily a function of income, while speculative demand for money is a function of both income and the rate of interest. Therefore, the total demand for money can be expressed as a function of the level of income and the rate of interest. The demand for money is the demand for real money. Money is held to finance transactions and, therefore, demand for money increases with real output. The monetarists, following the Quantity Theory of Money (QTM) hypothesis, have attributed the determination of the price level or the value of money to the quantity of money, such that any change in the quantity of money produces an exactly direct and proportionate change in the price level. The QTM is traceable to Irving Fisher‟s famous exchange equation:
MV = PQ
where M stands for the stock of money; V for the velocity of circulation of money; Q is the volume of transactions which take place within the given period; while P stands for the general price level in the economy.
Conclusions
The equilibrium at the money market is reached when the quantity of money demanded and supplied becomes equal to the rate of interest. Modeling the monetary sector largely entails modeling the transmission of conditions in the financial sector to other sectors by endogenising some measures of liquidity. This takes into account the level to which money supply and other assets are affected by public sector deficits, developments in the balance of payments, and reflecting the effects of decisions made by financial institutions on the monetary sector, Pauly (2000). Crouch (1967) modeled United Kingdom‟s monetary sector using the demand and supply side of monetary assets. The variables were currency, bank reserves, demand deposits, time deposits, and total deposits. The model was closed by a simple distributed lag version of the quantity theory of money. The model was generally recursive with selective interdependent system leading to the deployment of ordinary least square (OLS) and two-stage least square (TSLS) estimators in the estimation of the structural coefficients. It ignored the real sector owing to the fact that the real and trade sectors had been adequately captured in other studies. An important outcome the UK monetary sector model is the fact that “the special deposit mechanism is a treacherous instrument of monetary policy as this instrument acts perversely”, (Crouch, 1967).
A monetary sector model of India had been estimated by Khetan (1973). The model consisted three sectors, namely the commercial banking, the private nonbank, and the government sectors and comprised 8 behavioural equations. The demand and supply of six principal financial assets in the Indian money market included bank credit, currency with the public, demand deposits, excess reserves, government securities and time deposits. But the absence of feedback to and from the real sector limited the operational usefulness of this model. Mishkin (1984) studied the real interest rate movements in seven OECD countries for the period 1967 to 1979 in the euro deposit market. He found a close relationship between nominal interest rates and expected rates of inflation for the UK, the US and Canada. He found that Germany, the Netherlands, and Switzerland exhibited much weaker Fisher effect. Palanivel and Klien (1999) modeled the monetary sector of the Indian Economy, using the OLS technique to understand its interaction with the fiscal, real and external sectors of the economy. The imperative for linking the monetary sector to the fiscal sector hinged on the substantial effect of fiscal stimulus occasioned by the huge size of deficit financing through net credit to the government, an important source of reserve money creation. As an interaction with the real sector, it was reflected in the demand for money functions and its components, and in price formation. To relate the monetary sector to the external environment, the net foreign asset was used as a critical link to the money supply determination process. The overall performance of the model in terms of its predictive ability established its validity and robustness and provides a reasonable basis for undertaking forecasts in the future. Therefore, from the study, it is viewed that this new policy initiated by CBN promotes equilibrium in the money market.
REFERENCES
Asogu, J. O. and C.N.O. Mordi (1987). An Econometric Model of the Nigerian Monetary Sector: Outline and Preliminary Results. (Unpublished).
Babatunde, M. A. (2015). Oil Price Shocks and Exchange Rate in Nigeria. International Journal of Energy Sector Management, 9(1), 2-19.
Bhole, L. M. and V. J. Sebastian (1996). “Determinants of interest rates in a deregulated open economy”, The Indian Journal of Economics, Vol 77, No.305, October.
Brunnermeier, M. K. and Sanniko, Y. (2011) A Macroeconomic Model with a Financial Sector (In progress). Brunner, K. and A. H. Meltzer (1964). “Some Further Investigations of Demand and Supply Functions of Money”, Journal of Finance, May Central Bank of Nigeria (2009). 50 Years of Central Banking in Nigeria 1950 –2008, Central Bank of Nigeria, Abuja.
Central Bank of Nigeria (2010). Monetary Policy Transmission Mechanism in Nigeria, Research Department.
Crouch, R. L. (1967). A Model of the United Kingdom’s Monetary Sector, Econometrica, Vol. 35, No. 3/4 (Jul. – Oct., 1967), pp. 398-418
Dornbusch, R., Fisher, S. and Kearney, C. (1996). Macroeconomics. Sydney: The McGraw-Hill Companies, Inc. Edwards, Sebastian and Mohsin S. Khan. “Interest Rate Determination in Developing Countries” A Conceptual Framework,” International Monetary Fund Staff Papers, Vol. 32, No. 3, September 1985, pp. 377-403.
Khetan, Chatan Prakash (1973). A Quarterly Econometric Model of the Indian Monetary Sector. Open Access Dissertations and Theses. Paper 2937.
Marcelo Sánchez (2005). The Link between Interest rates and Exchange rates, Do Contractionary Depreciations make A difference? European Central Bank (ECB) ECB Working Paper, No 548.
Mishkin, Frederic S., 1984. “Are Real Interest Rates Equal Across countries? An Empirical Investigation of International Parity Conditions”. Journal of Finance No.39
Mordi, C. N. O. (2009). Overview of Monetary Policy Framework in Nigeria, CBN Bullion, Vol. 33, Number 1, January – March.
Olagbaju, I. O. & Akinbobola, T. O. (2016). A Non-linear Analysis of the Oil Price-Exchange Rate Nexus in Nigeria. Journal of Economics and Behavioral Studies, 8(4), 79-91.
Olofin, S. (2001). An Introduction to Macroeconomics. Malthouse Social Science Series, Lagos: Malthouse Press Limited.
Palanivel, Thangavel and Klein, Lawrence (1999). An Econometric Model for India with Emphasis on the Monetary Sector, The Developing Economies, XXXVII- 3, P. 275 – 336
Pauly P. (2000). Framework for a Macroeconometric Model of an Emerging Small Open Economy, Revised Draft for Institution of Policy Analysis, Toronto
Soludo, Charles (2009). Appropriate Inflation Rate, Exchange Rate: The Challenges of Ensuring and Interest Rate Regimes in Nigeria. A Presentation to a Panel of Discussants, Central Bank of Nigeria
MERITS:
1-Considering the timing of the policies being an election year some Nigerians particularly politicians believed that the apex bank’s move was targeted against certain individuals and have refused to see beyond their noses that the actions are in the best interest of Nigerians and the economy if the country must address the current gale of insecurity, corruption and economic sabotage among other actions of some privileged elites who continued to take advantage of a dysfunctional system to short-changed the country
2-Also, the cashless policy has led to a reduction in banditry and kidnappings which were rampant in the recent past. limiting cash withdrawal will help curb vote buying, and terrorism and encourage digital payments and also help This is partly because going cashless would ensure that such funds can easily be tracked and monitored and this will further provide for greater transparency and accountability by those who administer the resources.
3-Another Merit is that the measure will improve the value of the Naira against other currencies. It is always a play of demand size against supply size. If there is a scarcity of Naira, foreign currencies will become surplus in the market to exchange for scarce naira. It will also help CBN to manage the supply of the redesigned currency which may not be very available to cover the demand for it in all states of the federation at the same time The policy will also be a good step in strengthening the value of the naira. At this rate, if this is played right and it is sustained, we may see a scenario where the naira/dollar rate comes down and the naira can strengthen a little bit against the dollar when there is not much money flowing after the dollar.”The measure will also boost the value of the Naira when there are less of N500 and N1000 naira notes in circulation as it is being done with major currencies in the world like the US Dollar, British Pound Sterling, and the Euro.
DEMERITS
1-It may may have negative effect on economic activity especially poor Nigerians due to its timing and short transition period. Nigeria economy have been falling down due to redesign of Nigeria naira note,because there is not availability new naira note in commercial bank.Also It is feared that rural dwellers who live far from where banking services are available would experience hardship dumping the old notes, as well as, initially, obtaining the new ones.
2-The huge cost of printing the new note could run to trillions of naira, which the economy may be least prepared for with the current state of the economy, the state of the nation’s foreign reserves since the currency is expected to be printed abroad and the implications for the balance sheet of the central bank.
3-the economy will surely be upset by the change in the currency as many merchants and petty traders would start rejecting the old notes ahead of the implementation of the policy
The cost of food and other items will shoot up as the naira notes for transactions will become scarce while many people may go hungry because they could not get new naira to make necessary purchases.
4-There is the possibility that counterfeiters may take advantage of the lag in distribution to circulate their own notes in some parts of the country, which may not be effectively covered by the publicity around the new note and also CBN and the banks will face logistic challenges in the distribution of the new notes across the country with the rate of crime in form of banditry and terrorism across the country escalating. Also, security around the banks would be threatened because of the huge demand for the new notes as criminals could also take advantage of the change-over to commit their illicit trade.
THE NEXUS BETWEEN NAIRA REDESIGN MONEY MARKET EQUILIBRIUM:This will help to prevent excess supply or demand of money.The Naira redesign policy is expected to curb the inflation in the market as less cash holding reduces currency outside banks and retard money circulation, stressing that the accompanying decline in the money supply would slow the pace of inflation.As the Central Bank of Nigeria’s Naira redesign policy bites harder, the scarcity of new notes continues to disrupt business activities in markets, restaurants, banks, and major sales outlets across Nigeria. The impact of the CBN policy and its attendant chaos have frustrated efforts by many Nigerians operating in the nation’s cash-dependent informal economy to do business, make payments, and enjoy certain services.
C-Yes it will promote the equilibrium in the money market because it will help plug fiscal leakages, boost government revenues, and aid the economic empowerment of vulnerable Nigerians as well as benefit the country in a whole The basic functions of the Nigeria money market according to Nwosu and Hamman (2008) is to facilitate the raising of short-term funds from the surplus sector to the deficit sector of the economy. This Naira redesign will also help in providing channel for the injection of central bank. Cash into the system of the economy there by boosting economic development of the nations economy,Currency redesigns increase a currency’s security by helping nations keep counterfeiting to a minimum and stay one step ahead of threats. Additionally, it is anticipated to boost the economy, lower cash management costs, advance financial inclusion, and improve the government’s ability
MERITS
A) It is expected that with the new notes, most tattered naira notes currency pushed into the system would be eliminated while counterfeiters would be refrained for a couple of years in carrying out their illicit business.
B) This new measure could restore confidence in the local currency as the bulk of the naira note stacked away by politicians, criminals and other illegal operators would be returned to the banking system, helping the CBN to monitor the currency in the economy.
C) Also, politicians who have stacked away money for the purpose of vote buying during the forthcoming election may have a difficult time changing their notes into the new naira while bringing such money back to the system could upset some of their plans.
D) The CBN obviously wants to force all those notes back into the banking system. Those with the notes must surrender them to get new ones or else it becomes illegal tender after Jan. 31 2023.
“This is also a way to withdraw currency from circulation, an unorthodox way of tightening the money supply since the country is battling high inflation.
DEMERITS
A) It is feared that rural dwellers who live far from where banking services are available would experience hardship dumping the old notes, as well as, initially, obtaining the new ones.
B) The unbanked and the elderly may not be able to cope since we don’t have banks in most local government areas because There will be lots of long queues in the banking hall. It’s going to create lots of inconveniences for the people.
C) Armed robbery could escalate with criminals targeting bullion vans to be used in the distributions of the new notes in some rural areas in a bid to minimize their losses on the old naira notes stacked away previously in order to evade the law.
D)Fear of persistent Inflation,the step would solve inflation, “because there also are other major reasons for inflation such as the forex crisis, which this new move can exacerbate, as well as the impact of the security crisis on food price inflation.
2) Money market equilibrium occurs at the interest rate at which the quantity of money demanded equals the quantity of money supplied. So with this redesign,money will be at equilibrium During the recent global financial crisis and the recession, unorthodox monetary policy interventions helped salvage the economy where conventional practices have failed. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth.
3)YES,because it will help to increase a currency’s security by helping nations keep counterfeiting to a minimum and stay one step ahead of threats. Additionally, it is anticipated to boost the economy, lower cash management costs, advance financial inclusion, and improve the government’s ability to monitor the money supply. Economically speaking, the redesign of the naira will strengthen financial institutions even more, lessen corruption, and improve banks’ performance due to a sharp increase in the use of electronic banking channels, more transactions taking place through bank accounts, and more agents being able to access the government’s tax collection system. More agents in the tax net will result in an increase in revenue generation for the Federal Government of Nigeria.
Okeanyaego Victor Chidubem
ECONOMICS
2019/244068
Eco 303 Assignment.
In this Assignment, there are 3 questions to be answered.
1. Merits of Naira Redesign Policy:
– Plug fiscal leakages
– Boost Government revenues
– Aid the Economic empowerment of vulnerable Nigerians as well as benefit the country as a whole.
– It helps to Reduce inflation .
– Elimination of Corruption: It would ensure that funds can easily be tracked and monitored and this will further provide for greater transparency and accountability by those who administer the resources.
Demerits of Naira Redesign Policy :
– Greater exposure to Hacking
– Technological Dependency
– Magnifying economic inequality
– Old generation totally depends on the young generation.
2. The Nexus between Naira Redesign and money market equilibrium.
Money Market equilibrium occur at the interest rate at which the quantity of money demanded equals the quantity of money supplied . All other things being equal, a shift in money demand or supply will lead to a change in equilibrium interest rate . A change in the currency of a country will affect their demand for Money . Redesigning the naira will cause a change in the demand for money due to the urgent demand for currency. A shift in money demand is going to lead to a change in market equilibrium .
3. Will this new policy promote equilibrium in the money market?
-No It will not , there will be a serious demand for money supply, the demand for a new currency is always definitely higher than it’s supply . As seen in the country at the moment, due to the reasons the redesign was made. A higher demand than supply automatically defeats a money market equilibrium.
On October 26, 2022, Mr. Godwin Emefiele, the Governor of the Central Bank of Nigeria (CBN), made open, policy initiatives to redesign the N200, N500, and N1,000 denominations.
He then introduced the cash withdrawal limits to control the movement of cash in the system and to address other issues, such as currency counterfeiting, misuse of the Naira note among others.
The governor of the Central Bank of Nigeria (CBN) announced the Naira redesign program with the goal of reducing the ease and risk of currency
counterfeiting, which have been displayed by several security reports; the increased risk to financial stability, the worsening shortage of clean and fit currency, and the subsequent negative perception of the central bank by the people, deemed it fit to carry out the redesigning of the Nigeria Naira, and in view to this, there are merits and demerits which we will be looking at.
Some of the merits of the Naira redesign policy includes:
1. Reduction of the hoarding of money :
According to emefiele, “Available data at the Central Bank of Nigeria showed that in 2015, Currency-in-Circulation was only N1.4trillion. As of October 2022, currency in circulation had risen to N3.23 trillion out of which only N500 billion was within the banking system and N2.7 trillion was held permanently in people’s homes.
Usually, when the CBN releases money into circulation, it is intended to be utilized and, after some period of time has passed, it is returned to the CBN, keeping the amount of money in circulation firmly under its control.
But the reverse is the case, CBN couldn’t be able to account for the supposed 3.23trillion in circulation, hence it happens to be that there was hoarding of money which affected the economy.
Also, it should be mentioned that the lack of availability of the cash in private residences and outside the banking system could prevent the economy from growing as it could.
So, in the adverse effect, the hoarding of old Naira notes was causing poor economic growth
2. Effectiveness of monetary policy: Due to the hoarding of the old Naira notes, The monetary policies to control the economy was seemingly ineffective.
According to emefiele “if anything, there have been early successes of the CBN intervention – the monetary policy committee (MPC) of the central bank recently affirmed that the various policy interventions of the bank had led to a reduction in inflation after months of an uptick in the new redesign policy.
Since the naira redesign inception, the CBN has collected around N2.1 trillion, “leaving the public with about N900 billion,” according to emefiele Essentially, the currency redesign policy has assisted in removing funds from outside the banking system that have frequently contributed to rising inflation and currency speculation, both of which have recently led to difficulties with foreign exchange.
So, its actually a step to having a better economy.
3. Introduction to cashless policies to foster the digital banking : In one of his statements, emefiele said, We aim to increase financial inclusion in the country by reducing the number of the unbanked population.
, Though the CBN cashless strategy began in 2012, but the increase of its scope following the currency redesign has drawn attention and relevance.
The CBN had restricted cash withdrawals after the naira’s redesign to N500,000 for private persons and N5 million for corporate organizations.
Moreover, CBN had explained this measure would help to limit the use of cash for illicit activities such as banditry and terrorism financing and help to track the movement of money through electronic channels. If anything, limiting cash handling with reduce the rate of armed robbery and other associated risks.
Emefiele also emphasized the advantages of the cashless policy by pointing out that governments often create currency redesign plans (also known as demonetization policies) to improve the performance of important macroeconomic metrics while concurrently addressing social inequalities.
It is anticipated that these measures will primarily lower the quantity of currency used in the illicit or shadow economy, curtail the operations of racketeers, and destroy rent-seeking enterprises in the black market. It will diminish the money stock and, as a result, slow the long-term course of inflation by reducing the amount of currency held outside of banks.
The resulting deflationary pressure could lead to interest rate reductions that, in the short to medium term, will stimulate aggregate demand, raise economic activity, and improve output growth, according to Emefiele.
4. Creation of opportunities
As emphasized by the CBN Governor, there is no question that the benefits of the currency reform exercise will have a significant positive impact on the economy in the long run.
If anything, the sheer number of jobs already generated by the policies shows that, rather than making Nigerians poorer, the cashless policy has the potential to increase wealth creation throughout the nation.
Already over 30,000 super agents had been contracted to carry out mobile services across the country.
5. Tax collection avenue for the government.
By encouraging more people to use bank accounts, Emefiele claimed that “this policy will further increase bank account ownership and increase use of accounts by enhancing people’s saving behavior, and further encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
Additionally, when more economic agents are required to create bank accounts by the cashless policy, the short-term drop in cash holding and the increasing formalization of commercial activity would both strengthen fiscal policy. More agents enter the government’s tax net as more transactions pass through e-channels and bank accounts. This enlarges the base of taxable activity and improves the likelihood of higher tax revenues by various tiers of government.”
*Demerits of the Naira redesign*
1. Liquidity constraints, affecting day to day trades: The market(SME) faced with the challenge of getting rid of the old Naira notes has been forced to reject ‘the legal tender for exchange’ and this in its effect makes transaction difficult which in turn affect the movement in circular flow of income (including production and consumption) for how can small scale and middle scale enterprises who depend on liquidity to carry out their transaction?
Its really unprofitable.
2: Economic pressure: At present, households and firms already face elevated financial pressures from prolonged, high inflation, recently compounded by external food and fuel price shocks, and the severe floods, and phasing out existing naira notes over a short time period may add to their challenges, yet the pressure of depositing old notes to Bank came in sudden.
The President of the Bank Customers Association of Nigeria, Dr Uju Ogunbunka, had said the objectives of the cashless policy was understandable but noted that the execution and timing were not right.
In the banking hall, scarcely a week goes by without complaints. People will be shouting as a result of transfer failures, deposit failure, alert failures etc.
There’s no structure put in place to handle Such issues. So instead of just disrupting the system with the pressure of getting new Naira notes, why not give ample time and space atleast to develop the banking sector before executing Such policies.
3. High cost of living
Having learned from a previous comparable occurrence that occurred 38 years ago, the economy will undoubtedly be affected by the currency transition as many small-time traders and retailers will begin refusing the old notes prior to the policy’s execution on December 15.
And its already taking place.
cost of food and other items has shoot up as the naira notes for transactions becomes scarce while many people do go hungry because they could not get new naira to make necessary purchases.
4. High cost of printing the Naira note
Given the current state of the economy, the condition of the country’s foreign reserves given that the currency is anticipated to be printed abroad, and the implications for the central bank’s balance sheet, the enormous cost of printing the new note could amount to trillions of naira, for which the economy is least prepared.
The challenge of logistics of such printing due to the fact that Nigeria is borrowing to fund the budget deficits, makes it uncalled-for for initiating of the new Naira policy
5. Escalation of Higher crimes: banks to process currency.
Armed robbery could escalate with criminals targeting bullion vans to be used in the distributions of the new notes in some rural areas in a bid to minimize their losses on the old naira notes stacked away previously in order to evade the law.
A news had in one time that kidnappers were demanding for the new Naira notes, in the sense that, They want to remove all their old notes and replace it.
The CBN and the banks will face logistic challenges in the distribution of the new notes across the country with the rate of crime in form of banditry and terrorism across the country escalating. Also, security around the banks would be threatened because of the huge demand for the new notes as criminals could also take advantage of the change-over to commit their illicit trade.
2. what is the nexus between Naira redesign and money market equilibrium? Will this new policy promote equilibrium in the money market? Discuss this comprehensively,
The Naira redesign is targeted mostly at two major things, which are Retracting the Money hoarded by the public and introducing a cashless policy.
This simply implies that , the Naira redesign is targeted at reducing money supply (including Real money supply) and this will truly affect the money market equilibrium, Inthe sense that, interest rates will go up .
According to Keynes liquidity preference theory, real MONEY supply and interest rate have a negative correlation. A decrease in money supply raises the interest rates.
So with the push to make individuals, keep Their money at the bank, there is reduction in Money in circulation, hence individuals are trying to convert excess of their money into assets, in order not to fall victims of the policy,
The New policy will not promote equilibrium in the money market, until the supply of the new currentcs meets with the demand of it.
People demands the new currency due to the fact that it has become the new legal tender, and this Means that anyone who doesn’t have it, will not be able to transact. The interest rate for the new Money is below equilibrium, so people want to hold More of it.
The money market will only then be at equilibrium When there is enough of the new Naira in circulation to meet the demand .
On October 26, 2022, Mr. Godwin Emefiele, the Governor of the Central Bank of Nigeria (CBN), made open, policy initiatives to redesign the N200, N500, and N1,000 denominations.
He then introduced the cash withdrawal limits to control the movement of cash in the system and to address other issues, such as currency counterfeiting, misuse of the Naira note among others.
The governor of the Central Bank of Nigeria (CBN) announced the Naira redesign program with the goal of reducing the ease and risk of currency
counterfeiting, which have been displayed by several security reports; the increased risk to financial stability, the worsening shortage of clean and fit currency, and the subsequent negative perception of the central bank by the people, deemed it fit to carry out the redesigning of the Nigeria Naira, and in view to this, there are merits and demerits which we will be looking at.
Some of the merits of the Naira redesign policy includes:
1. Reduction of the hoarding of money :
According to emefiele, “Available data at the Central Bank of Nigeria showed that in 2015, Currency-in-Circulation was only N1.4trillion. As of October 2022, currency in circulation had risen to N3.23 trillion out of which only N500 billion was within the banking system and N2.7 trillion was held permanently in people’s homes.
Usually, when the CBN releases money into circulation, it is intended to be utilized and, after some period of time has passed, it is returned to the CBN, keeping the amount of money in circulation firmly under its control.
But the reverse is the case, CBN couldn’t be able to account for the supposed 3.23trillion in circulation, hence it happens to be that there was hoarding of money which affected the economy.
Also, it should be mentioned that the lack of availability of the cash in private residences and outside the banking system could prevent the economy from growing as it could.
So, in the adverse effect, the hoarding of old Naira notes was causing poor economic growth
2. Effectiveness of monetary policy: Due to the hoarding of the old Naira notes, The monetary policies to control the economy was seemingly ineffective.
According to emefiele “if anything, there have been early successes of the CBN intervention – the monetary policy committee (MPC) of the central bank recently affirmed that the various policy interventions of the bank had led to a reduction in inflation after months of an uptick in the new redesign policy.
Since the naira redesign inception, the CBN has collected around N2.1 trillion, “leaving the public with about N900 billion,” according to emefiele Essentially, the currency redesign policy has assisted in removing funds from outside the banking system that have frequently contributed to rising inflation and currency speculation, both of which have recently led to difficulties with foreign exchange.
So, its actually a step to having a better economy.
3. Introduction to cashless policies to foster the digital banking : In one of his statements, emefiele said, We aim to increase financial inclusion in the country by reducing the number of the unbanked population.
, Though the CBN cashless strategy began in 2012, but the increase of its scope following the currency redesign has drawn attention and relevance.
The CBN had restricted cash withdrawals after the naira’s redesign to N500,000 for private persons and N5 million for corporate organizations.
Moreover, CBN had explained this measure would help to limit the use of cash for illicit activities such as banditry and terrorism financing and help to track the movement of money through electronic channels. If anything, limiting cash handling with reduce the rate of armed robbery and other associated risks.
Emefiele also emphasized the advantages of the cashless policy by pointing out that governments often create currency redesign plans (also known as demonetization policies) to improve the performance of important macroeconomic metrics while concurrently addressing social inequalities.
It is anticipated that these measures will primarily lower the quantity of currency used in the illicit or shadow economy, curtail the operations of racketeers, and destroy rent-seeking enterprises in the black market. It will diminish the money stock and, as a result, slow the long-term course of inflation by reducing the amount of currency held outside of banks.
The resulting deflationary pressure could lead to interest rate reductions that, in the short to medium term, will stimulate aggregate demand, raise economic activity, and improve output growth, according to Emefiele.
4. Creation of opportunities
As emphasized by the CBN Governor, there is no question that the benefits of the currency reform exercise will have a significant positive impact on the economy in the long run.
If anything, the sheer number of jobs already generated by the policies shows that, rather than making Nigerians poorer, the cashless policy has the potential to increase wealth creation throughout the nation.
Already over 30,000 super agents had been contracted to carry out mobile services across the country.
5. Tax collection avenue for the government.
By encouraging more people to use bank accounts, Emefiele claimed that “this policy will further increase bank account ownership and increase use of accounts by enhancing people’s saving behavior, and further encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
Additionally, when more economic agents are required to create bank accounts by the cashless policy, the short-term drop in cash holding and the increasing formalization of commercial activity would both strengthen fiscal policy. More agents enter the government’s tax net as more transactions pass through e-channels and bank accounts. This enlarges the base of taxable activity and improves the likelihood of higher tax revenues by various tiers of government.”
*Demerits of the Naira redesign*
1. Liquidity constraints, affecting day to day trades: The market(SME) faced with the challenge of getting rid of the old Naira notes has been forced to reject ‘the legal tender for exchange’ and this in its effect makes transaction difficult which in turn affect the movement in circular flow of income (including production and consumption) for how can small scale and middle scale enterprises who depend on liquidity to carry out their transaction?
Its really unprofitable.
2: Economic pressure: At present, households and firms already face elevated financial pressures from prolonged, high inflation, recently compounded by external food and fuel price shocks, and the severe floods, and phasing out existing naira notes over a short time period may add to their challenges, yet the pressure of depositing old notes to Bank came in sudden.
The President of the Bank Customers Association of Nigeria, Dr Uju Ogunbunka, had said the objectives of the cashless policy was understandable but noted that the execution and timing were not right.
In the banking hall, scarcely a week goes by without complaints. People will be shouting as a result of transfer failures, deposit failure, alert failures etc.
There’s no structure put in place to handle Such issues. So instead of just disrupting the system with the pressure of getting new Naira notes, why not give ample time and space atleast to develop the banking sector before executing Such policies.
3. High cost of living
Having learned from a previous comparable occurrence that occurred 38 years ago, the economy will undoubtedly be affected by the currency transition as many small-time traders and retailers will begin refusing the old notes prior to the policy’s execution on December 15.
And its already taking place.
cost of food and other items has shoot up as the naira notes for transactions becomes scarce while many people do go hungry because they could not get new naira to make necessary purchases.
4. High cost of printing the Naira note
Given the current state of the economy, the condition of the country’s foreign reserves given that the currency is anticipated to be printed abroad, and the implications for the central bank’s balance sheet, the enormous cost of printing the new note could amount to trillions of naira, for which the economy is least prepared.
The challenge of logistics of such printing due to the fact that Nigeria is borrowing to fund the budget deficits, makes it uncalled-for for initiating of the new Naira policy
5. Escalation of Higher crimes: banks to process currency.
Armed robbery could escalate with criminals targeting bullion vans to be used in the distributions of the new notes in some rural areas in a bid to minimize their losses on the old naira notes stacked away previously in order to evade the law.
A news had in one time that kidnappers were demanding for the new Naira notes, in the sense that, They want to remove all their old notes and replace it.
The CBN and the banks will face logistic challenges in the distribution of the new notes across the country with the rate of crime in form of banditry and terrorism across the country escalating. Also, security around the banks would be threatened because of the huge demand for the new notes as criminals could also take advantage of the change-over to commit their illicit trade.
2. what is the nexus between Naira redesign and money market equilibrium? Will this new policy promote equilibrium in the money market? Discuss this comprehensively,
The Naira redesign is targeted mostly at two major things, which are Retracting the Money hoarded by the public and introducing a cashless policy.
This simply implies that , the Naira redesign is targeted at reducing money supply (including Real money supply) and this will truly affect the money market equilibrium, Inthe sense that, interest rates will go up .
According to Keynes liquidity preference theory, real MONEY supply and interest rate have a negative correlation. A decrease in money supply raises the interest rates.
So with the push to make individuals, keep Their money at the bank, there is reduction in Money in circulation, hence individuals are trying to convert excess of their money into assets, in order not to fall victims of the policy,
The New policy will not promote equilibrium in the money market, until the supply of the new currentcs meets with the demand of it.
People demands the new currency due to the fact that it has become the new legal tender, and this Means that anyone who doesn’t have it, will not be able to transact. The interest rate for the new Money is below equilibrium, so people want to hold More of it.
The money market will only then be at equilibrium When there is enough of the new Naira in circulation to meet the demand .
Merits of new naira notes
According to the government;
1. It helps to control inflation and also implementation of monetary policy as they would have been more data on money supply and monetary aggregate
Demerits of new policy of CBN
1.counterfieting
2.high e-banking charge
3.inadequate circulation of money
4.negative effect on the economic activity especially poor Nigerians due to its timing and transition
Question 2
The difference is that the quantity of money demanded is not what is supplied to the country thereby interest rate will fall
Question 3
No it won’t promote equilibrium.
It will affect equilibrium in the money market due to excess demand of the new notes cause it to fluctuate.
Name: Ezeanya favour chinecherem
Reg no:2018/246558
Email address: kaimafavour4@gmail.com
NAME: UDEZE KELECHI BLESSING
REG NO:2019/241719
DEPT: ECONOMICS EDUCATION
EMAIL: blessingkelechi74@yahoo.com
ASSIGNMENT ON MACRO ECONOMICS (ECO 301)
QUESTION: On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500, and 1,000 maria notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to discuss and analyse the merits and demerits of this policy initiative adopted by the CBN. Secondly, what is the nexus between Naira redesign money market equilibrium? Will this new policy promote equilibrium in the money market? Discuss this comprehensively.
1) Introduction:
The Central Bank of Nigeria (CBN) announced that the bank would release re-designed naira notes by December 15, 2022, while existing notes would seize to be regarded as legal tender by January 31, 2023. Through this policy,CBN hopes to control the money supply, and inflation as well as curb counterfeit currency and ransom payment to kidnappers and terrorists.
Also, the apex bank noted that available data indicated that N2.73 trillion out of the N3.23 trillion currency in circulation was outside the vaults of commercial banks across the country, and supposedly held by members of the public. It also noted that the Nigeria currency in circulation has more than doubled since 2015, rising from N1.46 trillion in December 2015 to N3.23 trillion as at September, 2022. Despite the various monetary policies measures and reasons for the re-design of the naira by the CBN, there are positive and negative effect of the redesign. Though, the introduction of these notes was also aimed at enhancing the efficiency of the payment system and to ease the difficulties associated with high-volume cash transactions. However, since the notes were unveiled, Nigerians have been struggling to access them from banks and ATMs. This essay will discuss and analyze the merits and demerits of this policy initiative adopted by the CBN. Secondly, we will examine the nexus between Naira redesign, money market equilibrium, and whether this new policy will promote equilibrium in the money market.
2a) Merits of the policy initiative:
The introduction of the redesigned notes can bring about the following benefits:
Improved efficiency: The redesigned notes are expected to enhance the efficiency of the payment system by easing the difficulties associated with high-volume cash transactions.
Curbing Counterfeiting: The new notes come with enhanced security features that make it more difficult to counterfeit.
Reduced transaction cost: The introduction of the new notes will help reduce the transaction cost associated with cash transactions, especially for individuals and small businesses.
Promoting cashless policy: The new notes are expected to promote the cashless policy of the CBN by reducing the volume of cash in circulation.
2b) Demerits of the policy initiative:
Cost of printing: The cost of printing the new notes can be high, which could result in an increase in the budget deficit.
Limited availability: Since the introduction of the new notes, Nigerians have been struggling to access them from banks and ATMs. This has led to frustration and delays in completing transactions.
Inflation: The introduction of the new notes could lead to an increase in inflation, especially if there is an excessive supply of cash in circulation.
With the new policy, financial dollarization is imminent. Most hoarded local currency will be converted to dollar as a saving asset or store of value, thus, intensifying dollarization trend in Nigeria.
Also, from the monetary economics literature, a decrease in liquidity is likely to result in reduced economic activity, which translates to lowered GDP, and increased unemployment Thus, the apex bank must apply caution in implementing the policy as well as learn from the experiences of other developing economies such as India, venezuela, and Zimbabwe.
3) Nexus between Naira redesign, money market equilibrium, and promotion of equilibrium in the money market:
The redesign of the Naira can have a significant impact on the money market equilibrium. Money market equilibrium refers to the point where the demand for money equals the supply of money in the economy. The introduction of the new notes can affect the money market equilibrium in the following ways:
Increase in money supply: The introduction of the new notes can increase the money supply in the economy, which can lead to an increase in demand for goods and services, resulting in an increase in prices.
Interest rates: The redesign of the Naira can affect interest rates in the economy. If the CBN increases the money supply by printing more currency, interest rates are likely to decline. This can lead to increased borrowing and investment, which can boost economic growth.
4) Will the New Policy Promote Equilibrium in the Money Market?
Yes, the new policy initiative to reduce the cost of cash transactions and promote cashless transactions can help promote equilibrium in the money market. Equilibrium in the money market refers to the situation where the demand for money equals the supply of money. When there is an excess demand for money, interest rates tend to rise, and when there is an excess supply of money, interest rates tend to fall. By reducing the cost of cash transactions and promoting cashless transactions, the new policy initiative can help increase the supply of money in the economy. This is because cashless transactions are more efficient and cost-effective than cash transactions, which can encourage more people to adopt cashless payment systems. As more people adopt cashless payment systems, the demand for money may also increase as economic activity increases. This can help promote equilibrium in the money market and help stabilize interest rates. Overall, the new policy initiative to promote cashless transactions can help promote equilibrium in the money market, which can have positive effects on economic activity and growth.
5) Conclusion:
In conclusion, the introduction of the redesigned Naira notes by the CBN has its merits and demerits. While it can enhance the efficiency of the payment system, reduce transaction costs, and curb counterfeiting, it can also lead to an increase in the money supply, inflation, and limited availability of the new notes. However, the new policy can promote equilibrium in the money market by reducing the cost of cash transactions and promoting the cashless policy of the CBN. Overall, the CBN needs to address the challenges associated with the introduction of the new notes to ensure that it achieves its intended objectives.
NAME: EZEH KEREN KAMARACHI
REGISTRATION NUMBER: 2019/244045
DEPARTMENT: ECONOMICS
The redesign of naira came as a shock to Nigerians, we actually thought the policy will not be implemented.
I will be mentioning the various benefits and dismerits of this naira redesign
1)Well , the redesign of the naira notes has affected a lot of nigerians negatively but the redesign has it’s benefits. For example, the world is coming to an era where almost all transactions is online and money is becoming digital, of course not all nigerians know this but at least this redesign and the limited access to cash will help them adjust to making transactions online and it will make a lot of business smoother.
2)And I don’t really think the limited access to cash and the redesign is the problem, the problem is us nigerians, we are so used to making a lot of transactions with physical money that is cash , so this redesign and Limited access to cash is disturbing to us and I see this period of complaint as us just adjusting to online banking, as you must have noticed most businesses have resumed and most are now selling and buying via transfer and pos.
3)And have you heard of “CBDC” this is a digital currency which almost all the countries now are trying to implement, hence making money completely digital and all transactions online , and I think (I’m not sure) this redesign is just one of the ways they’re trying to implement it in the country slowly by limiting access to physical money.
4)And I also believe the reason for this money redesign is to be able to recover a lot of money that got into the country without the central bank knowledge and to reduce a lot of black market transactions
5) A problem is that there is not enough money in circulation and all this electronic channels are having issues with their network. Sometimes before a transaction can reflect it takes days.
THE NEXUS/CONNECTION BETWEEN NAIRA REDESIGN AND MONEY MARKET EQUILIBRIUM:
Naira redesign has a connection with money market equilibrium because money market equilibrium involves both money demand and supply, and the money here is the naira that was redesigned. Also because of the naira redesign the CBN was only able to print limited amount of money for supply, the reasons are written above. It is more like a contractionary policy in a way.
HOW THE NAIRA REDESIGN AFFECTS MONEY MARKET EQUILIBRIUM:
Let me explain in the case of this redesign, initially when CBN buys bonds ( releasing money but limited), there is demand for bonds therefore increasing the price of bonds and making interest rate to fall. Here, people want to hold money but then the money is also limited. This will make the CBN supply more money in the long run because of the increased demand for money, therefore increasing the demand of bonds which increases the price of bonds and reduces interest rates. This way people will still want to hold money and there will still be disequilibrium again.
Now there is enough money in circulation, the CBN can then sell bonds which will reduce the price of bonds and increase the interest rate and people will hold more bonds and less of money. Here we can say the money market is at equilibrium
So initially there will be disequilibrium in the short run but equilibrium in the long run when the CBN increases the supply of money.
NAME:SIMON PATIENCE PRECIOUS
REG NO:2019/244760
DEPARTMENT:ECONOMICS
The introduction of the redesigned 200,500 and 1000 naira notes into the country’s financial system featured several changes.Some of the merits of the redesign include:
1. Improved Security: The new Naira notes have enhanced security features, such as optically variable ink, window threads, raised print, and gold patches, making it more difficult for counterfeiters to duplicate. The improved security features are expected to reduce the incidence of fake currency in circulation, thereby maintaining the integrity of the currency.
2. Modern Designs: The new Naira notes feature modern designs that reflect the country’s culture, heritage, and aspirations. The notes feature portraits of important national figures, such as Alvan Ikoku, Nnamdi Azikiwe, and Obafemi Awolowo, as well as iconic landmarks like the Central Bank of Nigeria’s headquarters and the National Assembly Complex. The new designs help to promote national pride.
3. It paved a way for the next generation of the financial system which is cashless economy.
4. It helped to reduce impulse buying since the cash is not easily accessible.
5. It helped in reducing the rate of embezzlement by the government officials.
Just like it has advantages, it also has numerous disadvantages and some of the Demerits are:
1. High Cost of Production: One of the potential demerits of the redesign of the new Naira notes is the high cost of production. The Central Bank of Nigeria invested a considerable amount of resources in designing and printing the new notes, which may have resulted in increased production costs. This could potentially result in a higher cost of currency production, which may impact the economy negatively in the long run.
2. Inconvenience to Some People: Some people may find it inconvenient to adapt to the new currency designs, particularly those who have grown accustomed to the old designs. Some may also have difficulties recognizing the new features of the notes, particularly the visually impaired who may need to learn new tactile features and also the old women in the market
3. Counterfeiters may still try to make fake notes: Despite the improved security features of the new Naira notes, some counterfeiters may still try to duplicate them. Criminals who specialize in making counterfeit notes may work to discover and exploit any weaknesses in the new notes, putting the integrity of the currency at risk.
4. Scarcity:It brought about scarcity of cash which really restricted the common man,people queuing to get cash from the ATM for a long period of time just because POS people started selling cash at high rate
5. Inaccessible: the new naira notes became inaccessible because few was in circulation and not everyone was able to get it
6. It also brings about failure in the network system of banks because many adopted online banking which caused a lot of traffic,making some transactions hang and USSD codes not working.
7. The most painful disadvantage was that market women and a lot of sellers refuse to be paid with bank transfer because a lot of people started defrauding sellers all in the name of cashless policy,so it promoted illegal activities.
The nexus between Naira redesign and money market equilibrium is quite complex. theoretically, the redesign of the naira notes should not have a direct impact on the money market equilibrium, as the redesign does not affect the supply or demand of money. However, in practice, the availability and accessibility of the new notes can affect the money market equilibrium.In the case of Nigeria, the struggle to access the new notes from banks and ATMs has created a shortage of cash in circulation. this shortage of cash has lead to an increase in interest rates, as people are willing to pay more to access the limited cash available. this increase in interest rates can have an impact on the overall money market equilibrium. If the interest rates are too high, it can lead to a decrease in investment and spending, which can ultimately lead to a decrease in economic growth.The success of this new policy initiative will depend on the ability of the CBN to manage the availability and accessibility of the new notes in the
Will this new policy promote equilibrium in the money market?
Money market equilibrium refers to the state where the demand for money equals the supply of money in the market. In other words, it is the point at which the quantity of money demanded by individuals and institutions is equal to the quantity of money supplied by the central bank or other financial institutions,at this point, the interest rate in the money market is at equilibrium, and there is no excess demand or supply of money. A currency redesign can lead to changes in the supply and demand of the currency, which can affect the exchange rate and the purchasing power of individuals and businesses.
In the case of Nigeria, the demand for money right now has basically exceed the supply of money and this will cause the interest rate to increase and this also will lead to disequilibrium in the money market because the demand and supply of money are not equal.
ANI VICTOR EMEKA 2019/242774 ECONOMICS
ANSWERS:
The introduction of the new naira note has done more harm than good on evolving real monetary policies of the economy. Although it has demerits but its initiative is front for monetary development of the country
Merits:
1. Reduces the amount of hoarded money: money that was supposed to be in circulation amounting to # 3.23 trillion of which #500 billion was within the banking system and #2.73 trillion in people’s home.
Redesign of the new naira note has drastically reduced hoarding of money, hence enhancing free flow of M2-money for transaction and bank deposits
2. Reduces bribery and theft: due to the redesign policy, bribery involving money(cash)has drastically reduced and citizens tend to see the worth of working hard to get cash for transaction, also cases of theft and other social vices has been limited.
3. Reducing inflation: one merit of the new naira policy is the reduction in the prices of goods and services in real market; hence regulating of prices of goods and services through contractionary monetary policy.
4. Confidence in the currency: The redesign of the Naira has signal a commitment to ensuring that monetary policies to intervene in the foreign exchange market are built on integrity and stability of the currency. This can help build confidence in the currency and reduce the need for the central bank to intervene in the economy through monetary policy measures.
Demerits:
1. SME’s negative effect: many small and micro enterprises that deals with cash at hand transaction lost their stance in the trade circle due to shortage of cash for their patronage. Hence, most businesses were forced to shutdown or look for alternate source of cash transaction to stay up in business.
2. Negative impact on economic activities: particularly, those has affected the rural dwellers, most of whom work for daily wages and directly from their earned wage. Due to the redesign policy, rural dwellers find it hard to met up with economic activities of purchasing essential commodity for consumption, hence causing hardship since they can only afford to purchase in small quantity using cash-at-hand.
3. Inflationary pressures: The redesign of the Naira can increase the money supply, which can lead to inflationary pressures. To counter this, the central bank may have to adjust its monetary policy to reduce the money supply through measures such as increasing interest rates.
4. Exchange rate fluctuations: The redesign of the Naira can affect the exchange rate, especially if it is perceived as a signal of economic instability. This can lead to currency depreciation, which can have implications for monetary policy. To stabilize the exchange rate, the central bank may have to adjust
The nexus between money market equilibrium and naira policy is achieved when the level of money in circulation in the economy dropped to equate the level of bank reserves to stabilize the level of money flow in the country. Hence, money demand tends to equate money supplied for equilibrium to occur in the money market. Due to that effect, valuation of money in the financial market tends to increase at geometric order due to an increase in the demand for money leading to a decrease in inflation and higher interest rate and the new policy Is expected to bring back some of the currency to circulation and it will help in monitoring business transaction
Discuss and analyse the merits and demerits of the redesign 200, 500, 1000 in Nigeria Financial system.
The introduction of the redesigned 200, 500 and 1000 in Nigeria Financial system with a lot of merits and demerits to both the economy and the citizens.
MERITS
1.CBN believs that the redesigned of the currency will help deepen our to entrench cashless economy.
2.CBN also believes that the introduction of the Naira notes 200, 500, 1000 will be a complement by increasing the minting of our e-naira.
3. It will further rein in the currency outside the banking system, thereby making monetary policy more efficacious.
4. Also in view of the prevalent level of insecurity 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 hands for Ransome payments will begin to dry up.
DEMERITS
1. Nigeria has in the past, had reasons to change, redesign and redominate it’s currency, but never in the annals of the nations political history has such an exercise brought so much hardship, confusion, apprehension, rancour and despondency like is currently being witnessed and experienced
2. Perceptible disobedience to the order of the supreme court, pitching states against the federal government and gradually descending to the masses against the federal government, resulting in unimaginable angst, expressed in wantom destruction of properties of Financial institutions and even loss of lives .
3. Many Nigerians who do not have bank account have been left stranded, as they are unable to exchange their old notes for new ones
Nexus between Naira redesign money market equilibrium
Money market is an economic model for describing a countrys money supply and demand
The money market is an economic model describing the supply and demand for money in a nation.
Consumers and businesses have a demand for money including cash and checking and savings accounts and they use Financial institutions for this purpose
Equilibrium of the policy in the money market
The Central Bank of Nigeria (CBN) has said the cash policy will enhance the efficacy of monetary policy as more economic agents will resort to more use of cheques and e-payments while more currency in circulation will be captured within the banking system.
Speaking on ‘Cashless Economy: The Role Of Microfinance Banks’ at a capacity building programme organized by the Lagos State Chapter of the National Association Of Microfinance Banks (NAMB), Mr. David Adelana, Senior Bank Examiner, OFISD, CBN, said CBN’s stabilization measures will become more effective as higher proportions of transactions will be done through cheques and electronic payments (e-payments).
“The policy would enhance the efficacy of monetary policy operations and economic stabilization measures and balance genuine currency transaction demands and speculative market behaviours.“As at March 2011, currency in circulation stood at N1.42 trillion while that outside banks’ vaults stood at N1.025 trillion as at February, 2011. Cashless banking is the route to financial inclusiveness and inclusive development.”
Speaking on the role of MfBs in the cashless economy, Adelana said MfBs who become agents to mobile payment service providers can offer mobile deposit and withdrawal of money, anytime, anywhere nationwide.
“Mobile payment revolu-tion is currently sweeping across the African continent and Nigeria shouldn’t be out of the modern and global trend in enjoying such initiatives by adopting technological practices that make lives easier.
“The mobile payment industry will play a huge role in the development of the Nigerian economy.
“Already, 11 Mobile Payment Service Providers (MPSP) – Pagatech, Fortis Mobile, UBA/Afripay, GTBank, eTranzact, Monetise, Eartholeum, Paycom, FET, Ecobank, and Kudi – have been licensed.
Eartholeum, Paycom, FET, Ecobank, and Kudi – have been licensed.
“16 MfB operators applied for MPSP licenses and ran pilot tests for about 6 months. Agents can provide payment services like social pay-outs (airtime top-up, loan repayment, local money transfer, bill payment government collections, etc), funds transfer.”
(A)
From my own perspective, the new money design did not give the end result they promised and the evidence is all around us . They claimed that the naira redesign and implementation of the cashless policy would collapse illegal economic activities,make loans easier, plug fiscal leakages, boost government revenues, and aid the economic empowerment of vulnerable Nigerians as well as benefit the country as a whole.
Advantages of the naira redesign policy adopted by the cbn
1. It in some way curbed the abuse of the currency
2. It made people who illegally stashed a huge amount of the currency somewhere (not bank) all in the name of saving it for future bring the money all out
3. It made quite a good number of people to come in familiar terms with E-banking
4. It limited the tendencies at which people lost physical cash
Disadvantage of the naira redesign policy adopted by the cbn
1. This lead to the reduction of money supply in the country
2. Prices of goods and services became high because sellers couldn’t buy new goods
3. There are long discouraging cue in banks and ATM machines
4. Some citizens where so angry that they vandalized bank properties and bank leaving them at huge losses
(B)
The connection between the money redesign and money market equilibrium is that the demand for money is higher than its supply so it’s not at equilibrium. The process to replace the old currency notes is “rushed,” and commercial banks don’t have enough new cash to give to customers, pushing demand higher than supply. “The central bank “doesn’t want us to be spending cash; they want us to be doing transactions electronically, but you can’t legislate a change in behavior. You have to make people see reasons and ensure those channels are reliable,” Olubunmi said.
NAME: UGWU SARAH CHINECHEREM
DEPARTMENT: ECONOMICS EDUCATION
REG NUMBER : 2019/241843
Macro Online Quiz/Discussion (Naira Redesign and Monetary Equilibrium)–27-2-2023
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to discuss and analyse the merits and demerits of this policy initiative adopted by the CBN. Secondly, what is the nexus between Naira redesign money market equilibrium? Will this new policy promote equilibrium in the money market? Discuss this comprehensively,
MERITS
1. The Naira redesign helped a lot of citizens to save money due to the cashless situation
2. The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele on October 26, 2022, announced policy initiatives to redesign the N200, N500, and N1, 000 denominations, and subsequently introduced the cash withdrawal limits to regulate the movement of cash in the system as well as solve other challenges including currency counterfeiting among others.
3. It is expected that the ransom money that is yet to find its way into the banking system would be brought out to be exchanged for the newly redesigned notes. This could also lead to crime detection and probable prosecution as many who could not explain the sources of their wealth may find themselves in trouble with law enforcement agencies.
4. Also, politicians who have stacked away money for the purpose of vote buying during the election may have a difficult time changing their notes into the new naira while bringing such money back to the system could upset some of their plans.
5. Also, the cashless policy has led to a reduction in banditry and kidnappings, which were rampant in the recent past.
6. The redesign is also expected to strengthen the economy, reduce the expenditure on cash management, promote financial inclusion, and enhance the CBN’s visibility of the money supply.
DEMERIT
1. Nigeria economy have been falling down due to redesign of Nigeria naira note, bcs there is not availability new naira note in commercial bank.
2. the current naira redesign would further take the Central Bank of Nigeria cashless policy initiative a nudge higher by raising the bar for more stakeholders’ onboarding of the Central Bank Digital Currency CBDC.
3. The huge cost of printing the new note could run to trillions of naira, which the economy may be least prepared for with the current state of the economy, the state of the nation’s foreign reserves since the currency is expected to be printed abroad and the implications for the balance sheet of the central bank.
4. The banking hall was jam-packed with people scrambling to exchange their old currency for new notes, putting pressure on the lean capacity of the banks to process currency.
5. Armed robbery could escalate with criminals targeting bullion vans to be used in the distributions of the new notes in some rural areas in a bid to minimize their losses on the old naira notes stacked away previously in order to evade the law.
6. Both the CBN and the banks will face logistic challenges in the distribution of the new notes across the country with the rate of crime in form of banditry and terrorism across the country escalating. Also, security around the banks would be threatened because of the huge demand for the new notes as criminals could also take advantage of the change-over to commit their illicit trade.
7. There is the possibility that counterfeiters may take advantage of the lag in distribution to circulate their own notes in some parts of the country, which may not be effectively covered by the publicity around the new notes.
*what is the nexus between Naira redesign money market equilibrium? ANS:
The connection between the Naira redesign and money market equilibrium is the theory of liquidity preference which state that the interest rate adjusts to balance the supply and demand for the economy’s mostly liquid asset (money). And the federal government through the CBN decreases the money (new Naira note) supply balances, and the cashless situation we are expressing is being caused by the decreases in supply of Naira redesign by the Central Bank of Nigeria, and it lead to a raise in interest rate.
*Will this new policy promote equilibrium in the money market? ANS:
Yes it will, the equilibrium interest rate rise’s and the higher the interest rate, people satisfied to hold the smaller quantity of real money balances. As a reduction in the money supply occurs, it causes the money supply curve to shift to the left and raising the equilibrium interest rate. Higher interest rates lead to a shift in the aggregate demand (lr function)curve to the left.
NWAFOR EMMANUEL ONYEDIKACHI
2019/250914
emmanuel.nwafor.250914@unn.edu.ng
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to discuss and analyse the merits and demerits of this policy initiative adopted by the CBN.
Secondly, what is the nexus between Naira redesign and money market equilibrium? Will this new policy promote equilibrium in the money market? Discuss this comprehensively.
On the 26th of October 2022, the Central Bank of Nigeria (CBN) announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system.
The policy initiative has been met with a great deal of enthusiasm, as well as some criticism, despite the fact that it has received such a positive reaction. Since the notes were unveiled, Nigerians across different parts of the country have been struggling to access them from not just banks alone but also from ATM machines. Access to the redesigned notes is a major issue as many Nigerians are finding it difficult to get their hands on the redesigned notes from their local banks and ATM machines nationwide. For example, reports have emerged of people queuing up for long periods of time outside of banks in hopes of being able to access the new notes, only to be met with disappointment.
The introduction of the redesigned notes has both its merits and also its demerits in view of the fact that Nigerians across the nation have been struggling to access the redesigned bank notes.
One major merit of this policy is that the new notes will greatly reduce the rate at which bank notes are being counterfeited, thus delivering a heavy blow to those who make it their business to counterfeit bank notes as the old N200, N500, N1,000 notes will soon enough no longer be legal tenders. This would indirectly greatly reduce counterfeit Bank notes in circulation thus giving Nigerians more access to the redesigned bank notes. Another merit of the redesigned note in view of the fact that Nigerians across the nation have been struggling to access the redesigned bank notes is the fact that the CBN encouraged a cashless economy by recommending other electronic means of making payments for example the eNaira, debit cards and electronic money transfers. This in itself has a bunch of advantages for example the fact that not having cash reduces crime rates in the economy is logical because stealing is difficult when there is no tangible money to steal.
On the other hand, just like W. Clement Stone said “To every disadvantage there is a corresponding advantage.” One demerit is that although the new bank note reduced the rate of counterfeiting in the economy there are still few reports of people still dishing out counterfeit bank notes at pos terminals due to the fact that people have not seen the new notes and cannot accurately tell whether or not such a note is a counterfeit or not because there is nothing to compare it to in their minds. Another demerit of the new policy is the cost of printing the new bank notes according to business day after adjusting for inflation, it is estimated that Nigeria will spend about N77.6 billion in the minting of the new notes with an additional cost of N6billion that would be incurred distributing the new naira notes across the 36 states and the Federal Capital Territory (FCT), This is quite high. And it is just easier to turn to electronic means of making payments but the major demerits of this is firstly those in the rural setting who cannot afford an android device would be left behind. Secondly electronic means of payment means that its susceptible to hacking and this is a major concern.
The nexus between Naira redesign and money market equilibrium is an important one, the new policy is expected to promote equilibrium in the money market by increasing the liquidity of the currency because a lot the public are hoarding money and as such the naira redesign would force those hoarded money back into circulation and thus making it easier for people to access money. The CBN expects that this could potentially lead to an increase in economic activity, as people will have more money to spend.
Finally whether or not this new policy will promote equilibrium in the money market is purely dependent on the availability of the redesigned naira notes, because if the bank notes are not made available to the public in a timely manner, it would be especially difficult to ensure that the policy achieves its intended goals and promotes equilibrium in the money market.
(1i) MERIT OF NAIRA REDESIGN
(I) Reduction of inflation
(ii) Reduction of corruption
(iii) Increase in gross domestic product
(iv) Stablizing the economy
(v) Increase in standard of living
(I) Reduction of inflation: The introduction of new naira redesign helps to reduce the rate of inflation in an economy because there won’t be enough money in circulation for people to have access to that they will be spending recklessly and also spend it on things that are unnecessary but this policy will help to curb inflation in an economy.
(ii) Reduction of corruption: This policy helps in reduction of corruption in a country because there won’t be enough money for people to have access to that they can use to plan what is not good for the country and also reduces kidnapping in a country because those people that are involved in the act already knows that there is no money to pay them if they kidnap somebody and request for a huge amount of money so it reduces kidnapping and the rest in an economy.
(iii) increase in gross domestic product: The introduction of the new currency helps to increase the GDP of a country because people will like to work more since they know the money is scarce and by doing so they are indirectly contributing to the growth of the GDP of the country.
(iv) Stablizing the economy: it helps in Stablizing the economy since there won’t be enough money in circulation so demand will equal supply and by doing that it will Stablize the economy.
(V) Increase in standard of living: it helps to raise standard of living of individuals in an economy since money is not enough for individuals to go about their daily activities, they will definitely reduce their spending and with that producers can decide to lower the prices of goods so that individuals will be able to afford what they desire and with that their standard of living in increasing.
(ii) DEMERIT OF NAIRA REDESIGN
(I) Inability to access money
(ii) Scarcity of the money
(iii) Insufficient funds in circulation
(i) Inability to access money: The policy of naria redesign has made it very difficult for people to access their money in banks because the money they normally deposit in banks for customers to withdraw are not always enough to meet their daily transactions and it has affected some business to extent of folding up because no more to continue their businesses.
(ii) Scarcity of money: The policy has greatly influenced the scarcity of money in a country because people will asked to deposit all their old currency in bank and their are left with nothing to go on with their business and the new currency is nowhere to be found either so it is greatly affecting the the country and economy as a whole.
(iii) Insufficient funds: It has also made the amount of money in circulation to be too small compare to the demand of people, which will eventually leads to disequilibrium of an economy because demand is greater than supply, which is not good for the growth of an economy or our country that is still underdeveloped.
(2) The nexus between naria redesign and money market are positive because this policy tends to last for a short period of time and it will really increase interest rate because if there is decrease in quantities of money supplied the interest rate will increase because people will like to hold more money than to invest and they will be willing to pay any amount of interest attached to the money they want to borrow from money market because they don’t have choice due to lack of funds in circulation and they will be willing to pay the interest rate just to see what they will be using to run their daily activities and by doing that interest rate will be high because they notice that the demand for money has exceed the quantity of money supplied in the economy and that will lead to disequilibrium of the economy and the only way to solve the problem of disequilibrium is for CBN to push more in circulation so that demand can be equal to the quantity of money supplied which will lead to the equilibrium of an economy because all things being equal that quantity demanded of money is equal to the quantity of money supplied.
MERITS OF THE POLICY INITIATIVE (REDESIGNED NAIRA NOTES )ADOPTED BY CBN:
1.) The redesigned naira notes strengthens the performance of key macroeconomic parameters, create better socio economic conditions and equally combat social improprieties
2.)This redesigned naira has spurred more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behavior.
3.)It improves the value of naira and encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
4.)The short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy.
5.)With more transactions going through e-channels and bank accounts due to this initiative, more agents come within view of the government’s tax net which enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.
DEMERITS OF THE POLICY INITIATIVE (REDESIGNED NAIRA NOTES) ADOPTED BY CBN:
1.)The policy has brought about difficulty being faced by Nigerians in accessing the new Currency at this initial stages of its issue and circulation which is so incompetent and frustrating
2.)It has encouraged unscrupulous and unpatriotic conduct of some workers in the banking industry whose greed and malevolence activated their inclusion in the sale of the new currency.
3.)Some members of the public are hoarding the new notes thereby restricting their flow through the economy. Cash kept at home will not circulate but may fuel a perception of scarcity which leads to higher demand for the currency, signalling to those who don’t have an urgent or immediate cash need to store cash.
4.)It has brought about panic queues at some bank ATMs and banking halls just to access cash which has also damaged or destroyed bank property, premises, and assets.
5.)It had led to incidences of economic opportunism. Some Nigerians are capitalising on the transition to charge exorbitant fees or demand cash payment on the false pretext that POSs don’t work, especially at petrol stations. These selfish actions for personal monetary gain is creating hardship for Nigerians and may come at the expense of fellow citizens lives and livelihood.
2.)WHAT IS THE NEXUS BETWEEN REDESIGN NAIRA AND MONEY MARKET EQUILIBRIUM:
The connection between the redesign naira notes created and the money market equilibrium is that the redesign naira notes influences the money demand and money supply which are the determinants of money market equilibrium.
Market money equilibrium is formed at the interest rate where money supply and money demand are equal.
If the redesigned naira notes creates equal money demand and money supply ,there’ll be money market equilibrium.
Unfortunately, the redesigned naira notes has created reduction in money supply and increased money demand which influences money market disequilibrium.
WILL THE NEW POLICY PROMOTE EQUILIBRIUM IN THE MONEY MARKET :
No, the new policy won’t promote equilibrium in the money market because the new policy creates lack of money supply and too much demand for money creating an imbalance in the money market .
Redesigning the old naira notes and creating scarcity of the new naira notes has increased the demand for this notes which creates a shift in money supply and demand that will lead to change in the equilibrium of interest rate and even affect the level of GDP and price level.
This high quantity of money demanded the redesign naira notes creates will increase the interest rate and when the interest rate is high, it can’t restore equilibrium in the money market.
Lower interest rate is what restores equilibrium in the money market, lower interest rates comes from low demand for money. But with this redesigned naira notes that has created scarcity of cash ,it is impossible for low demand for money.
On the other hand, reduction in money supply increases the interest rate which will reduce the quantity of investment demanded and increase the exchange rate which will reduce net exports .
So long as the redesigned naira brings about high interest rates and makes it impossible for money supply to equal money demand, it won’t promote equilibrium in the money market.
ONUGWU UZONNA MICHAEL 2019 /245479
ECONOMICS MAJOR.
MONETARY POLICY (NAIRA REDESIGN)
On the 26th of October 2022 The Central Bank of Nigeria (CBN) announced the introduction of redesigned Naira notes of 200, 500, and 1,000 and new deposit and withdrawal policy into the economic system, to take effect on the 15th of December 2022 where the old and new notes will co-exist as legal tenders until the 31st of January 2023 when the old notes will cease to be legal tender. In effect to this every old note in personal possession or business possession is expected to be returned to commercial banks for deposit or cash swap for the new notes. According to the CBN under the leadership of Prof. Godwin Emefiele, claims that the Naira redesign and cash deposit and withdrawal policy is necessary to address the issue of those people involved in currency fraud as their major source of income so that the CBN will be in control of the amount of cash flow and circulation in the economy, to encourage a more cashless economy and to strengthen the economy. There have been some down turns following the effectiveness of the new CBN policy ranging from scarcity of the new notes, inadequate withdrawal of cash, poor network for online transactions amidst other set backs.
MERITS OF THE NAIRA REDESIGN, CASH WITHDRAWAL AND DEPOSIT POLICY
(1). Currency in Circulation Control ;
According to the CBN’s Governor, Pof. Godwin Emefiele, through a report from Vanguard newspaper on the 3rd of February 2023, “the Naira note in circulation in 2015 was N1.4trillion and in 2023 N3.23trillion, but out of these money only N500billion was within the banking system and N2.7trillion have permanently been in individuals hand kept dormant at homes”. These money generally is supposed to be collected, invested and later returned into the banking system to booster the economy, which have not been the case.
According to the Governor, Prof. Godwin Emefiele, since the insertion of this exercise the CBN have succeeded in bringing back N2.1trillion into the banking system, remaining N900billion in individuals hand.
(2). Formalisation of Business Activities ;
The short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.
In the long-term, the policy improves the sophistication of tax collection and would no doubt reduce tax evasion and tax avoidance. As experiences from other jurisdictions have shown, effective currency redesign can support regulatory reform, increased legislative reach and coordinated fiscal and structural policies.
(3). EASY LOAN ACCESS ; Loans will become easier and interest rates may come down. As banks will have more money so more loans will be given out which will increase the money supply in the market.
DEMERITS OF THE NAIRA REDESIGN CASH DEPOSIT AND WITHDRAWAL POLICY
(1). Slowing down of domestic businesses ; due to the scarcity of the new notes on the short- run, the turnover rate of Small Medium Businesses (SMB’s) have been reduced and business activities slowed.
(2). National Unrest; due to the scarcity of the new naira notes Nigerians find it hard to run their day to day activities leaving many people stranded and frustrated leading to violence.
THE RELATIONSHIP BETWEEN THE MONEY MARKET AND NIGERIA MONETARY POLICY (NAIRA REDESIGN)
With the increase in the CBN’s requirements of 27.5% to 32.5% of the reserve ratio, it leaves commercial banks with less money to give as loan. It will increase the aggregate demand for money and the interest rate will also increase on the short – medium term. This will shift the demand curve to the right and the supply curve to the left, and the nominal interest rate will rise simultaneously, shifting the money market away from equilibrium.
AZUBUIKE THEOPHILUS CHIZARAM
2019/245767
ECO/SOC
The idea behind pulling currencies and redesigning them from time to time, is an operational one, and it is all about risk management. Nigeria has a big challenge with currency counterfeiting, with many such operations all over the country. Nigerians have even been caught in the past counterfeiting several currencies in other countries – Uganda and Kenya as cases in point. Within Nigeria, there have been major busts of currency counterfeiting operations in every state. One chap was caught while attempting to print N20 billion in Banana Island and Parkview Estate in 2019. Another pastor in Ikorodu was caught in 2013 and should still be in prison. A mere Google search reveals many such busts all over the country. perhaps a fair proportion of the N500 and N1,000 in circulation is forged. A central bank or currency management regulator in a country should not sit back and watch. 17 years is a very long time to rein such people in. Add to that the fact that Nigeria thrives on corruption and many corrupt people hold cash in bulk in their soak-aways or overhead tanks. What about the fact that Nigeria has waited for this long to deploy the instrument of finance against kidnappers, bandits, terrorists and all these other guys who have destroyed our society? We have been pumping money into buying guns and helicopters instead of following the money and squeezing these criminals out of their comfort zone. This terrible situation could only have lasted this long because we have now made disunity into a badge in Nigeria. It looks like very little brainstorming goes on around our major problems. Perhaps those who lead us at every level preferred the money slushing around for so long. But everything must come to an end at some point.
In the time since the announcement was made, some Nigerians have been throwing tantrums of all sorts, some alleging that the timing was not right or that this was not the priority for now. Most surprising are very respected people including intellectuals in the president’s economic team. Also, the naira had initially lost value against the dollar, depressing to as low as N900 as some people ‘fled’ to the US dollar and away from the Naira. The rationale for a normal person to start changing their naira to dollar is convoluted but those who have no hope in Nigeria – because they are not making any efforts to help but to game the system – say it is normal. This option is for Nigerians with slush funds though. A salary earner will not do that because dollars are not accepted – or understood – in the local markets. As that went on, these ‘highly sophisticated’ economic thinkers pushed for the CBN to abandon the ‘official’ rate and take on the value of what we know as the ‘black market’ for the Naira. From a former Governor of the central bank to economic advisers and every one in between, they almost pushed Nigeria into the abyss. No thoughts were given to the consequences of such a flippant decision. Even an illiterate of economics knows that if the Naira was valued overnight by the CBN at N900, the black market will move to N1800 or N2000. For our own good, these guys have to be shut up. They have enough dollars stashed away and want to keep dictating the pace. We also have to be thankful that the CBN is not easily manipulable to them. Unfortunately, the Vice President is in this camp, and keeps making pronouncements that are directed at devaluing the Naira. He was again at the NESG opening event saying something about how the Naira is not properly valued. I think I will hold him responsible for most of the naira’s woes since 2015 when they came into office. He it was who signed off that the N198 official rate be equated with the ‘black market’ in 2016. Official rate became N360. Buhari was abroad sick. Black market moved to N500 and has since been unreachable.
How can a country plan on black market rates? How can black market rates be quoted openly in newspapers and even network news? Except of course because our hearts are black and evil. Black market is an illegal market even though that illegal market is traded openly in Nigeria and everyone has access to it. Bureaux de Change should not trade standing on the street or under trees. They should be in their offices and all transactions (even $100 changed to Naira) must be receipted and documented. Let anyone who needs to buy or sell dollars take their identification along and BDCs must be punished by CBN if they are found to ignore or forge documentation (because they do that a lot). Buhari has a big role to play here to at least retrieve some of his lost image. Note that his Vice is working at cross purposes when it comes to the value of the naira. He belongs to the ultra-right wing on matters of the economy and with those guys, there is no hope for the common man.
The Naira rate then recovered in the ‘black market’ from N900 to almost N650. Recall that we could have been pushed to adopt N900. We should probably take a lesson from the disaster going on in Ghana. When that country redenominated its currency from 9,200 Cedis to $1 in 2007, Nigeria almost copied that idea. I was one of those who pushed then through my writings that we were not ripe for that. Thankfully, President Yar’Adua did not agree. Ghana ‘floated’ its currency, following the advice of foreign bodies that she always listens to. They enjoyed the euphoria of a faux ‘strong’ currency for a while when the new Ghana Cedi was 0.92 to $1. Then they were lulled to sleep. Today, 0.92 has become GhCedi 15 = $1. In other words, what was 9,200 has become 150,000. Nigeria has been lucky to date, in spite of our many excesses.
So, somehow the Naira redesign move now has multiple implications and is not only about operational counterfeiting issues but also a window to establish a better trajectory for the naira in terms of its value. The Central Bank must seize this opportunity and I also advise President Buhari to do the same. In Economics we always talk about unintended consequences. The first phase was the slump in the value of the naira as people moved money from their soak-aways to buy foreign currency, especially those who are too criminal to put same in a bank. A second phase could be marked by the strengthening of the Naira in that same black market. A third face may be precipitated by the CBN if it acts quickly and decisively to take the narrative away from speculators and currency saboteurs. Already, those who never wish well for Nigeria are gloating that the currency will fall to N1,000 now that the N650=$1 cannot be held firm.
OKECHUKWU TIMOTHY CHUKWUEZUGOLUM
2019/244962
ECO/SOC
The idea behind pulling currencies and redesigning them from time to time, is an operational one, and it is all about risk management. Nigeria has a big challenge with currency counterfeiting, with many such operations all over the country. Nigerians have even been caught in the past counterfeiting several currencies in other countries – Uganda and Kenya as cases in point. Within Nigeria, there have been major busts of currency counterfeiting operations in every state. One chap was caught while attempting to print N20 billion in Banana Island and Parkview Estate in 2019. Another pastor in Ikorodu was caught in 2013 and should still be in prison. A mere Google search reveals many such busts all over the country. perhaps a fair proportion of the N500 and N1,000 in circulation is forged. A central bank or currency management regulator in a country should not sit back and watch. 17 years is a very long time to rein such people in. Add to that the fact that Nigeria thrives on corruption and many corrupt people hold cash in bulk in their soak-aways or overhead tanks. What about the fact that Nigeria has waited for this long to deploy the instrument of finance against kidnappers, bandits, terrorists and all these other guys who have destroyed our society? We have been pumping money into buying guns and helicopters instead of following the money and squeezing these criminals out of their comfort zone. This terrible situation could only have lasted this long because we have now made disunity into a badge in Nigeria. It looks like very little brainstorming goes on around our major problems. Perhaps those who lead us at every level preferred the money slushing around for so long. But everything must come to an end at some point.
In the time since the announcement was made, some Nigerians have been throwing tantrums of all sorts, some alleging that the timing was not right or that this was not the priority for now. Most surprising are very respected people including intellectuals in the president’s economic team. Also, the naira had initially lost value against the dollar, depressing to as low as N900 as some people ‘fled’ to the US dollar and away from the Naira. The rationale for a normal person to start changing their naira to dollar is convoluted but those who have no hope in Nigeria – because they are not making any efforts to help but to game the system – say it is normal. This option is for Nigerians with slush funds though. A salary earner will not do that because dollars are not accepted – or understood – in the local markets. As that went on, these ‘highly sophisticated’ economic thinkers pushed for the CBN to abandon the ‘official’ rate and take on the value of what we know as the ‘black market’ for the Naira. From a former Governor of the central bank to economic advisers and every one in between, they almost pushed Nigeria into the abyss. No thoughts were given to the consequences of such a flippant decision. Even an illiterate of economics knows that if the Naira was valued overnight by the CBN at N900, the black market will move to N1800 or N2000. For our own good, these guys have to be shut up. They have enough dollars stashed away and want to keep dictating the pace. We also have to be thankful that the CBN is not easily manipulable to them. Unfortunately, the Vice President is in this camp, and keeps making pronouncements that are directed at devaluing the Naira. He was again at the NESG opening event saying something about how the Naira is not properly valued. I think I will hold him responsible for most of the naira’s woes since 2015 when they came into office. He it was who signed off that the N198 official rate be equated with the ‘black market’ in 2016. Official rate became N360. Buhari was abroad sick. Black market moved to N500 and has since been unreachable.
How can a country plan on black market rates? How can black market rates be quoted openly in newspapers and even network news? Except of course because our hearts are black and evil. Black market is an illegal market even though that illegal market is traded openly in Nigeria and everyone has access to it. Bureaux de Change should not trade standing on the street or under trees. They should be in their offices and all transactions (even $100 changed to Naira) must be receipted and documented. Let anyone who needs to buy or sell dollars take their identification along and BDCs must be punished by CBN if they are found to ignore or forge documentation (because they do that a lot). Buhari has a big role to play here to at least retrieve some of his lost image. Note that his Vice is working at cross purposes when it comes to the value of the naira. He belongs to the ultra-right wing on matters of the economy and with those guys, there is no hope for the common man.
The Naira rate then recovered in the ‘black market’ from N900 to almost N650. Recall that we could have been pushed to adopt N900. We should probably take a lesson from the disaster going on in Ghana. When that country redenominated its currency from 9,200 Cedis to $1 in 2007, Nigeria almost copied that idea. I was one of those who pushed then through my writings that we were not ripe for that. Thankfully, President Yar’Adua did not agree. Ghana ‘floated’ its currency, following the advice of foreign bodies that she always listens to. They enjoyed the euphoria of a faux ‘strong’ currency for a while when the new Ghana Cedi was 0.92 to $1. Then they were lulled to sleep. Today, 0.92 has become GhCedi 15 = $1. In other words, what was 9,200 has become 150,000. Nigeria has been lucky to date, in spite of our many excesses.
So, somehow the Naira redesign move now has multiple implications and is not only about operational counterfeiting issues but also a window to establish a better trajectory for the naira in terms of its value. The Central Bank must seize this opportunity and I also advise President Buhari to do the same. In Economics we always talk about unintended consequences. The first phase was the slump in the value of the naira as people moved money from their soak-aways to buy foreign currency, especially those who are too criminal to put same in a bank. A second phase could be marked by the strengthening of the Naira in that same black market. A third face may be precipitated by the CBN if it acts quickly and decisively to take the narrative away from speculators and currency saboteurs. Already, those who never wish well for Nigeria are gloating that the currency will fall to N1,000 now that the N650=$1 cannot be held firm.
AZUBUIKE THEOPHILUS CHIZARAM 2019/245767 ECO/SOC The idea behind pulling currencies and redesigning them from time to time, is an operational one, and it is all about risk management. Nigeria has a big challenge with currency counterfeiting, with many such operations all over the country. Nigerians have even been caught in the past counterfeiting several currencies in other countries – Uganda and Kenya as cases in point. Within Nigeria, there have been major busts of currency counterfeiting operations in every state. One chap was caught while attempting to print N20 billion in Banana Island and Parkview Estate in 2019. Another pastor in Ikorodu was caught in 2013 and should still be in prison. A mere Google search reveals many such busts all over the country. perhaps a fair proportion of the N500 and N1,000 in circulation is forged. A central bank or currency management regulator in a country should not sit back and watch. 17 years is a very long time to rein such people in. Add to that the fact that Nigeria thrives on corruption and many corrupt people hold cash in bulk in their soak-aways or overhead tanks. What about the fact that Nigeria has waited for this long to deploy the instrument of finance against kidnappers, bandits, terrorists and all these other guys who have destroyed our society? We have been pumping money into buying guns and helicopters instead of following the money and squeezing these criminals out of their comfort zone. This terrible situation could only have lasted this long because we have now made disunity into a badge in Nigeria. It looks like very little brainstorming goes on around our major problems. Perhaps those who lead us at every level preferred the money slushing around for so long. But everything must come to an end at some point. In the time since the announcement was made, some Nigerians have been throwing tantrums of all sorts, some alleging that the timing was not right or that this was not the priority for now. Most surprising are very respected people including intellectuals in the president’s economic team. Also, the naira had initially lost value against the dollar, depressing to as low as N900 as some people ‘fled’ to the US dollar and away from the Naira. The rationale for a normal person to start changing their naira to dollar is convoluted but those who have no hope in Nigeria – because they are not making any efforts to help but to game the system – say it is normal. This option is for Nigerians with slush funds though. A salary earner will not do that because dollars are not accepted – or understood – in the local markets. As that went on, these ‘highly sophisticated’ economic thinkers pushed for the CBN to abandon the ‘official’ rate and take on the value of what we know as the ‘black market’ for the Naira. From a former Governor of the central bank to economic advisers and every one in between, they almost pushed Nigeria into the abyss. No thoughts were given to the consequences of such a flippant decision. Even an illiterate of economics knows that if the Naira was valued overnight by the CBN at N900, the black market will move to N1800 or N2000. For our own good, these guys have to be shut up. They have enough dollars stashed away and want to keep dictating the pace. We also have to be thankful that the CBN is not easily manipulable to them. Unfortunately, the Vice President is in this camp, and keeps making pronouncements that are directed at devaluing the Naira. He was again at the NESG opening event saying something about how the Naira is not properly valued. I think I will hold him responsible for most of the naira’s woes since 2015 when they came into office. He it was who signed off that the N198 official rate be equated with the ‘black market’ in 2016. Official rate became N360. Buhari was abroad sick. Black market moved to N500 and has since been unreachable. How can a country plan on black market rates? How can black market rates be quoted openly in newspapers and even network news? Except of course because our hearts are black and evil. Black market is an illegal market even though that illegal market is traded openly in Nigeria and everyone has access to it. Bureaux de Change should not trade standing on the street or under trees. They should be in their offices and all transactions (even $100 changed to Naira) must be receipted and documented. Let anyone who needs to buy or sell dollars take their identification along and BDCs must be punished by CBN if they are found to ignore or forge documentation (because they do that a lot). Buhari has a big role to play here to at least retrieve some of his lost image. Note that his Vice is working at cross purposes when it comes to the value of the naira. He belongs to the ultra-right wing on matters of the economy and with those guys, there is no hope for the common man. The Naira rate then recovered in the ‘black market’ from N900 to almost N650. Recall that we could have been pushed to adopt N900. We should probably take a lesson from the disaster going on in Ghana. When that country redenominated its currency from 9,200 Cedis to $1 in 2007, Nigeria almost copied that idea. I was one of those who pushed then through my writings that we were not ripe for that. Thankfully, President Yar’Adua did not agree. Ghana ‘floated’ its currency, following the advice of foreign bodies that she always listens to. They enjoyed the euphoria of a faux ‘strong’ currency for a while when the new Ghana Cedi was 0.92 to $1. Then they were lulled to sleep. Today, 0.92 has become GhCedi 15 = $1. In other words, what was 9,200 has become 150,000. Nigeria has been lucky to date, in spite of our many excesses. So, somehow the Naira redesign move now has multiple implications and is not only about operational counterfeiting issues but also a window to establish a better trajectory for the naira in terms of its value. The Central Bank must seize this opportunity and I also advise President Buhari to do the same. In Economics we always talk about unintended consequences. The first phase was the slump in the value of the naira as people moved money from their soak-aways to buy foreign currency, especially those who are too criminal to put same in a bank. A second phase could be marked by the strengthening of the Naira in that same black market. A third face may be precipitated by the CBN if it acts quickly and decisively to take the narrative away from speculators and currency saboteurs. Already, those who never wish well for Nigeria are gloating that the currency will fall to N1,000 now that the N650=$1 cannot be held firm.
GUTON DAMILOLA MAUTON
2019/245651
ECO/SOC
Experts say that there is no doubt the advantages of the currency redesign exercise will enormously benefit the economy in the long run, as emphasised by the CBN Governor.
If anything, the number of employment opportunities already created by the policies further demonstrates that rather than impoverishing Nigerians, the cashless policy has the potential to boost wealth creation across the country.
Experts say that there is no doubt the advantages of the currency redesign exercise will enormously benefit the economy in the long run, as emphasised by the CBN Governor.
If anything, the number of employment opportunities already created by the policies further demonstrates that rather than impoverishing Nigerians, the cashless policy has the potential to boost wealth creation across the country.
Already over 30,000 super agents had been engaged to carry out mobile services across the country.
Further highlighting the benefits of the cashless policy, Emefiele pointed out that generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties.
“Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth,” Emefiele said.
According to him, the macroeconomic impacts of currency redesign are multidimensional and could seem uncertain especially at this early stage when its inconvenience is widespread.
Emefiele said, “By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behaviour, and further encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
“In addition, the short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.”
Since the CBN embarked on the redesign of the Naira as well as expanded the implementation of the cashless policy programme, which began in 2012, a section of Nigerians, apparently with vested interests have not considered the benefits of the policies but have rather criticised them and tried to stir public objection.
Critics of the cashless policy have argued that it would further impoverish Nigerians and create unemployment in the financial value chain. But they lacked evidence to buttress their rejection.
It is not surprising that most of the objections to the central bank policies are by those who currently benefit from the rot in the system – politicians, and other corrupt public officials who take undue advantage of the opaque system of administration that does not allow for transparency in government business.
Corruption remains the biggest challenge facing the country and has continued to retard its growth trajectory.
At 62, Nigeria is still groping in the dark in search of its pathway to socio-economic prosperity – bad leadership, weak institutions, and abuse of due process are among a litany of moral and ethical deficits that have held it bound over the years.
Corruption, including vote-buying among others, has also influenced the selection of those in the seat of power: often times those who are not qualified have succeeded, and their performance had been abysmal.
Although it is one of the government’s most important economic tools, most economists think monetary policy is best conducted by a central bank (or some similar agency) that is independent of the elected government. This belief stems from academic research, some 30 years ago, that emphasized the problem of time inconsistency. Monetary policymakers who were less independent of the government would find it in their interest to promise low inflation to keep down inflation expectations among consumers and businesses. But later, in response to subsequent developments, they might find it hard to resist expanding the money supply, delivering an “inflation surprise.” That surprise would at first boost output, by making labor relatively cheap (wages change slowly), and would also reduce the real, or inflation-adjusted, value of government debt. But people would soon recognize this “inflation bias” and ratchet up their expectations of price increases, making it difficult for policymakers ever to achieve low inflation.
To overcome the problem of time inconsistency, some economists suggested that policymakers should commit to a rule that removes full discretion in adjusting monetary policy. In practice, though, committing credibly to a (possibly complicated) rule proved difficult. An alternative solution, which would still shield the process from politics and strengthen the public’s confidence in the authorities’ commitment to low inflation, was to delegate monetary policy to an independent central bank that was insulated from much of the political process—as was the case already in a number of economies. The evidence suggests that central bank independence is indeed associated with lower and more stable inflation.
OKECHUKWU CHISOM PETER
2019/244670
ECO/SOC
Since the CBN embarked on the redesign of the Naira as well as expanded the implementation of the cashless policy programme, which began in 2012, a section of Nigerians, apparently with vested interests have not considered the benefits of the policies but have rather criticised them and tried to stir public objection.
Critics of the cashless policy have argued that it would further impoverish Nigerians and create unemployment in the financial value chain. But they lacked evidence to buttress their rejection.
It is not surprising that most of the objections to the central bank policies are by those who currently benefit from the rot in the system – politicians, and other corrupt public officials who take undue advantage of the opaque system of administration that does not allow for transparency in government business.
Corruption remains the biggest challenge facing the country and has continued to retard its growth trajectory.
At 62, Nigeria is still groping in the dark in search of its pathway to socio-economic prosperity – bad leadership, weak institutions, and abuse of due process are among a litany of moral and ethical deficits that have held it bound over the years.
Corruption, including vote-buying among others, has also influenced the selection of those in the seat of power: often times those who are not qualified have succeeded, and their performance had been abysmal.
1.Experts say that there is no doubt the advantages of the currency redesign exercise will enormously benefit the economy in the long run, as emphasised by the CBN Governor.
If anything, the number of employment opportunities already created by the policies further demonstrates that rather than impoverishing Nigerians, the cashless policy has the potential to boost wealth creation across the country.
Experts say that there is no doubt the advantages of the currency redesign exercise will enormously benefit the economy in the long run, as emphasised by the CBN Governor.
If anything, the number of employment opportunities already created by the policies further demonstrates that rather than impoverishing Nigerians, the cashless policy has the potential to boost wealth creation across the country.
Already over 30,000 super agents had been engaged to carry out mobile services across the country.
Further highlighting the benefits of the cashless policy, Emefiele pointed out that generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties.
“Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth,” Emefiele said.
According to him, the macroeconomic impacts of currency redesign are multidimensional and could seem uncertain especially at this early stage when its inconvenience is widespread.
Emefiele said, “By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behaviour, and further encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
“In addition, the short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.”
3.
Although it is one of the government’s most important economic tools, most economists think monetary policy is best conducted by a central bank (or some similar agency) that is independent of the elected government. This belief stems from academic research, some 30 years ago, that emphasized the problem of time inconsistency. Monetary policymakers who were less independent of the government would find it in their interest to promise low inflation to keep down inflation expectations among consumers and businesses. But later, in response to subsequent developments, they might find it hard to resist expanding the money supply, delivering an “inflation surprise.” That surprise would at first boost output, by making labor relatively cheap (wages change slowly), and would also reduce the real, or inflation-adjusted, value of government debt. But people would soon recognize this “inflation bias” and ratchet up their expectations of price increases, making it difficult for policymakers ever to achieve low inflation.
To overcome the problem of time inconsistency, some economists suggested that policymakers should commit to a rule that removes full discretion in adjusting monetary policy. In practice, though, committing credibly to a (possibly complicated) rule proved difficult. An alternative solution, which would still shield the process from politics and strengthen the public’s confidence in the authorities’ commitment to low inflation, was to delegate monetary policy to an independent central bank that was insulated from much of the political process—as was the case already in a number of economies. The evidence suggests that central bank independence is indeed associated with lower and more stable inflation.
OKECHUKWU CHISOM PETER
2019/244670
ECO/SOC
As you all know, currency management is a key function of the Central Bank of Nigeria, as enshrined in Section 2(b) of the CBN Act 2007. Indeed, the integrity of a local legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy are some of the hallmarks of a great Central Bank.
Besides, the general practice across the globe is that a central bank should normally redesign its currency within 5-8 years. From the on-set of this currency redesign program, we made it clear that for over 19 years, the CBN has not been able to undertake this important currency and liquidity management function that has important ramification for the effectiveness of monetary policy.
and exchange rates relatively stable. Secondly, we aim to increase financial inclusion in the country by reducing the number of the unbanked population. Thirdly, our aim is to support the efforts of our security agencies in combating banditry and ransom-taking in Nigeria through this program and we can see that the Military are making good progress in this important.
Available data at the Central Bank of Nigeria showed that in 2015, Currency-in-Circulation was only N1.4trillion. As of October 2022, currency in circulation had risen to N3.23 trillion; out of which only N500 billion was within the Banking System and N2.7 trillion held permanently in people’s homes. Ordinarily, when CBN releases currency into circulation, it is meant to be used and after effluxion of time, it returns to the CBN thereby keeping the volume of currency in circulation under the firm control of the CBN. It should also be noted that the Notes in private homes and outside the banking system are not available for economic activities and thus may affect the economy attaining its potential growth.
So far and since the commencement of this program, we have collected about N2.1 trillion; leaving us with about N900 billion . To achieve effective distribution, of the new currency the CBN has taken the following steps:
We held several meetings with Deposit Money Banks (DMBs) and provided them with Guidance Notes on processes they must adopt in the collection of old notes and distribution of the New Notes to all Nigerians. These includes specific directives to DMBs to load new notes into their ATMs nationwide to ensure an equitable/transparent mechanism for the distribution of the new notes to all Nigerians. This approach was initially adopted following reports that some DMBs were favoring their Prime customers at the expense of their small account holders at bank branches. After sometime, and in a meeting with the DMBs, we decided to allow withdrawals over the Counter but subject to no more than N20,000. We also gave instructions that bank branches be kept open on Saturdays and Sundays. At our last meeting held this morning, the CEO of the banks reported that although calm was beginning to return to their banking halls , their were still some areas of pressure and everything is being done to divert more resources to such pressure points in order to ease the tension. The Meeting further resolved to extend the Cash swap initiative nationwide and expand the number of participating agents as well as formally include some Micro Finance Banks in the cash swap initiative.
We commenced a nationwide sensitization through the Print and Electronic Media to create an awareness on the redesigned Notes to Nigerians including collaboration with the National Orientation Agency to reach all Nigerians across multiple channels.
We deployed 30,000 Super Agents nationwide to assist in our Cash Swap initiative in the hinterlands, rural areas, and regions underserved by banks in the Country to ensure that the weak and vulnerable ones amongst us can swap/exchange their old notes.
We deployed all our staff, particularly the Assistant Directors, Deputy Directors, and Directors in Abuja to proceed to all CBN branches Nationwide to join the mass mobilization campaign and monitoring programs, working with the Deposit Money Banks, Agents, and our Branch Controllers across the 36 states of the Federation. This is meant to ensure compliance with all our guidelines already issued for smooth implementation of the program. The CBN welcomed the participation of the EFCC, and ICPC who joined our monitoring teams nationwide and this has further enhanced compliance at bank branches and agent locations
We are happy that so far, the exercise has achieved a success rate of over 80 percent as about N2.7 trillion held outside the banking system has been returned. Nigerians in the rural areas, villages, the aged and vulnerable have had the opportunity to swap their old notes, leveraging the Agent Naira Swap initiative as well as the CBN Senior Staff nationwide sensitization team exercise.
Generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties. Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth.
The macroeconomic impacts of currency redesign are multidimensional and could seem uncertain especially at this early stage when its inconvenience is widespread.
By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behavior. It could encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
In addition, the short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.
In the long-term, the policy improves the sophistication of tax collection and would no doubt reduce tax evasion and tax avoidance. As experiences from other jurisdictions have shown, effective currency redesign can support regulatory reform, increased legislative reach and coordinated fiscal and structural policies.
In summary, the general benefits of a currency redesign include:
Reduction of Broad Money Supply: Effectively implemented currency redesign large causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
Lowering Inflation: the policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
Collapse of Illegal Economy Activities: People who have earned money through illegal ways would be afraid to declare the money as they may be prosecuted by the Income tax department on the legitimacy of their income.
Easy Loans: Loans will become easier and interest rates may come down. As banks will have more money so more loans will be given out which will increase the money supply in the market and it will create inflation.
Before concluding this remark, let me state and sadly too, that we have observed some incidences of widespread hoarding and predatory activities of some vendors. We appeal to those involved in these nefarious activities to please desist from such practices. This is because , these actions if left unchecked could derail the achievement the objectives of the naira redesign policy.
a.Hoarding – We have noticed that some members of the public are hoarding the new notes thereby restricting their flow through the economy. Cash kept at home will not circulate but may fuel a perception of scarcity which leads to higher demand for the currency, signalling to those who don’t have an urgent or immediate cash need to store cash. The CBN would like to encourage the public to use alternative channels as much as possible for their transactions and hold minimal cash in line with the cashless policy.
Panic Queues – The CBN has also noticed long queues at some bank ATMs and banking halls. Whilst some of these withdrawal requests are genuine and DMBs continue to load the ATMs only with new notes, monitoring suggests that there appears to be some opportunistic and panic queuing. The Bank wishes to reassure the public that the new notes are available for all who need it at the appointed time. There is no need to queue for new notes if you have alternative channels of payment and don’t have an emergency cash need. We reiterate that the new redesigned notes are more than enough to go round for legitimate needs.
Damage of Bank Branches & Assault of Bank Personnel – It has also come to our notice that at some branches, customers have become aggressive, verbally and/or physically abusing bank staff. They have also damaged or destroyed bank property, premises, and assets. We enjoin Nigerians to be peaceful and law abiding when they visit bank branches as this wanton destruction will be counterproductive, reducing the number of financial access points in these communities.
Incidences of Economic Opportunism – We have also noticed that some Nigerians are capitalising on the transition to charge exorbitant fees or demand cash payment on the false pretext that POSs don’t work, especially at petrol stations. These selfish actions for personal monetary gain is creating hardship for Nigerians and may come at the expense of fellow citizens lives and livelihood.
Assignment on eco 303
Name: onu chinecherem Excellence
Registration number: 2019/241446
Department: economics
Course title: intermidate microeconomics
Level: 300l
Question. On 26 December 2022, Nigerian CBN announced the introduction of redesigned 200, 500, and 1000 naira notes into the country financial system. But since the notes were unvailed, Nigerians across different part of the country have been struggling to access it from bank and ATM cash pont. In veiw of this, you are required to discuss and analyze the merit and demerit of this policy initiative adopted by the Central Bank Of Nigeria.
Secondly, what is the Nexus between the naira redesign and money market equilibrium? Will the new policy promote equilibrium in the money market? Discuss this comprehensively.
Answer: The naira redesign policy as adopted by the Central Bank of Nigeria has so many merits and demerit in itself. Below are some of the merit of the naira redesign policy by CBN:
1.Improve suffistication on tax collection: taxation as one of the means through which government generation revenue to the economy but the collection of tax from every citizen of the country has never been easy because majority of the rural dwellers have little or no access to bank and banking activities, thereby making it difficult to tax such people and generate revenue. With the naira redesign and the new banking policy, taxation becomes easier and more suffiatcated.
2. It reduces tax evasion and avoidance: tax evasion occurs when a tax payer does not pay taxes while tax avoidance is the legal reduction of tax liabilities by a tax payer. This policy initiative recuces the rate by which people or citizens refuse to pay tax. How? Everyone how have and operates a bank account so one can not carry out any transaction without being taxed.
3.Counter fitting: counterfeit means to imitate something authentic, with the intent to steal, destroy, or replace the original, for use in illegal transactions, or otherwise to deceive individuals into believing that the fake is of equal or greater value than the real thing. There is a whole lot of counterfiet of the old naira note so in a way to make is useless to holder a newly designed note needs to me introduced into the economy.
4. It enhances the CBN visibility on money supply: the Central bank of Nigeria need to enhance it’s visibily on money supply in the country. As such, the policy was introduced and a specific amount of it was issued out into the country.
5. It can also support regulatory reform: efficient currency redesign can support regulatory reforms, increases regislative reach, coordinated fiscal and structural policies. The new naira redesign helps monetary policy function more effective.
Demerits:
The demerits of the new naira resdesign policy initiative provided by the CBN includes: the naira redesign policy initiative as beautiful as it is or as benefitial as it is also has it’s own side effects mostly on the citizens or the masses.
1. Hunger and starvation: it is very obvious that the CBN governor did not consider the effect of the policy on the masses before implementing it coupled with the fact that the duration for the money to circulate was too short. This brougth about hunger and starvation among the citizens whose interest should be the most priority of the government while passing a bill into law. The policy subjected citizens to hard life which could have been avoided if proper provision was made before the policy implementation.
2. Scarcity of the money: money is supposed to be a scarce commodity but at this point citizens could not even assess the money in supply at all. It was completely scare and beyond reach to citizen.
3. Riot and fighting: this policy honestly created room for riot and fighting among so many citizens of the country. In the banks and also at the ATM cash points.
The Nexus between the naira redesign and money market equilibrium is the interest rate which helps to balance the supply and demand of the most liquid asset of a country called money. The money supply has to be equal to the money demand but the money in supply is lesser than the demand for it . Interest rate now comes in tho balance the gap between the supply and damand for money but in this case people adjusted their potfolio like curtailing their spending just to meet the money in supply but still the gap continued.
The policy does not in anyway promote equilibrium because they can only be equilibrium when supply and demand for money comes to a point where non is greater than the other. But the supply of money is lower than the demand for money with this new policy on ground. For equilibrium to be attained with this policy, the supply of money should be increased to meet the demand for money else the gap in the money market will not be reached.
OKORO OLUCHI RUTH (2019/241597)
On 26th October 2022, the Central Bank of Nigeria (CBN) introduced redesigned 200, 500, and 1,000 Naira notes into the country’s financial system. This policy initiative was aimed at promoting cashless transactions, improving the security features of the currency, and reducing the cost of printing currency. However, since the notes were unveiled, Nigerians have been struggling to access them from banks and ATM cash points. In this essay, we will discuss and analyze the merits and demerits of this policy initiative adopted by the CBN, and examine the nexus between Naira redesign and money market equilibrium.
Merits and Demerits of the Policy Initiative:
The introduction of the redesigned Naira notes by the CBN has both merits and demerits. Some of the merits include:
Improved Security Features: The new currency notes have enhanced security features that make them difficult to counterfeit. This will help to reduce the circulation of fake currency notes in the country, which will ultimately boost the confidence of Nigerians in the currency.
Reduced Cost of Printing Currency: The CBN has claimed that the introduction of the new notes will save the country a significant amount of money in the long run. This is because the new notes are more durable than the old ones and have a longer lifespan. This will reduce the need to print new currency notes frequently.
Promotion of Cashless Transactions: The introduction of the new notes is expected to promote cashless transactions in Nigeria. This is because the CBN has also introduced a new set of guidelines that will make it easier for Nigerians to use electronic payment channels instead of cash.
However, the policy initiative also has some demerits, which include:
Difficulty in Accessing the New Notes: Since the notes were unveiled, Nigerians have been struggling to access them from banks and ATM cash points. This is due to the slow pace at which the CBN is releasing the new notes into circulation.
Possibility of Inflation: The introduction of new currency notes into circulation can lead to inflation. This is because an increase in the money supply without a corresponding increase in production can lead to a rise in prices.
Nexus between Naira Redesign and Money Market Equilibrium:
The money market is the market where financial instruments with short-term maturities are traded. The introduction of the new Naira notes by the CBN is expected to have an impact on the money market equilibrium in Nigeria.
Firstly, the introduction of the new notes is expected to increase the money supply in Nigeria. This is because the CBN will be releasing more currency notes into circulation. This increase in the money supply can lead to a decrease in the interest rate, as there will be more money available for lending. This can lead to an increase in investment, which can ultimately lead to economic growth.
Secondly, the introduction of the new notes can also lead to an increase in demand for financial instruments such as Treasury bills and bonds. This is because investors may be more willing to invest in these instruments if they perceive them to be more secure. This can lead to a decrease in the interest rate on these instruments, which can further stimulate investment and economic growth.
However, the introduction of the new notes can also lead to inflation, as stated earlier. This can negatively impact the money market equilibrium, as it can lead to an increase in the interest rate, which can discourage investment and lead to a slowdown in economic growth.
Conclusion:
In conclusion, the introduction of the new Naira notes by the CBN has both merits and demerits. While the new notes have enhanced security features and can reduce the cost of printing currency, they have also been difficult to access, and their introduction can lead to inflation. The introduction of the new notes is expected to impact the money market equilibrium in Nigeria. While it can lead to an increase in investment and economic growth, it can also lead to inflation, which can negatively impact the interest rate and discourage investment.
To promote equilibrium in the money market, the CBN must carefully manage the introduction of the new notes into circulation. This can be achieved by controlling the pace at which the new notes are released, ensuring that the money supply is not increased too rapidly, and implementing measures to manage inflation.
Furthermore, the CBN can also promote cashless transactions by encouraging the use of electronic payment channels, which can help to reduce the demand for physical currency and promote economic growth. The CBN can also explore ways to increase the production capacity of the economy to ensure that an increase in the money supply does not lead to inflation.
Overall, the introduction of the new Naira notes by the CBN has the potential to promote economic growth in Nigeria. However, to achieve this, the CBN must carefully manage the policy initiative to avoid negative impacts on the money market equilibrium and the economy as a whole
Iloh chioma sandra
2019/244155
Economics.
One of the merits and benefits of the redesign currency is that it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth.
Secondly, Lowering Inflation: the policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
The Central Bank of Nigeria, says it would help fight corruption, check inflation and ensure a more effective monetary policy.
The demerits of the redesign nigeria currency may have negative effect on economic activity especially poor Nigerians due to its timing and short transition period.
The World Bank, in its report, however, said the new policy would negatively affect small businesses especially those who day-to-day cash transactions.
At present, households and firms already face elevated financial pressures from prolonged, high inflation, recently compounded by external food and fuel price shocks, and the severe floods, and phasing out existing naira notes over a short time period may add to their challenges.
The nexus between naira redesign policy means that is a complex relationship and the money market equilibrium refers to the state of market where the demand of money equals the supply of money resulting to stable interest rate, so if CBN announces its redesign naira note, it will impact the money supply in the economy and also impact the money equilibrium because they will be increase in money supply and there will be change in the velocity of money and the way money changes hand and also inflation will be affected, it will also affect financial market because of the stock and bond market because the increase in money supply can lead to increase in its circulation, it will affect the confidence in the currency because lack of circulation of this new currency.
will it promote equilibrium in the money market?
it just depends on how the policy is implemented about how the market respond to it. The redesign of naira can impact the money market in several ways and if the policy is successful in improving currency management, the cost of production, distribution and improving the security features, promoting electronic payments etc, and increase in demands for naira can lead to increase in its value which will attract more foreign investment and stability in the money market.
Aniemeka Chijindu Dennis 2019/250915
Economics department
On October 26, 2022 the CBN received the approval of President Muhammadu Buhari to redesign the N200, N500, and N1000 Nigerian banknotes, and this was rolled out on December 15, 2015.
Available data from the CBN showed that in 2015, Currency-in-Circulation was only N1.4 trillion. As of October 2022, currency in circulation had risen to N3.23 trillion; out of which only N500 billion was within the banking system and N2.7 trillion held permanently in people’s homes.
MERITS OF NAIRA REDESIGN
*. The principal aim with the currency redesign initiative is to make our Monetary Policy decisions more efficacious and as you can see; we have started to see inflation trending downwards and exchange rates relatively stable.: Nigeria’s headline inflation rate decelerated by 12bps to 21.34 percent, year-on-year in December, down slightly from a 17-year peak of 21.47 percent y/y in November, according to the National Bureau of Statistics (NBS) (although these statistics are yet to reflect on the prices of some essential goods and services).
*. Secondly, the aim to increase financial inclusion in the country by reducing the number of the unbanked population : as stated earlier the amount of money in circulation in the economy is about N3.23 trillion of which N500 billion is in the banking system while N2.7 trillion held permanently in people’s home. With the policy of Naira redesign it will help to lure out the N2.7 billion back into the banking system and be accounted for.
*. Thirdly, the aim is to support the efforts of our security agencies in combating banditry and ransom-taking in Nigeria through this program and we can see that the Military are making good progress in this important area.
Chiefly the Naira redesign policyis expected to reduce the amount of cash in the underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation.
The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth.
DEMERIT OF NAIRA REDESIGN
*. Poor timing of transition: The World Bank has warned the newly redesigned naira which went into circulation may have negative effect on economic activity especially poor Nigerians due to its timing and short transition period.
The Washington-based bank revealed this in a new report titled, “Nigeria Development Update.
The World Bank has warned the newly redesigned naira which went into circulation may have negative effect on economic activity especially poor Nigerians due to its timing and short transition period.
The Washington-based bank revealed this in a new report titled, “Nigeria Development Update.”
This came amid the mixed reactions that have been trailing the newly redesigned notes.
The Central Bank of Nigeria had last month unveiled new N,1000, N500 and N200 notes as part of measures to mop up excess cash in circulation, ransom payment for kidnapping, terrorism financing, counterfeiting, among others.
The World Bank, in its report, however, said the new policy would negatively affect small businesses especially those who day-to-day cash transactions.
The report read in part, “While periodic currency redesigns are normal internationally and the naira does appear to be due for it since naira notes have been redesigned for two decades, the timing of and short transition period for this demonetization may have negative impacts on economic activity, in particular for the poorest households
*. Execution flaws: The cash crunch and the attendant economic and social dislocations created by the currency redesign policy of the Central Bank of Nigeria (CBN) have surfaced many design and implementation flaws that typically undermine the effectiveness of public policies. There are many lessons screaming to be learnt in the unfolding odyssey of this CBN policy. But the policy designers/implementers and the policy authorisers must demonstrate the capacity to learn, the humility to admit their errors, and, most importantly, the ability to undertake necessary course correction to avoid creating a greater crisis. Nigeria and Nigerians are going through it at the moment. With generalised insecurity, rising food prices, election-related anxieties, and petrol queues, there is enough tension in the land. The implementation of the Naira redesign policy has already created a spark. This should be avoided. At all cost. By all means.
The CBN has been busy pointing accusing fingers at those frustrating the implementation of the policy. Mr. Godwin Emefiele, the CBN governor, toed this path on Friday in his presentation to the Council of State. He reportedly laid the blames at the doors of hoarders, politicians, panicking public and economic opportunists. During his appearance before a committee of the House of Representatives on 31st January, Emefiele also said that some bankers were undermining the policy and that the apex bank was working with NFIU, ICPC and EFCC to bring the errant bankers to heel. And indeed, the anticorruption agencies have hauled in some bankers. Angry members of the public have also attacked a few banks and destroyed some money-dispensing machines. In some places, banks have closed down, further compounding the crunch.
*. The policy caused socioeconomic mayhem: This policy undoubtedly with it’s good intentions has thrown the socioeconomic structure of the economy into a serious dilemma. People struggling to get hold of the new currency, banks and other financial institutions not being able to dispense the currency, small businesses who make earnings through day to day cash transactions, POS agents charging exhorbitant amount of money just to get hold of the new currency and generally throwing the circulation of cash in the economy into disequilibrium.
THE NEXUS BETWEEN NAIRA REDESIGN AND THE MONEY MARKET
Statistically speaking the amount of money in circulation in the economy has dropped from N3.23 trillion to around N1.4 to 2.5 trillion which is obviously a decline in the amount of money in circulation and the supply of money is an exogenous variable controlled by the Apex bank CBN. Having stated the fact that CBN controls the amount of money in circulation then we move over to the demand for real money; going with the recent happenings in the country wereby citizens can’t access there hard earned money, exhorbitant POS charges and a whole lot of other variables obviously points out the fact that there is currently a total disequilibrium in the money market.
This is because there’s a shortage in the supply or circulation of money in the economy relative to it’s demand. This in turn influences the interest rate (the opportunity cost of holding money).
According to the liquidity preference theory the supply and demand for real money balances determines what interest rate prevails in the economy.
So whenever the money market is not in equilibrium (which is currently in disequilibrium in Nigeria) people try to adjust their portfolios of assets and in the process alter the interest rate.
With these being said I would like to state it clearly that the interest rate in Nigeria is below the equilibrium because the quantity of money demanded exceeds the quantity supplied which in turn increases interest rates as merely seen at POS shops and so on.
However in due time with the approval of the old currency to be in circulation till December (yet to be approved by the CBN) the money market will be thrown or restored to balance and the amount of money demanded will equal the amount supplied and bring the interest rate to normalcy.
Ikwuagwu Lucy Ogechi
2019/245407
Macroeconomics
ECO 303
Economics major
1a. The merits.
I. According to Emefiele, the central bank’s principal objective for the currency redesign initiative was to make our monetary policy decisions more efficacious, saying: “We have started to see inflation trending downwards and exchange rates relatively stable.
II. Another aim is to support the efforts of security agencies in combating banditry and ransom-taking in Nigeria through this program.
III.The currency redesign policy has helped to mop up monies outside the banking system that had often contributed to rising inflation and currency speculation, which had resulted in foreign exchange challenges in recent times.
IV. Emefiele pointed out that generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties. “Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth,” Emefiele said.
V.The currency redesign would assist in the fight against corruption as the exercise would rein in the higher denomination used for corruption and the movement of such funds from the banking system could be tracked easily.
The demerits.
I. There is a serious scarcity of the new Naira notes, and the CBN cannot be absolved of the blame. The CBN governor has been busy talking about how much the apex bank has pulled in from the currency in circulation but has never mentioned how much money CBN has printed or distributed to the banks. The reason is simple: CBN has not printed enough. By its own admission, CBN is printing locally, and not a few people know the full capacity of the Mint. Beyond what people know or sense about this capacity constraints, CBN also actively signalled that it didn’t have enough notes: it didn’t make the new notes available until December 15th, it initially asked banks not to pay new notes over counter, then it imposed a limit on how much they could give out over the counter.
II. CBN’s underestimation of the cash need of Nigerians.An NBS data cited by the article shows that as at 2021, only 35.4% of women and 47.2% of men between the ages of 15 and 49 had bank accounts in Nigeria. Sum: a majority of Nigerians are unbanked and will need cash to get by daily. But even the banked still need and rely on cash, a position backed by data.From a policy design and implementation perspective, it would have been better for the CBN to overestimate than to underestimate.
2. The nexus between naira redesign and market equilibrium is that they both try to equilibrate the money market i.e in Nigeria for example one of the reasons for the naira redesign is to bring about demand and supply equilibrium in the Nigerian economy.
3. In the long run, all things being equal, the new policy would promote equilibrium in the market.
Name: Nwadike VivianMmesoma
Reg no: 2019/244657
Since the CBN embarked on the redesign of the Naira as well as expanded the implementation of the cashless policy programme, which began in 2012, a section of Nigerians, apparently with vested interests have not considered the benefits of the policies but have rather criticised them and tried to stir public objection.
Critics of the cashless policy have argued that it would further impoverish Nigerians and create unemployment in the financial value chain. But they lacked evidence to buttress their rejection.
It is not surprising that most of the objections to the central bank policies are by those who currently benefit from the rot in the system – politicians, and other corrupt public officials who take undue advantage of the opaque system of administration that does not allow for transparency in government business.
Corruption remains the biggest challenge facing the country and has continued to retard its growth trajectory.
At 62, Nigeria is still groping in the dark in search of its pathway to socio-economic prosperity – bad leadership, weak institutions, and abuse of due process are among a litany of moral and ethical deficits that have held it bound over the years.
Corruption, including vote-buying among others, has also influenced the selection of those in the seat of power: often those who are not qualified have succeeded, and their performance had been abysmal.
As a result of the lack of transparency in financial dealings, social safety interventions for instance have been compromised as monies end up in private pockets while the vulnerable are left in worse conditions.
Because monies cannot be partly accounted for or traced as a result of physical cash handling, a lot of underhand transactions are perpetrated and often go unnoticed by anti-graft and regulatory agencies.
It is partly given the foregoing and the need to address some of the actions that have continued to shortchange the economy and the vulnerable in particular that the central bank, with the permission of President Muhammadu Buhari, decided to redesign the local currency as well as introduce limits on physical cash withdrawals.
Naira redesign and it’s Merits
The Governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele on October 26, 2022, announced policy initiatives to redesign the N200, N500, and N1,000 denominations, and subsequently introduced the cash withdrawal limits to regulate the movement of cash in the system as well as solve other challenges including currency counterfeiting among others.
In announcing the Naira redesign programme, the CBN governor said the move was aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
Emefiele, further explained that there was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks.
According to him, as of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks, describing the development as unacceptable as this has the potential to harm monetary policy actions, further leading to higher inflation and currency speculation, thereby exposing vulnerable Nigerians to further economic hardship.
However considering the timing of the policies – being an election year – some Nigerians, particularly politicians, believed that the apex bank’s move was targeted against certain individuals and have refused to see beyond their assumptions to know that the actions are in the best interest of Nigerians and the economy if the country must address the current gale of insecurity, corruption and economic sabotage among other actions of some privileged elites who continued to take advantage of a dysfunctional system to short-changed the country.
If anything, there have been early successes of the CBN intervention – the monetary policy committee (MPC) of the central bank recently affirmed that the various policy interventions of the bank had led to a reduction in inflation after months of an uptick in the headline index.
Also, the cashless policy has led to a reduction in banditry and kidnappings, which were rampant in the recent past.
Demerits
The naira redesign affected so many businesses mostly the growing local business in Nigeria.
So many petty traders were forced to open an account with the bank for their business to survive amidst in cashless policy.
Pos merchants used the means to extort money from the masses as they were looked upon as their only messiah.
Banks got congested with people who stood in a long queue to get the new naira note.
The amount of new notes created were low considering the large population of Nigeria, so they couldn’t circulate, as only a small part of the country had access to the new notes.
Bank managers sold huge amounts of the new naira notes to politicians leaving a small ratio for the masses which wasn’t enough.
It increased hunger as Nigerians wallow in depression and frustration.
The new naira note redesign affected the money market equilibrium, in the sense that, people could not buy goods as they could not get access to their money, and demand for goods reduces, causing a shift from the equilibrium to move inward, same as the supply, in a bid to sell goods especially perishable goods in order not to perish, prices were reduced.
MERITS OF THE POLICY INITIATIVE (REDESIGNED NAIRA NOTES) ADOPTED BY CBN:
1.)The policy improves the sophistication of tax collection and would no doubt reduce tax evasion and tax avoidance.
2.) It has led to reduction of Broad Money supply and the amount of money in circulation and also a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
3.)The policy has typically caused deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
4.) It encourages more people to adopt the use of electronic payments including the eNaira, thereby improving financial inclusion.
5.)The redesigned naira notes increase a currency’s security by helping nations keep counterfeiting to a minimum and stay one step ahead of threats.
DEMERITS OF THE POLICY INITIATIVE (REDESIGNED NAIRA NOTES) ADOPTED BY CBN:
1.)This new policy brought about control of supply of money which reduced consumption. As consumption declines, production will reduce and employment will reduce as a result of laying off. It is mortgaging effective demand for autonomous consumption which is a catastrophe that could lead to criminality.
2.)At this time, the policy has a negative impact on rural entrepreneurs and business people who have been involved in a cash-based economy.
3.)This policy came with huge logistics costs and avoidable misallocations to small businesses, most of whom are in the informal sector.
4)This redesigned naira notes has brought about scarcity of cash and difficulty in accessing the new naira which is disheartening and really frustrating .
5.)It has activated the criminality, corruption and the monopolistic opportunism in some Nigerians. Those that have access to the new naira involve in the sale of the new naira notes at exploiting prices.
6.)It causes Money market disequilibrium.
2.)THE NEXUS BETWEEN REDESIGN NAIRA NOTES AND MONEY MARKET EQUILIBRIUM:
The redesigned naira notes is a very important factor that affects the money market equilibrium. This redesigned naira notes has influenced money supply and money demand lately which are the main determinants of money market equilibrium .
Equilibrium in the money market occurs when the money demand equals the money supply. At that point, the equilibrium interest rate is formed. For the equilibrium interest rate to change, either the money supply curve or the money demand curve should shift and the redesigned naira notes has caused a shift in both the money supply curve and money demand curve by creating lack of money supply and high demand for money which makes it impossible for any equilibrium in the money market.
WILL THE NEW POLICY PROMOTE EQUILIBRIUM IN THE MONEY MARKET:
Since, the new policy is already creating an imbalance between the money supply and money demand. I highly doubt it can promote money market equilibrium.
Here is why;
Before there is a money market equilibrium, quantity of money demanded and the quantity of money supplied must be equal. If the new naira notes can’t bring about this equality then there is no money market equilibrium.
Where the money supply and money demand equate is where the equilibrium of interest rate is formed.
Lower interest rate brings about equilibrium in the money market. The redesigned naira notes has brought about higher interest rate by increasing the quantity of money demanded in the economy and also reducing the amount of money in circulation. When there is high interest rate due to low supply of money quantity of investments demanded reduce and the exchange rate increases which reduces exports. Not just the net exports also, level of income and real GDP, the price level, expectations, transfer costs, and preferences.
With this condition equilibrium of interest rate cannot be formed so as money market equilibrium.
NAME: OMEBE SAMUEL OFORBUIKE
REG NO: 2019/246454
COURSE: ECO 341
(1) Following the Naira Redesign Policy by the Central Bank of Nigeria in October,2022,, we will be critically discussing the benefits and short comings of such initiative by the central Bank of Nigeria (CBN). Some of the benefits of the policy includes:
(i) lowering the total money supply: A reduction in the money supply results from successfully implemented currency redesigns. This will lessen pressure on domestic prices by lowering the value of money in circulation and slowing the velocity of money in the economy.
(iI) Reduce Inflation: As less cash is held outside of banks and less money is circulated, the strategy is often anticipated to result in market deflation. The speed of inflation will therefore be slowed by the concurrent decrease in the money supply.
(iii) Collapse of the illicit economy: Individuals who have made money illegally would be hesitant to declare it because they could face legal action from the Income Tax Department if their income was found to be illegitimate.
(iv) Easy Loans: Loans will be simpler to obtain, and interest rates could drop. More loans will be made as a result of banks having more funds, which will lead to a rise in the amount of money in circulation.
Having discussed on the benefits or merits of the Naira Redesign Policy,it is also pertinent to discuss the demerit of the policy as well. Below are some of the demerits of the adoption of the policy:
(i) logistical difficulty: Given that Nigeria borrows to cover its budget shortfalls, the practicalities of such printing provide a hurdle. Also, to traverse the 774 local governments, some of which do not have any banking facilities.
(ii) Monitoring electioneering expenditures: The believe that the CBN’s goal of limiting electioneering spending by redesigning the naira notes could only be accomplished if the new notes were produced in a finite quantity.
(iii) Insufficient space in the banking halls: The banking hall will be filled with numerous, lengthy lines. It will cause a great deal of inconvenience for the populace. We don’t have banks in most local government areas, therefore the elderly and unbanked may not be able to cope.
(iv) Rural residents factor: Rural residents who live distant from banking facilities are worried that doing away with their old notes and initially getting their hands on the new ones will be difficult.
(v( The concern of ongoing inflation: The action would end inflation “since there are other key drivers for inflation, such as the FX crisis, which this new measure can aggravate, as well as the impact of the security issue on food price inflation.
(2) The money Market equillibrium consist of supply of money and the demand for money. The supply of money is an exogenous (fixed) policy Variables choosen by the central bank such as the Naira Redesign policy in this case. The money demand is endogenous ( it is not fixed), rather, it is affected by interest rate; interest rate determines the demand for money. The Nexus between the Naira redesign policy and the money market equillibrium is that the naira Redesign policy is the exogenous policy variable which is choosen by the CBN to control money supply. This implies that the Naira Redesign policy is set to bring back the money that are out of circulation, into the financial system of the Nation through the CBN. This will reduce the amount of money people are holding,thereby increasing the demand for money which in turn increase interest rate and subsequently the money market will attain equillibrium; the demand for money and the supply of money will equilibrate each other.
Another question to ask is, will the Naira Redesign Policy cause an equillibrium in the money Market? Of course yes,and my reasons are as follows:
As I have earlier discussed,the Naira Redesign Policy is acting as the exogenous (fixed) policy variable set by the CBN to control the money supply. The Naira Redesign policy,prior to its commencement, there was a total of 3.23 trillion in circulation, in which out of this amount only 500 billion was in circulation and about 2.7 trillion was out of circulation. So far, as a result of the commencement of the Policy, about 2.1 trillion has been collected back and it is remaining about 900 billion to balance the 3.23 trillion in circulation. We could see from this statiscal evidence of the money in circulation prior to the adoption of the policy that,the money within the banking system was far below what should be,and obviously this is as a result of hoarding of this currency by some obnoxious and dubious individuals. The commencement of the policy in the nation has attained a remarkable and effective result in bringing back about 2.1 of the money out of circulation. With time,the remaining amount of money in circulation will be retrieved as well. This shows us that the policy is driving back the money market that is at disequilibrium presently to equillibrium.
Another reason is that,this policy will reduce money supply because the policy is majorly formulated to retrieve most of the money in circulation and the ones out of circulation, by so doing there will be shortage of cash circulating in the economy. This in turn will increase the demand for money,and interest rate charged to give out money will increase due to this. The theory of liquidity preference which is used to explain equillibrium in the money market states that “a reduction in the supply of money will cause an increase in the interest rate”. This is quite obvious currently,as people pay huge amount of interest rate to POS agents in order to acquire little amount of cash. When this occurs continuously the money market will be driven back to equillibrium. When there is an alteration maybe later in the future an alternative CBN policy variable will be employed in order to increase the money in circulation in order to set the money market at equillibrium again.
Merits of the policy;
Many people have suggested that the new measure could restore confidence in the local currency as the bulk of the naira note stacked away by politicians, criminals and other illegal operators would be returned to the banking system, helping the CBN to monitor the currency in the economy.
It is also expected that with the new notes, most tattered naira notes currency pushed into the system would be eliminated while counterfeiters would be refrained for a couple of years in carrying out their illicit business.
Another angle to look at the measure is the positive effect it will have on crime in the country. Currently, Nigeria is having challenges with terrorists and banditry across the country with money being paid to kidnappers as ransom running to billions of naira.
It is expected that the ransom money that is yet to find its way into the banking system would be brought out to be exchanged for the newly redesigned notes. This could also lead to crime detection and probable prosecution as many who could not explain the sources of their wealth may find themselves in trouble with law enforcement agencies.
Also, politicians who have stacked away money for the purpose of vote buying during the forthcoming election may have a difficult time changing their notes into the new naira while bringing such money back to the system could upset some of their plans.
Other merits include:
Statistics had shown that over 80 per cent of the currency in circulation were outside commercial banks’ vaults, which was fuelling illicit financial flow within the economy:
A significant hoarding of banknotes by members of the public, worsening shortage of clean and fit banknotes and increasing cases and risk of counterfeiting informed the decision.
“The CBN obviously wants to force all those notes back into the banking system. Those with the notes must surrender them to get new ones or else it becomes illegal tender after Jan. 31 2023.
“This is also a way to withdraw currency from circulation, an unorthodox way of tightening the money supply since the country is battling high inflation.
“The flip side is that people who are holding huge amounts of cash outside the banking system for nefarious reasons will go to the parallel forex market to buy hard currency, putting further downward pressure on the value of the Naira as too much Naira will be chasing too few dollars.”
Demerits
The huge cost of printing the new note could run to trillions of naira, which the economy may be least prepared for with the current state of the economy, the state of the nation’s foreign reserves since the currency is expected to be printed abroad and the implications for the balance sheet of the central bank.
Learning from the previous similar occurrence 38 years ago, the economy will surely be upset by the change in the currency as many merchants and petty traders would start rejecting the old notes ahead of the implementation of the policy on December 15.
The cost of food and other items will shoot up as the naira notes for transactions will become scarce while many people may go hungry because they could not get new naira to make necessary purchases.
The banking hall will be jam-packed with people scrambling to exchange their old currency for new notes, putting pressure on the lean capacity of the banks to process currency.
Armed robbery could escalate with criminals targeting bullion vans to be used in the distributions of the new notes in some rural areas in a bid to minimize their losses on the old naira notes stacked away previously in order to evade the law.
Both the CBN and the banks will face logistic challenges in the distribution of the new notes across the country with the rate of crime in form of banditry and terrorism across the country escalating. Also, security around the banks would be threatened because of the huge demand for the new notes as criminals could also take advantage of the change-over to commit their illicit trade.
There is the possibility that counterfeiters may take advantage of the lag in distribution to circulate their own notes in some parts of the country, which may not be effectively covered by the publicity around the new notes.
Other demerits include:
Logistics challenge: The challenge of logistics of such printing due to the fact that Nigeria is borrowing to fund the budget deficits. In addition, to navigate the 774 local governments when some of them don’t have banking halls present in the local governments.
Overcrowding in the banking halls: There will be lots of long queues in the banking hall. It’s going to create lots of inconveniences for the people. The unbanked and the elderly may not be able to cope since we don’t have banks in most local government areas
Rural dwellers factor: It is feared that rural dwellers who live far from where banking services are available would experience hardship dumping the old notes, as well as, initially, obtaining the new ones.
Fear of persistent inflation: the step would solve inflation, “because there also are other major reasons for inflation such as the forex crisis, which this new move can exacerbate, as well as the impact of the security crisis on food price inflation.”
2. While the cash crunch being experienced in Nigeria persists till now, data shows that currency outside the banking system has dropped by 9.51 percent in almost three months, driven by the current naira policy.
Data from the Central Bank of Nigeria (CBN) showed that currency outside banks declined to N2.57 trillion in December 2022, from N2.84 trillion in October 2022, when the policy was announced.
On October 26, 2022 the CBN received the approval of President Muhammadu Buhari to redesign the N200, N500, and N1000 Nigerian banknotes, and this was rolled out on December 15, 2015.
Available data from the CBN showed that in 2015, Currency-in-Circulation was only N1.4 trillion. As of October 2022, currency in circulation had risen to N3.23 trillion; out of which only N500 billion was within the banking system and N2.7 trillion held permanently in people’s homes.
Currency in circulation can be defined as ‘currency outside the vaults of the Central Bank, that is, all legal tender currency in the hands of the general public and in the vaults of the Deposit Money Banks.
Godwin Emefiele, governor of the CBN, said with the approval of Buhari, the redesigned banknotes will circulate concurrently with the old notes , up to 31 January 2023 after which date the old notes lose their legal tender status. However, he said given the need to improve the level of circulation of the new notes, the President extended the deadline by another 10 days to February 10, 2023 for olds notes to circulate as legal tender.
“Our principal aim with the currency redesign initiative is to make our Monetary Policy decisions more efficacious and as you can see; we have started to see inflation trending downwards and exchange rates relatively stable.
3.However, monetary policy has been a tool for economic management to bring about sustainable economic growth and development. While Monetary institutions are saddled with the responsibility of using monetary policy to grow the economy. Realistically, the CBN’s cashless policy has led to the expansion of various payment channels across the country. For example, the number of ATMs rose from 10,865 in 2011 to 19,355 in 2021. The number of Point of Sale (POS) terminals rose from around 155,000 to 1.1 million as of April 2022. Cash continues to lead payment options in Nigeria, with debit cards and mobile payments the most popular cashless choices while credit cards struggle to make a mark on the payments landscape.
The CBN naira policy aim is to bring an estimated 2.7 trillion naira ($6 billion) that circulates in informal channels into the regular banking system and carefully monitors transactions ongoing in the financial institutions.
OMEYE ADANNA NGOZIKA
2019/242941
ECONOMICS MAJOR
MERITS OF CURRENCY REDESIGN
The redesign of Naira may have not be easy on Nigerians but truth be told, it will have a good effect in the long run. Such macroeconomic decisions aren’t seen as good decision and that is why we need to look on the merits this redesign of currency will bring in future. These merits are:
1. Reduction in money supply: This will go a long way in reducing the velocity and volume of money outside the bank vault. One of the reasons why there is pressure on domestic prices of goods and services is because of excessive flow of money in the economy. According to Businessday NG, As of October 2022, currency in circulation had risen to N3. 23 trillion; out of which only N500 billion was within the banking system and N2. 7 trillion held permanently in people’s homes. From the above statistics, it is obvious that there have been excess flow of cash outside the banking sector and money has been changing from hand to hand at an accelerating rate. This doesn’t correspond with the production of goods and services. The amount of money people spend high compared with the goods available. Nigeria is so dependent on oil which is bad for a nation with a population of over 200 million and yet, the rate of production is not even encouraging. Data from the upstream regulatory body shows that the country’s oil production averaged 1.49 million barrels per day (bpd) in 2020, 1.31 million bpd in 2021 and 1.14 million barrels per day in 2022(Business day NG). Using the case of oil, there is reduction in production and when large number of Nigerians with the currency is in desperate need of fuel, with the scarcity of it, there will be a hike in its price. As a result of such scenario, there is every tendency for a fluctuation in the domestic price of goods. With the help of redesigning naira, this will be reduce as a result of reduction of currency and introduction of cashless policy.
2. Lowering Inflation: Inflation is general rise in the average level of prices of goods and services. One of the causes of inflation is excess money supply. Just as explained above, excess money outside the bank brings about rise in the price of goods and services, thus, inflation. To reduce inflation, deflation if introduced. This policy of naira redesign is typically expected to cause deflation in the market as less cash holding reduces currency and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
3. Truncating the activities of criminals and reducing the amount of cash inn underground or illicit economy: It’s not new news that most of our politicians are corrupt and engage in embezzlement of money. This money is most likely stored in their warehouse or probably in their main houses. With the change of money, they are forced to bring out the money they’ve stored for years. These will implicate them(bringing such amount of money to the bank will bring about questions that may even involve the EFCC) and at the same time make sure money a waste for them (because they if they can’t take the money to the bank due to its quantity, it will only make it a waste). This also will be a great disadvantage for criminals. With the redesign of money and introduction of cashless policy, it will be (near to) impossible for them to demand a huge ransom. Trying to use transfer will highly implicate them because they will be easily traced since this involves a digital screen that can be worked on by experts.
4. Increase in loan: According to CEIC Data, Nigeria Bank Lending Rate was reported at 13.850 % pa in Dec 2022. This records an increase from the previous number of 13.170 % pa for Nov 2022. This shows it have been on the increase. With this new policy, inflation will reduce and more money will be in the bank vault. Banks give loans at high interest rate because of the desire to reduce inflation and also to get more money to give out as loans since there is less of it in the vault. It is expected that with this new policy, interest rate will be low and thus, encourage more people to borrow.
5. Increased production: Having stated that there will be less interest rate paid, borrowing will increase and this will encourage investment. With an increase in investment, there is increase in production, increase in consumption. Giving the amount of production, there will be need for more labour force thus, increase employment in the country.
The above named merits and more can be witnessed in Nigeria if this policy stands the wave of difficulties that come with it.
DEMERITS OF NAIRA REDESIGN
As we know, everything on earth has merits and demerits. This policy is not a bad one but due to some cases (like over population), it has proven to be ineffective in the economy at this time. The demerits of redesigning naira are explained below:
1. Negative effects on SMEs: According to World Bank, Naira redesign will affect the poor, SMEs. It is so obvious that the large number of Nigerians storm the money in search of cash. Unlike the old currency that can be easily access, it is very difficult to access the new currency (owing to the fact that the amount printed has even reduced). This falls greatly on the informal sector involved in small and medium scale enterprise. According to The Sun Nigeria, The lingering scarcity of Naira appears to be biting hard on micro, small and medium enterprises (MAMEs), as their inability to access cash needed to do business is threatening their existence. More so Nigerians are yet to feel any respite as the scarcity continues to unleash untold hardship on consumers and suppliers. Many businesses aren’t functioning well again because of the scarcity of cash. This is bad for them especially for those that don’t have an account, talk more of carrying out online transactions.
2. The challenge of the unbanked rural dwellers: Most of the population of the rural dwellers is unbanked and thus excluded from banking activities. The olds notes according to CBN must be paid into an account to be able to access the new notes. This would disrupt their business activities which is cash driven. According to National Bureau of Statistics, 63% of persons living within Nigeria (133 million people) are multidimensionally poor. This means half of Nigerians don’t have enough to eat and to an extent, doesn’t have an account. This clearly shows that these people are going to starve to death. If they can’t gain access to money, what are they going to resort to? Even if they have an account, do they have enough money to pay for each #1000 note they get from POS? This is one thing that CBN failed to consider that is really hurting citizens.
3. Hoarding: According to Vanguard, On January 31st 2023, CBN has also found out that the banks may actually be hoarding the new notes for either completion advantage or for vested interests of privileged customers. On the other hand, the commercial banks are claiming not to be hoarding the money and that they don’t have the money. The question is, who is now with the money? What is exactly the problem with the circulation of the money? It’s been 3 months since the circulation of the new money and Nigerians are still suffering from its scarcity. No one knows who is holding the money and who is telling the truth between the two parties. CBN? Or Commercial Banks? Cash hoarded will not circulate but may fuel a perception of scarcity which leads to higher demand for the currency, signaling to those who don’t have an urgent or immediate cash need to store cash.
4. Greater deficit: Nigeria is in a pool of debts before the redesign of naira. According to , CBN spent 218 billion on this redesign. Don’t you think this will incur more cost on the debt owed? This policy is a good one but there are more pressing needs that we ought to focus on such as channeling it to education. Omoyele Sowore, Presidential candidate of the African Action Congress (AAC) stated, “These are issues you get from leaders who are concerned about the welfare of the people of the country, not the redesign of the naira which cost us N218 billion. We should have given that money to ASUU,” This has only increased the debt rate and its servicing in Nigeria and if care is not taken, it will be out of control.
NEXUS OF NAIRA REDESIGN AND MONEY MARKET EQUILIBRIUM
The money market is the interaction among institutions through which money is supplied to individuals, firms, and other institutions that demand money. Money market equilibrium occurs at the interest rate at which the quantity of money demanded is equal to the quantity of money supplied. For money market equilibrium to be attained, the achievement of equilibrium in the money market must work to attain the achievement of equilibrium in the bond market. Money demand and supply affects the money market.
Nigeria’s scenario is a case where there is less money (decrease in total money supply after money redesign) in the economy. In the midst of this situation, Nigerians have less desire to hold bonds. With the little supply of money, they rather hold money (mostly like because of future expectations that money will be scarce in future). This will result to an interest rate increase because less money will be in the bank vault and thus, a fall in the aggregate demand curve and investment. This also will lead to a fall in the GDP of the country. Having stated this, it is obvious that less supply of naira in the economy has brought about a hike in the demand of money.
On the other side, Nigeria is highly indebted to internal and external organization and is also facing inflation and for this reason, will sell bonds as a contractionary measure to curb inflation. When this happens, there is greater reduction in money supply, causing the money supply curve to shift to the left and raise the equilibrium interest rate. Higher interest rate discourages investment which will aggregate demand and shift it to the left.
Studying the money and bond market, it is clear that this will bring about negative outcomes because both will reduce money supply and discourage investment. Thus, it can be said that, there is a negative relationship between the naira resign and money market equilibrium.
WILL THIS NEW POLICY PROMOTE EQUILIBRIUM IN THE MONEY MARKET?
This will not bring about equilibrium in the money market. This is because the money supply in the economy isn’t enough given the amount of people that seek for it. Unlike the old currency that was over 3.29trillion in circulation, the new currency was only 500 million. This makes it impossible for the demand to equal to the supply owing to the fact that more people want to hold money. Also, the interest rate isn’t promising at all. Since less money is in the bank vault, there will be increase in interest rate which will further reduce money supply and decrease aggregate demand.
2019/249105
Advantages
1: it’s aim was to stop electoral incompetence and corruption, towards February 2023, the old naira note was seized from circulation therefore to make it difficult for corrupt politicians and other bodies to buy votes on the Election Day because of course you would need to pay them after you might have convinced them to vote for you… or you pay them before they vote for you.. either ways due to the poor circulation of cash it will be reduced.
2: it’s aim was also to reduce the circulation of naira, its been said that due to the increase and careless inflow of money at hand, naira was loosing its value, the government wants more of digital transactions than the money/cash at hand. When there is scarcity of naira there would be a high chance of naira regaining its value..
3: it was also to reduce money laundry by corrupt people in power… in Nigeria we have seen cases where the governments stuck up money underground’s and houses..changing the currency and making it scares for them to be able to get would really help…Then with the fact that ATM’s and banks won’t be able to dispense huge amount of money to citizens.
4: Ransom payment by kidnappers and hoodlums will reduce.. in Nigeria we have seen cases of people been kidnapped and abducted both the rich and the poor and asked to pay huge money for ransom..with no or less money in circulation it will reduce and won’t be possible anymore..
5: in the goods market..an unexpected appreciation will make exports more expensive and imports less expensive, the competition from foreign market will decrease the demand for domestic products, decreasing domestic output and price.
Disadvantages
1: while they were aiming to stop the inflow of cash for election corruption.. they forgot people would have to travel to there different states, villages and local government area for this particular election leaving them with no means of returning home for the election because there was no cash..it was difficult especially for the old folks who don’t have access to a phone talk more of doing a mobile transfer..
2: they forgot to maintain a very strong networks in the banks since they want more of electronic transfers… in Nigeria we experienced banks shooting down.. mobile apps shooting down and ussd bank codes failing because of the poor and bad networks in the bank..
3: in Nigeria there was poor national conducts for POS vendors and the government would not talk about it making it more difficult for citizens to access there own money..before the new naira change we withdraw #1000 naira note with #100 only, but during the change it was increased to #1000 for #400 which was so bad..
4: there was poor market system people find it had to either sell or buy goods and services because there is inflation.prices of goods and services was increasing… which increased insecurity, people killing and robbery to have something to eat.
2: The connection between Naira redesign and money market equilibrium..
Naira redesign of naira note by the central governor ( Mr Godwin Emefiele) said it’s to make Nigerians operate a cashless economy as obtained in developed countries, and to help tackle money laundry properly..
The new naira redesign will help to curb inflation in the market as less cash holding reduces currency outside banks and retard money circulation, stressing that the accompanying decline in the market supply would slow the pace of inflation. To deepen financial inclusion in the country, curb terror financing and banditry, and discourage vote-buying by politicians and money laundering, among others. Politicians were stocking money for election activities.
The money market equilibrium
Demand for money, It occurs at the interest rate at which the quantity of money demanded is equal to the quantity of money supplied.. A shift in money demand or supply will lead to a change in the equilibrium interest rate. Let’s look at the effects of such changes on the economy.
A: changes in money demand..
B: changes in the money supply..
3: No
a: Because people will not longer be able to have cash or money at hand.. The money held for the purchase of goods and services may be for everyday transactions such as buying groceries or paying the rent, or it may be kept on hand for contingencies such as having the funds available to pay to have the car fixed or to pay for a trip to the doctor. Money held for precautionary purposes may include checking account balances kept for possible home repairs or health-care needs. People do not know precisely when the need for such expenditures will occur, but they can prepare for them by holding money so that they’ll have it available when the need arises.
b: Supply of money, shows the relationship between the quantity of money supplied and the market interest rate, all other determinants of supply unchanged.
c: All other things unchanged, a shift in money demand or supply will lead to a change in the equilibrium interest rate and therefore to changes in the level of real GDP and the price level.
d: The higher the interest rate, the lower the quantities of money demanded for transactions, for precautionary, and for speculative purposes. The lower the interest rate, the higher the quantities of money demanded for these purposes.
e: The demand for money will change as a result of a change in real GDP, the price level, transfer costs, expectations, or preferences.
Part 1.
On the 26th of October 2022, the Central Bank of Nigeria announced the redesign of the N200, N500, and N1,000 denominations of the Nigerian currency. On the 15th of December 2022, the new naira notes were released into circulation and the apex bank announced that by the 31st of January, the old denominations of the N200, N500, and N1000 notes will cease to be legal tenders.
The announcement brought about panic among the entire populace of Nigeria. Even though the move by the apex bank has its merits and successes, its demerits and weakness has rather proved to outweigh the intended merits of the policy.
According to the CBN governor, Mr. Godwin Emefiele, the policy was aimed at checkmating the increasing risk of currency counterfeiting, and the increased risk of financial instability, as well as checkmating the worsening shortage of clean and fit currency. Also, to curb insecurity, corruption, and other economic sabotage, and to reduce inflation.
According to him, as of September 2022, N3.2tn was in circulation, of which almost 80% was estimated to be outside the banking system. This, therefore, implies that about 80% of the money in circulation was in the hands of kidnappers, armed robbers, and drug dealers. Others were in the hands of corrupt government officials who might be looking to influence the election negatively through vote-buying, and the rest were under the mattresses or saving boxes of the unbanked, such as the grandmas and grandpas as we have them. As a result, the redesigning of the naira became paramount.
THE MERITS OF THE NAIRA RE-DESIGN
• To ease vote buying by politicians against the general and gubernatorial elections
According to the CBN boss, vote buying during the general elections was one major problem the policy was set to disrupt. Right from the pronouncement of this policy back in October 2022, there was an uproar by the political class.
The ideal expectation of the policy was that politicians who had been hoarding money given the general election would find it rather difficult to buy votes, as they would release back those cash into the system and have to approach the banks for exchange, which would attract the Economic and Financial Crime Commission to question their source of such huge amount of cash and be jailed if there is no clear proof. However, there is not enough information to confirm whether this was the case.
When the new N200, N500, and N1,000 notes were released into the system by the apex bank, aside from normal Nigerians running on the banks to collect the new cash, there were reported cases of some group of politicians running on the commercial banks with loads of old naira note for a swap with the new naira notes at a huge amount of cost. It surprisingly became a business for bankers and bank managers to sell the new naira notes to politicians that command the highest demand.
So, already the politicians knew what the lack of the new legal tender was going to do to their bid to hold a political office and then resulted to buy the new notes. Those of them who were able to buy the new notes could have however been able to succeed in the vote-buying that the CBN governor was aiming to stop.
Although, since not all the politicians would be willing to pay the bankers say, 1 million nairas for 5 million, one can say that the number of votes buying across the country was reduced since we don’t have empirical data to show this.
• Decrease in Inflation
One thing that was expected of the policy upon implementation is that it would decrease the ever-rising inflation rate in the country. If due to the rise in the demand for real money balances the CBN now decides to increase the interest rate and the money market settles at equilibrium, the cost of living crises will reduce to an appreciable or significant minimum, and with that Nigerians would not find it too difficult to purchase goods and services and live in their country.
Although, it will have no immediate effect on the inflation rate due to its high level, in the middle to the long term, the naira redesign is expected to help the economy recover from inflation to an extent. However, it is expected that from mid-2023, the mop-up of the currency will ensure that the money has been effectively regulated and circulation of the new naira notes is not in excess.
• Effect on Crime
One mistake that criminals, kidnappers, armed robbers, and drug dealers cannot make is to open a bank account or have any sort of transaction that can be traced electronically. With the old naira notes becoming obsolete on the 31st of January, it meant that they had a very short time to launder all the cash in their possession because they rely solely on cash. And some might, out of depression decide to walk into a legitimate financial institution to exchange their cash, of which the Economic and Financial Crimes Commission are supposed to act upon their illegal means. This is how it is been done in advanced democracies. However, here in Nigeria where the pronounced winner of the general election was alleged to have been a drug dealer, we found out before the last election that the banking sector itself is corrupt. Otherwise, there could have been reports from every part of the country of unidentified sources of cash from politicians, kidnappers, and the like, which would now guarantee that the policy is having its positive effects.
Since the banking system is corrupt, how sure would the CBN be to say that its policy succeeded as projected? If the kidnappers and the like, succeed in exchanging their cash in the banks, it would be a repetition of the cycle of money hoarding.
However, in the long run, the crime rate would reduce because of the further strengthening of the cashless policy, and ransom takers will soon seize to exist.
• Better Adoption of Digital Payment
As the old naira became scarce, and the new notes were in short supply, many businesses now began to accept electronic transfers and transactions like never before. They now accept payment for commodities of N100They accept payment for commodities of N100 and even below, which wasn’t the case before as the business owners would put a transfer restriction of N1,000 and above.
This would be good for the economy as the unbanked would now open bank accounts, and with a high amount of the population making use of the banking system, it would lead to more efficient bookkeeping and better tax collection by the government and further boost social welfare. But this would rather be unfair to the petty traders who have no knowledge of online transactions and thus require cash to run their day-to-day transactions.
THE DEMERITS OF THE NAIRA REDESIGN POLICY
• It might lead to a crash of the naira against the dollar
Over the years there has been a continued increase of the dollar against the naira. From an average of about N565/$1 as of 31st December 2021, to as high as about N760/$1 current market price, and still rising. The crash might soon happen in a couple of weeks if the people who hoarded cash decided to buy dollars with their money. In other words, too much naira chasing the few dollars available will crash the exchange rate at the black market.
• Overcrowding at the banks
As soon as the deadline for the depositing of the old naira notes was approaching a lot of people began to run to the bank to exchange the old naira notes for new ones or deposited them into their bank accounts. Meanwhile, there wasn’t yet enough of the new currency available to give. This then also led to the doubling of the crowd at the bank because it seemed as if the deposit insurance that people trusted had failed. However, as soon as people began to adopt electronic transactions and realized that their money was still safe in the bank, the crowd now began to decrease. Although, in some rural areas where a lot of people have not still adopted electronic means of transaction, still run on the banks to get cash for transactional and precautionary purposes.
• High deficit cost of printing the new naira
Printing the new naira notes is capital-intensive. With a population of over 200 million people, a sufficient quantity of the new currency will need to get into the hands of many Nigerians to facilitate economic transactions.
However, redesigning and printing new currencies will certainly come at a huge deficit cost to the economy. The problem is that Nigeria is struggling with a huge debt deficit already. For example, the country’s proposed budget of N20.5 trillion has a debt servicing payment of N6.31 trillion. So, one must wonder where the money to print the new currency notes come from, considering the debt payment that the country has to pay. If the CBN, however now considers borrowing to fund the redesign, it only further complicates the country’s debt portfolio.
• Increase inflation rate
Although, in the Merits section of this paper I had already highlighted that the Naira redesign will tackle inflation in the long run. In the same vein, the policy is, however, likely to trigger inflation in the short run.
Due to the clearing off of the old currencies and the limited supply of the new ones, there is already an increase in the inflation rate to 21.82% as of January 2023, which experts say it’s the highest since September 2005, from 21.34%. High demand for the new currencies is what is happening now, and the limited supply of the new currencies means that a deficit is created and an urgent need to address it.
The pressure manifests in the economy as there is a drop in the supply of goods or services as a result of currency shortage, but moderate to high demand remains the same. This leads to a rise in prices. Also, the high rate of black market non-economic activities using the naira has inflationary tendencies for the economy.
Part 2:
As the CBN redesign policy has been implemented and the new notes are already in circulation, there is now a high demand for the new notes. However, the CBN didn’t print as much money to meet the aggressive demand by people. According to Punch news, “of the about N2.1tn that the CBN retrieved from circulation, it only printed 500bn of the N200, N500 and, N1,000naira new notes to replace it”.
Now, this is a major problem that the CBN would strictly find a necessary measure to meet the situation. Otherwise, this would lead to (as seen in Nigeria) a massive run on the banks.
Since the currency is in short supply the CBN would now have to ensure that people are guaranteed that their money is safe and can yield great returns and come up with a policy that reduces the bank run.
To balance the short supply of the cash that is fixed and the excess demand, John Meynard Keynes proposed that interest rate should be used as a tool to bring demand for real money balances towards equilibrium with the fixed money supply in the short run because in the short run, the supply for real money balance is fixed. This he postulated in his work titled “The General Theory”. However, the interpretation of his opinion is known as ‘the theory of liquidity preference’, which states that the interest rate adjusts to balance the supply and demand of money.
According to the theory, the supply for real money balance is fixed and demand for real money balances varies along the interest rate to equate the fixed money supply. In other words, the interest rate adjusts to equate the demand for real money balances with the fixed supply. When the demand for real money balances is high so that individuals run on the bank to withdraw cash or liquidate their bonds, the CBN responds by increasing interest rate so that the bank run would decrease, and then individuals would now tend to save more and buy more bonds due to high-interest rate. Again, when the supply of cash now exceeds the demand for real money balances due to high-interest rates, the CBN would now decrease the interest rate so that people would sell off their bonds and withdraw their cash. The CBN would continue to increase or decrease the interest rate until the money market is at equilibrium.
Also, to respond to changes in the long-run money supply induced by a central banker like the CBN, the CBN would have to push up the equilibrium interest rate to meet the new equilibrium point as a result of a change in the money supply.
For example, a fall in money supply (M) reduces the supply for real money balances (M/P) because the price (p) is fixed. In other words, the higher interest rate makes people well off to hold the smaller quantity of real money balances that they have. Thus, according to the theory of liquidity preference, a decrease in the money supply raises the interest rate and an increase in the money supply lowers the interest rate.
To conclude, in Nigeria’s situation, as its central banker withdrew the old naira notes worth about N2.1tn and circulated only N500bn worth of the new notes with prices being fixed, the supply of real money balances would reduce. People would withdraw their cash deposits and liquidate their bonds, as is the current case in the country. However, to respond to this bank run, the CBN has to increase the interest rate to promote equilibrium in the money market. If that is effectively done individuals would be content with the amount of cash that they already have and demand less of the new notes that are in short supply.
NAME: DIKE JOHN CHUKWUDOZIE
REG NO: 2018/241837
COURSE: ECO 203
(1) After the Central Bank of Nigeria’s Naira Redesign Policy was implemented in October 2022, we will critically discuss the merits and demerits of this initiative by the CBN. The following are a few of the policy’s advantages:
(i) Cutting back on overall money supply: Currency redesigns that are successfully implemented lead to a decrease in the money supply. By reducing the value of money in circulation and slowing the velocity of money in the economy, this will relieve pressure on domestic prices.
(ii) Decrease Inflation: It is frequently expected that the policy will lead to market deflation as less money is circulated and stored outside of banks. So, the parallel decline in the money supply will slow the rate of inflation.
(iii) Reduction in illegal economic activity: Those who have made money illegally could be reluctant to declare it because they risk facing legal action from the Income Tax Department if their income is determined to be legal.
(iv) Straightforward Loans: Borrowing will be less complicated, and interest rates may decrease. Banks will provide more loans as a result of having more money, increasing the amount of money in circulation.
Having spoken about the advantages of the Naira Redesign Policy, it is important to also talk about its disadvantages. Some disadvantages of the policy’s adoption are listed below:
(I)logistical challenge: Since Nigeria borrows to make up for budgetary shortfalls, the logistics of such printing provide a challenge. Also, to navigate the 774 municipal administrations, some of which lack any financial services.
(ii) Keeping an eye on election spending: Some people think that the CBN’s plan to reduce election spending by redesigning the naira notes can only be successful if the new notes are created in a limited number.
(iii) Banking halls will be crowded: There will be a lot of people waiting in long lines. It will generate a tremendous inconveniences for the public. Since most local government regions lack banks, the elderly and unbanked might not be able to manage.
(iv) Factor involving rural residents: Rural residents who live far from banking facilities worry that replacing their old notes and initially obtaining the new ones will be challenging.
(v) The persistent inflation concern: As there are other major factors that contribute to inflation, such as the Currency crisis, which the new measure may exacerbate, and the effects of the security situation on food price inflation.
(2) The supply of money and the demand for money make up the money market equilibrium. Money supply is an exogenous (fixed) policy variable, in this case the Naira Redesign policy, which is determined by the central bank. The desire for money is endogenous (it is not fixed), and the demand for money is determined by the interest rate. The Naira Redesign Policy is the exogenous policy variable that the CBN selects to govern money supply, which is the nexus between the policy and the money market equilibrium. This suggests that the Naira Redesign programme is intended to reintroduce out-of-circulation currency into the country’s financial system via the CBN. People will hold less money as a result, which will boost the demand for money and raise interest rates. As a result, the money market will reach equilibrium as the demand for and supply of money balance each other out.
Will the Naira Redesign Policy lead to a state of equilibrium in the money market? is a related query. Of course, and here are my justifications:
Because the naira redesign policy is primarily designed to recover the majority of the money in circulation and the out-of-circulation amounts, there would be less currency flowing in the economy. The demand for money will rise as a result, which will raise the interest rates paid to lend money. According to the liquidity preference theory, an increase in the supply of money will result in an increase in interest rates. This theory is used to explain why there is equilibrium in the money market. This is fairly visible at the moment, as consumers pay POS agents astronomical interest rates in order to obtain small amounts of cash. If this keeps happening, the money market will eventually return to equilibrium. If there is a change, the CBN may use a different policy variable in the future to raise the amount of money in circulation and restore equilibrium to the money market.
NAME: DIKE JOHN CHUKWUDOZIE
REG NO: 2018/241837
COURSE: ECO 303
1. After the Central Bank of Nigeria’s Naira Redesign Policy was implemented in October 2022, we will critically discuss the merits and demerits of this initiative by the CBN. The following are a few of the policy’s advantages:
(i) Cutting back on overall money supply: Currency redesigns that are successfully implemented lead to a decrease in the money supply. By reducing the value of money in circulation and slowing the velocity of money in the economy, this will relieve pressure on domestic prices.
(ii) Decrease Inflation: It is frequently expected that the policy will lead to market deflation as less money is circulated and stored outside of banks. So, the parallel decline in the money supply will slow the rate of inflation.
(iii) Reduction in illegal economic activity: Those who have made money illegally could be reluctant to declare it because they risk facing legal action from the Income Tax Department if their income is determined to be legal.
(iv) Straightforward Loans: Borrowing will be less complicated, and interest rates may decrease. Banks will provide more loans as a result of having more money, increasing the amount of money in circulation.
Having spoken about the advantages of the Naira Redesign Policy, it is important to also talk about its disadvantages. Some disadvantages of the policy’s adoption are listed below:
(I)logistical challenge: Since Nigeria borrows to make up for budgetary shortfalls, the logistics of such printing provide a challenge. Also, to navigate the 774 municipal administrations, some of which lack any financial services.
(ii) Keeping an eye on election spending: Some people think that the CBN’s plan to reduce election spending by redesigning the naira notes can only be successful if the new notes are created in a limited number.
(iii) Banking halls will be crowded: There will be a lot of people waiting in long lines. It will generate a tremendous inconveniences for the public. Since most local government regions lack banks, the elderly and unbanked might not be able to manage.
(iv) Factor involving rural residents: Rural residents who live far from banking facilities worry that replacing their old notes and initially obtaining the new ones will be challenging.
(v) The persistent inflation concern: As there are other major factors that contribute to inflation, such as the Currency crisis, which the new measure may exacerbate, and the effects of the security situation on food price inflation.
2. The supply of money and the demand for money make up the money market equilibrium. Money supply is an exogenous (fixed) policy variable, in this case the Naira Redesign policy, which is determined by the central bank. The desire for money is endogenous (it is not fixed), and the demand for money is determined by the interest rate. The Naira Redesign Policy is the exogenous policy variable that the CBN selects to govern money supply, which is the nexus between the policy and the money market equilibrium. This suggests that the Naira Redesign programme is intended to reintroduce out-of-circulation currency into the country’s financial system via the CBN. People will hold less money as a result, which will boost the demand for money and raise interest rates. As a result, the money market will reach equilibrium as the demand for and supply of money balance each other out.
Will the Naira Redesign Policy lead to a state of equilibrium in the money market? is a related query. Of course, and here are my justifications:
Because the naira redesign policy is primarily designed to recover the majority of the money in circulation and the out-of-circulation amounts, there would be less currency flowing in the economy. The demand for money will rise as a result, which will raise the interest rates paid to lend money. According to the liquidity preference theory, an increase in the supply of money will result in an increase in interest rates. This theory is used to explain why there is equilibrium in the money market. This is fairly visible at the moment, as consumers pay POS agents astronomical interest rates in order to obtain small amounts of cash. If this keeps happening, the money market will eventually return to equilibrium. If there is a change, the CBN may use a different policy variable in the future to raise the amount of money in circulation and restore equilibrium to the money market.
Name: Abonyi Kosiso Sunday
Department: Economics
Reg no: 2019/244009
Merits of CBN Naira Redesign Policy
1. Giving the apex bank more control over the amount of money in circulation. This allows the CBN the ability to effectively implement fiscal and monetary policies as it now controls the bulk of the money in circulation.
2. Ensuring a transition into a cashless economy like the rest of the world. The policy is ensuring a smooth transition of Nigeria into a cashless economy as people now make more transfers more than ever.
3. Assists in the fight against corruption as the exercise would rein in the higher denomination used for corruption and the movement of such funds from the banking system could be tracked easily
4. Taming inflation through a liquidity mop-up ,by reducing the amount of currency outside banks, money stock will be shrinked and will lowerthe long –run path of inflation
5. Financial inclusion in the country by reducing the number of unbanked population.
Demerits
The main demerit in the CBN redesign policy is the timelapse for the cash swap. The time allocated was too short for the whole money in circulation of the country to be brought into the bank .This also with the fact that the CBN wasn’t printing enough money.
2.The policy isn’t promoting equilibrium in the money market. The main reason is that the CBN intends to shrink the money stock, thereby making it scarce. The demand for the naira has already shot up and the supply has dwindled thereby leading to a disequilibrium in the money market.
Name: Ubazoro Chukwuemeka George
Department: Economics
Reg No: 2019/251195
The Merits of the Naira redesign policy initiative by the CBN
1. Lowering Inflation: The policy lowers inflation as there will be a reduction in the amount of currency outside banks as more money will be deposited in banks in a bid to meet up with the deadline stipulated by the Apex bank. This will create a shrink in the money supply and accordingly lower the long-run path of inflation.
2. Financial Inclusion: For one to deposit money in a bank, the person is required to have a bank account. The policy paved way for the financial inclusion of a large number of unbanked population in the country.
3. Increase in Naira’s value in the foreign exchange market: With the reduction in the velocity of money supply in the economy. The naira will become relatively scarce. This has had a positive impact in the value of the naira and has made the value increase, though at a very slow rate.
4. Smooth Transition into a Cashless Economy: With less cash in the hands of individual, the CBN is ensuring a smooth transition into a cashless economy like the rest of the world.
5. Collapse in Illegal Economic Activities: The policy also aims to lead to a collapse in the illegal economic activities in the country as most individuals who earned their money through illicit methods would be afraid to declare the money in fear of being prosecuted by the Income tax department on the legitimacy of their income.
6. Giving the Apex Bank more control over the money in circulation thereby allowing for effective implementation of monetary and fiscal policies as it controls the bulk of the money stock.
Demerits
The only demerit I can point out in the CBN redesign policy is the time allocated for the cash swap. The time was too short for the whole money in circulation to be brought to the banks , coupled with the fact that the CBN wasn’t printing enough money and stories of bank managers making the availability of the new naira only to the highest bidder. People started hoarding the money leading to a scarcity.
2.The policy won’t promote equilibrium in the money market. Reason being that, the CBN intends to reduce the money in circulation, thereby making it scarce. The demand for the naira has already shot up and the supply has dwindled thereby leading to a disequilibrium in the money market.
Merits of the new cash policy
1) it will reduce corruption: this will occur because it will ensure that funds can easily be tracked and monitored and this will provide further transparency and accountability by those who administer the resources
2) it will plug fiscal leakages: In economics, leakage refers to capital or income that diverges from some kind of iterative system. Leakage is usually used in relation to a particular depiction of the flow of income within a system.And the new cash policy will reduce or eliminate leakages because income will be tracked and held to accountability
3)it will strengthen the economy: This is quite clear because a country in which the flow of money and or income is transparent such a country will grow and develop
4)it makes our monetary policy more efficacious:that is inflation will decrease and there will be stable exchange rate
Demerits
1) it has a negative effect on economic activity especially poor Nigerians due to its timing and short transition period that is affecting small businesses especially those who do day-to-day cash transactions
2)Rapid demonetizations can generate significant short costs with households and businesses being affected due to liquidity constraints
3) Due to the scarcity of the new naira notes ,Nigerians have been pushed to use the online transactions which are still bad leading to failed online transactions and hence no means of payment
What is the nexus between naira redesign money market equilibrium?
Money market equilibrium occurs at the interest rate at which the quantity of money demanded equals the quantity of money supplied.This is one of the aims of the naira redesign policy because the central bank didn’t have account for the amount of money in circulation in the country hence it the money supplied was not equal to the money demanded and hence the policy to be able to turn things around.
I Believe that this new policy will promote equilibrium in the money market because the central bank will be able to keep track of the money in circulation and hence aim for the money supplied to be equal to money supplied and hence promoting equilibrium in the money market and overall development and growth
NAIRA REDESIGN
The redesign of the notes is aimed at making them more secure to enhance their durability to last longer in circulation and streamline their asethetic and security features.
On 26 October 2022, the CBN Governor Mr Emefiele Godwin announced that the highest denominations of the Naira would be redesigned giving a deadline of 31 January 2023 for all old notes to be deposited in banks in exchange for the new notes.
The CBN Governor gave reasons for the redesign policy. According to him, the policy would enable the CBN to control the Naira in circulation, manage inflation, combat counterfeiting and ransom payments.
This Naira redesign has merits and demerits
Some of the merits or advantages includes
James Emejo writes that the naira redesign and implementation of the cashless policy would plug fiscal leakages, boost government revenues, and aid the economic empowerment of vulnerable Nigerians as well as benefit the country as a whole.
(1). Reports of armed and highway robberies have reduced drastically in different parts of Nigeria in the past one month. Which cash they wan collect?
(2). There appears to be a zero report of Bank robbery in all parts of Nigeria in the last 3 weeks or thereabouts
(3). Many online and mobile banking apps and platforms hitherto left grossly unutilized or underutilized are now being put to maximum use.
(4). Reports of kidnap-for-ransom by terrorists and other criminals, have gone down drastically in parts of Nigeria.
(5). Generally, people now spend wisely, as a result of the introduction of cashlessness in much of our affairs.
(6). Many businesses that hitherto depended on cash, appear to have now learnt to practice the cashless style which is safer, reduces corruption and leaves permanent records, which could be recalled in the future.
(7). Fewer people now carry huge cash around, unlike was usually the case. Carrying cash around comes with huge risks, which appear to get reduced when you carry little cash and do more cashless transactions
Some of the Demerits or disadvantages includes:
The World Bank has warned the newly redesigned naira which went into circulation last week may have negative effect on economic activity especially poor Nigerians due to its timing and short transition period.
The amount of queueing Nigerians have been subjected to in the last couple of weeks is unprecedented. It is equally unbecoming. It’s almost like the country had gone back four decades.Fights have broken out in queues at bank facilities, filling stations and INEC and LGAs offices across the country. There are trending videos of people stripping naked in protest inside banking halls, others hitting each other with queue dividers and one person has been confirmed dead inside a banking hall, somewhere in Asaba. Nigerians born in the 2000s, GenZs, should be forgiven for thinking the end of the world is here.
The reality is that the suffering is real, the pain is widespread and anger is rising to a boiling point. The CBN must act to ease the pain. It is a case of demand and supply – make more new naira notes available across the banks, monitor the deployment and see the relief across the land.
MARKET EQUILIBRIUM
A market is in equilibrium if at the market price the quantity demanded is equal to the quantity supplied. The price at which the quantity demanded is equal to the quantity supplied is called the equilibrium price or market clearing price, and the corresponding quantity is the equilibrium quantity.
Equilibrium is the state in which market supply and demand balance each other, and as a result prices become stable. Generally, an over-supply of goods or services causes prices to go down, which results in higher demand—while an under-supply or shortage causes prices to go up resulting in less demand.
The nexus between both is that their are talking about a particular word ‘money’ and how it’s in circulation.
Although there are good advantages of the Naira redesign but I don’t think it promote market equilibrium since the supply of money is not equal to the demand of money in circulation. People pay higher amount of money to purchase goods and as well buy the new currency.
Redesigning currencies improve a currency’s security by enabling countries to keep counterfeiting low and stay ahead of counterfeiting threats. The CBN expects that this dash to redesign Nigeria’s currency would reduce counterfeiting, encourage a cashless economy, and stave-off cash hoarding.
Merits:
1:The CBN had limited cash withdrawals to N500,000 per week for individuals and N5 million for corporate organisations.
The bank explained this measure would help to limit the use of cash for illicit activities such as banditry and terrorism financing and help to track the movement of money through electronic channels. If anything, limiting cash handling with reduce the rate of armed robbery and other associated risks.
2:According to Emefiele, the central bank’s principal objective for the currency redesign initiative was to make our monetary policy decisions more efficacious, saying: “We have started to see inflation trending downwards and exchange rates relatively stable.We aim to increase financial inclusion in the country by reducing the number of the unbanked population.
3: Thirdly, our aim is to support the efforts of our security agencies in combating banditry and ransom-taking in Nigeria through this program and we can see that the military is making good progress in this important.
4:Emefiele said since the commencement of the programme, the CBN had collected about N2.1 trillion, “leaving us with about N900 billion”. In essence, the currency redesign policy has helped to mop up monies outside the banking system that had often contributed to rising inflation and currency speculation, which had resulted in foreign exchange challenges in recent times
5:The Central Bank Governor said the cashless policy improves the sophistication of tax collection and would no doubt reduce tax evasion and tax avoidance.
DEMERITS
1:High cost of cash:There is high cost of cash that comes with volume cash handling from the CBN to commercial banks and Nigerians too.
2: High risk of using cash:volume cash handling encourages robberies,theft and other cash related crimes.
3: Inefficiency and corruption:Volume cash handling as well as high cash usage enables corruption, embezzlement, money laundering and cash related fraudulent.
4: Machine Malfunction:The cashless policy would introduce the use of electronic transfer,payments often times people complain about the POS machine malfunctioning and having service issues.
5: Debiting Customers twice:There is also complains from customers being debited twice or more than in the course of transaction while using the ATM machine.
6:High transaction Charges:Due to the fact of the POS attendants hard aim to get money they tend to add high charges for their effort of getting money and selling to customers which has really affected the Nigeria economy.
Second Answer:
The Central Bank of Nigeria’s Naira redesign policy bites harder, the scarcity of new notes continues to disrupt business activities in markets, restaurants, banks, and major sales outlets across Nigeria.
In the midst of the operational challenges being faced by small businesses especially in rural areas, a survey showed that Point of Sale (PoS) transaction charges jumped 400 per cent in most cities across the country last week.
The impact of the CBN policy and its attendant chaos have frustrated efforts by many Nigerians operating in the nation’s cash-dependent informal economy to do business, make payments, and enjoy certain services.
Findings showed that while the poor circulation of the new notes stifle economic activities, PoS operators have also had a hard time getting both the old and new notes from the banks in recent weeks. Some PoS agents who spoke with PREMIUM TIMES within the week said that their inability to access cash has stalled their operations, while operators who struggled to get cash blamed the hurdles they encountered at the banks for the increase in transaction charges.
Across some of the mobile money cash points visited in Lagos, Abuja, and other major cities, our reporters observed that charges on transactions have skyrocketed by over 400 per cent.
In other places, PoS outlets were shut as operators complained of scarcity of both the old and new notes.
…..The new policy has yet to promote equilibrium in the Money market. with some points stated down there are some positive and negative sides of how the cashless policy has really affected us Nigerians and therefore the equilibrium is yet to be in place,there is hope for the policy to promote equilibrium but the time isn’t now in the present state of the economy.
In October 26, 2022, the CBN governor Godwin Emefiele announced a policy initiative to redesign N200, N500 and N1000 notes and subsequently introduced the cash withdrawal limits.
Here are the merits set to obtain from this policy:
The policy initiative is aimed at checking the increasing risk of currency counterfeit which has become very prominent in the past few years.
Secondly, the policy was initiated to help curb inflation. Emefiele explained that there was significant hoarding of naira notesby the public as 84.71 percent of currency in circulation was outside the bank vaults. He further explained that as at October 2022, a total of N3.2 trillion was in circulation, out of which only N500 billion was within the banking system and 2.7 trillion was held by the public. This hoarding leads an increasing rate of inflation thereby exposing vulnerable Nigerians to further economic hardship. So far, since the commencement of this program, the CBN has been able to collect about N2.1trillion leaving the public with about N900 billion.
Thirdly, the CBN aims to increase financial inclusion in the country by reducing the number of the unbanked population and moving towards a more cashless economy, ensuring greater formalization of the Nigerian economy.
Finally, as the exercise would bring the hoarded currency into the banking system, it would have way for a more effective monetary policy as the CBN now has total control of the amount of money that leaves the bank. Also, it would help the bank access more accurate data of money supplied as well as monetary aggregates.
Although the policy comes with all these merits, it also has several drawbacks and demerits. First, with the new policy, dollarization is imminent. The CBN gave a very short notice and a very short time for the implementation of this policy, hoarders of local currency are thereby likely to exchange their Naira for dollars as a store of value, thus, intensifying the dollarization trend in Nigeria.
Secondly, from the monetary economics literature, a decrease in liquidity is likely to result in reduced economic activity, which translates to lowered GDP, and increased unemployment.
Presently, Nigeria is experiencing high fiscal deficit, high inflation, high unemployment, underemployment, high youth unemployment, and a slowing GDP. Redesigning the naira would come with increased logistics costs, and what I would consider avoidable dislocations to small business operators in Nigeria. Indeed, there is never an appropriate time to redesign any currency, however, given the vast number of unbanked citizens in the country especially in the rural areas, where some states do not have banks in their local governments, it would be somewhat difficult to achieve those goals CBN aims to achieve from the policy.
What is the Nexus between naira redesign and money market equilibrium?
One of the goals the CBN aims to achieve in redesigning the naira is to bring all the money outside the bank vaults back into the banking system. By so doing, they have total control of the amount of money supplied to the public. From the money market equilibrium, we can see that of supposedly, the CBN suddenly decreases the amount of money supplied, a fall in M reduces the supply of real money balances M/P as P is fixed. This decrease in money supply causes equilibrium interest rate to increase and as a result, people tend to demand lesser quantity of real money balances, that is, people tend to hold lesser quantity of their money.
Will this new policy promote equilibrium in the money market?
Yes it is most likely going to promote equilibrium in the money market if this policy is carried efficiently and effectively.
In October 26, 2022, the CBN governor Godwin Emefiele announced a policy initiative to redesign N200, N500 and N1000 notes and subsequently introduced the cash withdrawal limits.
Here are the merits set to obtain from this policy:
The policy initiative is aimed at checking the increasing risk of currency counterfeit which has become very prominent in the past few years.
Secondly, the policy was initiated to help curb inflation. Emefiele explained that there was significant hoarding of naira notesby the public as 84.71 percent of currency in circulation was outside the bank vaults. He further explained that as at October 2022, a total of N3.2 trillion was in circulation, out of which only N500 billion was within the banking system and 2.7 trillion was held by the public. This hoarding leads an increasing rate of inflation thereby exposing vulnerable Nigerians to further economic hardship. So far, since the commencement of this program, the CBN has been able to collect about N2.1trillion leaving the public with about N900 billion.
Thirdly, the CBN aims to increase financial inclusion in the country by reducing the number of the unbanked population and moving towards a more cashless economy, ensuring greater formalization of the Nigerian economy.
Finally, as the exercise would bring the hoarded currency into the banking system, it would have way for a more effective monetary policy as the CBN now has total control of the amount of money that leaves the bank. Also, it would help the bank access more accurate data of money supplied as well as monetary aggregates.
Although the policy comes with all these merits, it also has several drawbacks and demerits. First, with the new policy, dollarization is imminent. The CBN gave a very short notice and a very short time for the implementation of this policy, hoarders of local currency are thereby likely to exchange their Naira for dollars as a store of value, thus, intensifying the dollarization trend in Nigeria.
Secondly, from the monetary economics literature, a decrease in liquidity is likely to result in reduced economic activity, which translates to lowered GDP, and increased unemployment.
Presently, Nigeria is experiencing high fiscal deficit, high inflation, high unemployment, underemployment, high youth unemployment, and a slowing GDP. Redesigning the naira would come with increased logistics costs, and what I would consider avoidable dislocations to small business operators in Nigeria. Indeed, there is never an appropriate time to redesign any currency, however, given the vast number of unbanked citizens in the country especially in the rural areas, where some states do not have banks in their local governments, it would be somewhat difficult to achieve those goals CBN aims to achieve from the policy.
What is the Nexus between naira redesign and money market equilibrium?
One of the goals the CBN aims to achieve in redesigning the naira is to bring all the money outside the bank vaults back into the banking system. By so doing, they have total control of the amount of money supplied to the public. From the money market equilibrium, we can see that of supposedly, the CBN suddenly decreases the amount of money supplied, a fall in M reduces the supply of real money balances M/P as P is fixed. This decrease in money supply causes equilibrium interest rate to increase and as a result, people tend to demand lesser quantity of real money balances, that is, people tend to hold lesser quantity of their money.
Will this new policy promote equilibrium in the money market?
Yes it is most likely going to promote equilibrium in the money market if this policy is carried efficiently and effectively..
Name: Eze Daniel Uchenna.
Dept.: Economics.
Reg. No.: 2018/244280.
Course: Macro Economics (Eco.303).
NAIRA REDESIGN AND MONETARY EQUILIBRIUM
NAIRA REDESIGN:
On the 26th of October, the Supreme Court announced the introduction of the redesign of N200, N500, and N1000 banknotes in Nigeria. The CBN governor, Godwin Emefiele, had said the banknotes were redesigned due to a request from the federal government. This act by the Nigerian government and the CBN governor was said to be an attempt to reduce the amount of money in circulation outside the banking system. Many other objectives of the naira redesign were given but the reduction of money in circulation was said to be the foremost.
Most of these objectives are desirable while one or two stands on thin ice. There is also a lack of clarity about whether the policy was about cash swaps or demonetization and whether the two objectives can be pursued simultaneously. This is also a flaw. All these notwithstanding, a concession can be made that CBN has the right to set its goals whether those objectives are realizable or not. However, CBN has not provided a compelling argument why these objectives can only be achieved within six or eight weeks of making the new Naira notes available. Some effects on the population in Nigeria regarding the Naira redesign policy involve; rising prices of goods and services as a result of the unavailability of cash, lack of cash in our local bank ATMs, unending queues at the bank, not being able to purchase goods from your local stores, increasing tension in the ongoing election, etc. The Central Bank of Nigeria said that both old and new notes are now legal tender. The Acting Director of Corporate Communications CBN, Dr. Isa Abdulmumin disclosed this on Tuesday. He affirmed that commercial banks have started issuing both old and new notes to their customers. But insisted that the apex bank is yet to issue an official statement. He said Banks are paying old notes as well as new notes. They are all legal tender. “Yes, the CBN has not issued an official statement on the issue. Anyone banks give to you, you can collect. We just want to make life easy for Nigerians. Last week, the Supreme Court gave its verdict on the Naira redesign, directing the federal government to allow the validity of N200, N500, and N1000 notes till 31 December. In response to the ruling, DAILY POST gathered on Monday that some banks in Abuja and Lagos have started issuing the old notes to customers. But, traders, business owners, and motorists are not accepting the old notes.
The National Council of State (NCS) has tasked the Central Bank of Nigeria (CBN) to make the new Naira notes available or recirculate the old Naira notes to ease the current suffering of Nigerians.
The CBN had in October 2022 announced the redesign of N200, N500, and N1000 notes, and asked Nigerians to deposit their old notes before January 31, 2023, when they would cease to be legal tender.
The deadline was shifted to February 10 following difficulties obtaining the new notes.
Thereafter, governors of Kaduna, Zamfara, and Kogi states dragged the federal government and the CBN to the Supreme Court over the time limit, and the court gave an interim order suspending the February 10 deadline.
It also emerged yesterday that the governors of Kano and Ondo state, Abdullahi Ganduje, and Rotimi Akeredolu, respectively, have approached the Supreme Court over the swap deadline, and withdrawal limits.
Rising from its maiden hybrid meeting in 2023, presided over by President Muhammadu Buhari, the Council, however, expressed its support for the government’s new monetary policy, but tasked the apex bank to take urgent steps to arrest the scarcity of cash plaguing the country.
These resolutions, at the end of the meeting held at the Council Chambers of the State House, Abuja, were made known to newsmen by the Attorney-General of the Federation and Minister of Justice, Abubakar Malami, alongside the governors of Lagos and Taraba states, Babajide Sanwo-Olu and Darius Ishaku, respectively, and Media Adviser to the President, Femi Adesina.
MONETARY EQUILIBRIUM
Monetary equilibrium in my opinion is when the money supply is equal to the money demand. It occurs when the quantity of money demanded is equal to the quantity of money supplied or in circulation.
THE THEORY OF LIQUIDITY PREFERENCE
This theory was propounded by Keynes, and he simply offered his view on how the interest rate is determined in the short run. The explanation of this theory is called liquidity preference because it states that the interest rate adjusts to balance the supply and demand for the economy’s most valued asset (money). If M stands for money supply and p stands for price level then M/P is the supply of real money balances. The liquidity preference theory assumes that there is a fixed supply of real money balance that is (M/P)’s = M/P. The money supply variable M is an exogenous policy variable chosen by a central bank, such as the Federal Reserve. The price level P is also an exogenous model. These assumptions imply that the supply of real money balance is fixed and, in particular, does not depend on the interest rate. However, when we plot the supply of real money balance against the interest rate, we obtain a vertical supply curve as shown in the diagram below.
According to the theory of liquidity preference, the supply and demand for real money balances determine what interest rate prevails in the economy. That is the interest rate adjust to equilibrate the money market. As the figure shows, at the equilibrium interest rate; the quantity of real money balance demanded is equal to the quantity supplied.
How does the market rate get to this equilibrium of money supply and money demand?
The adjustment occurs because whenever the money market is not in equilibrium, people try to adjust their portfolios of assets and in the process alter the interest rate. For example, if the interest rate is above the equilibrium level, the quantity of the real money balance supplied exceeds the quantity demanded. Individuals holding an excess supply of money try to convert some of their non-interest-bearing money into interest-bearing bank deposits or bonds. Bank and bond issuers who prefer to pay a lower interest rate, respond to this supply of money by lowering the interest rate they offer. Conversely, if the interest rate is below the equilibrium level so that the quantity of money demanded exceeds the quantity of money supplied, individuals, try to obtain money by selling bonds or making bank withdrawals. To now attract scarce funds, banks and bond issuers respond by increasing the interest rate they offer. Eventually, the interest rate reaches an equilibrium level, at which people are now content with their portfolios of monetary and non-monetary assets.
REFERENCE
• All content is Copyrighted © 2023 The Premium Times, Nigeria
• Principles of Economics at the y University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.
• © 2023 Springer Nature Switzerland AG. Part of Springer Nature.
• MR. CHIOBI C. J
NAME: AUDU JACINTHA OCHANYA
DEPARTMENT: ECONOMICS/PHILOSOPHY
REG NO: 2019/246511
Merits and Demerits of the Policy Initiative:
Merits:
1:Enhanced Security Features: The redesign of the naira notes comes with enhanced security features, which makes it more difficult to counterfeit. This will help to reduce the incidence of currency counterfeiting and promote confidence in the Nigerian currency.
Reduction in Currency Production Cost: The redesign of the naira notes will lead to a reduction in the cost of currency production. This will free up resources that can be used for other developmental purposes.
2: Promotion of Cashless Policy: The new notes will promote cashless policy initiatives as they are expected to be more durable, thus reducing the need for frequent currency replacement.
3: Better Accessibility: The introduction of the new notes will increase the availability of cash in the economy and promote financial inclusion.
Demerits:
1: Accessibility Issues: The new notes are not readily available in banks and ATMs, making it difficult for the public to access them.
Cost Implications: The redesign of the naira notes requires the procurement of new currency printing machines, which may be expensive.
2: Inflationary Pressures: The introduction of the new notes may lead to inflationary pressures in the economy, as more money is introduced into circulation.
3: Resistance to Change: The public may resist the change to the new notes, leading to delays in acceptance and utilization.
Nexus between Naira Redesign, Money Market Equilibrium, and Promotion of Equilibrium in the
4: Money Market:
The money market is the market for short-term debt instruments, such as treasury bills and commercial papers. The redesign of the naira notes will have a direct impact on the money market, as it will increase the availability of cash and affect the demand for money.
The introduction of the new notes is expected to lead to an increase in the supply of money, which may lead to a decline in interest rates in the money market. This will reduce the cost of borrowing and increase the demand for credit. The reduction in interest rates will also reduce the attractiveness of savings, leading to an increase in consumption.
However, if the increase in the supply of money is not matched by an increase in the demand for money, it may lead to inflationary pressures in the economy. This will reduce the purchasing power of the naira and lead to an increase in the cost of living.
To promote equilibrium in the money market, the CBN may need to implement monetary policies that will regulate the supply and demand for money. This may include increasing the reserve requirements for banks or adjusting the benchmark interest rates.
Conclusion:
In conclusion, the introduction of the redesigned naira notes by the CBN has both merits and demerits. While it is expected to enhance the security features of the currency, reduce currency production costs, and promote cashless policy initiatives, accessibility issues and potential inflationary pressures are major concerns. The redesign of the naira notes will also impact the money market, affecting the supply and demand for money. To promote equilibrium in the money market, the CBN may need to implement monetary policies that regulate the supply and demand for money.
Name udeogwu precious kosarachi
Ref.no.2019/244167
Depth.Economics/philosophy
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to discuss and analyse the merits and demerits of this policy initiative adopted by the CBN. Secondly, what is the nexus between Naira redesign money market equilibrium? Will this new policy promote equilibrium in the money market? Discuss this comprehensively,
Answers
The Central Bank of Nigeria (CBN) announced last year the redesign of 200, 500 and 1,000 naira notes, and plans to end the use of the old notes by 31 January 2023.But acute scarcity of the new notes made the 31 January deadline unfeasible, and prompted the bank, with the approval of President Muhammadu Buhari, to extend the legal tender status of the old notes till 10 February.
From 3 February to 3rd of March, they was meetings and deliberations and disagreement between some state governors, the president ,supreme Court and CBN concerning this monetary redesign and the common people had the consequences to bear because at the end,we are the one who is hungry not them because everyday,it is the common people who queue for hours in bank to get the new note that is insufficient not even for personal consumption and hence gave birth to selling of money by POS ventures who uses this opportunity to also exploit their fellow commoner.
MERITS of The Money redesign policy
From my own personal perspective, the money redesign policy didn’t merit we the common man in anyway but put us into unnecessary stress,opening our eyes further to see that Nigeria truly is a saddening country, but then as required, I will outline few of the expected or assumed merits of the redesign policy;
(1) According to Emifiele Godwin,the cbn governor,the redesign policy will help the cbn take control of the money in circulation.
(2) It is going to help curb inflation in the economy
(3) Combat counterfeiting and ransom payments of any kind.
(4) meticulous use of money
(5) civilised the primitive citizens of the need to open bank accounts as majority then do not make use of bank.
Demerits of the redesign policy.
(1) shortage/scarcity of money in circulation .
(2) unavailability of cash even in the POS machine
(3) hording of money by those who are privileged to see it.
(4) increase in service charge for withdrawal from pos ventures.it became a system of use money to buy money.
(5) counterfeit in circulation
(6) Hunger for we students especially who before can use #100 to withdraw #1000 as it became# 300 as service charge. Not to talk of the market women who do not have bank, they was practically no means to buy from them as they will not collect transfer.
Connection between money redesign and the market equilibrium.
The market equilibrium is meant to balance the relationship between the demand for goods and its supply.when the demand for a good is higher than the supply,the price will rise and the demand will fall.
The monetary policy hence,was a tool to curb inflation. As their was a shortage in money supply and availability inflation is reduced and the money at hand and in bank can have value for when their is excess money in circulation, the naira it value and become just high notes.
The money design hence was meant to reduce the supply of money so that it can be in balance with the demand.
Will this new policy promote Equilibrium in the money market?
-YES.This new policy is going to promote equilibrium in the market in the sense that the with the current scarcity of cash flow,demand for money is going to go down as people will.lewrn to spend less of their cash due to unavailability of it and hence the minimal supply of the money in the economic system will balance with the demand in the longrun theirby bringing about equilibrium in the money market amongst the consumers and financial institutions that distribute the money.
NAME: OLIAKU ISRAEL
REG NO: 2015/203653
(1) Following the central bank of Nigeria’s implementation of the Naira Redesign policy on October 22,2022. We’ll talk about the advantages and disadvantages of the Nigerian central bank’s effort. Some of the initiative’s benefits are covered in the paragraphs below.
The majority of the naira notes that politicians, criminals, and other illegal actors have stored away would be returned to the banking system, assisting the CBN in monitoring the currency in the economy, according to many who have suggested that the new measure could restore confidence in the local currency.
majority of the ragged naira notes that were previously pushed into circulation are also anticipated to be eradicated by the new notes, and counterfeiters are anticipated to cease operations for a few years as a result.
The policy’s beneficial impact on the nation’s crime rate is another way to see it. Nigeria is currently dealing with terrorists and banditry all over the country, and billions of naira are being paid in ransom to kidnappers.
It is anticipated that the ransom money, which has not yet entered the financial system, will be brought out and swapped for the notes with the new designs. While many people who were unable to explain the sources of their money may end up in legal difficulty, this might also result in criminal identification and possible prosecution.
Also, politicians who have saved money to buy votes in the upcoming election may find it difficult to convert their notes into the new naira, and reintroducing that money into the system would interfere with some of their plans.
Generally speaking, everything that has a benefit also has a drawback. Now that we have covered some of the advantages of the policy, it is time to talk about its drawbacks. Here are some of the policy’s drawbacks that are covered:
If naira notes for transactions become scarce, the price of food and other goods will rise, and many people may go hungry because they are unable to obtain new naira to make essential purchases.
People will be hurrying to exchange their old currency for new notes in the banking hall, which will put strain on the institutions’ limited ability to process currency.
Armed robberies may worsen as thieves target bullion vans that will be used to distribute the new notes in some remote regions in an effort to reduce their losses on the old naira notes that were previously stashed away to avoid the law.
With the rate of crime in the form of banditry and terrorism increasing throughout the country, both the CBN and the banks would encounter logistical hurdles in the distribution of the new notes across the country. The enormous demand for the new notes would also compromise the security of the banks since criminals might use the transition to do their unlawful business.
The risk exists that counterfeiters would use the delay in distribution to spread their own notes in some regions of the nation, something that might not be adequately countered by attention around the new notes.
(2) The money market equilibrium is made up of the money supply and the money demand. The Naira Redesign policy, in this example, is an exogenous (fixed) policy variable that is set by the central bank. The need for money is endogenous, meaning that it is influenced by the interest rate and is not fixed. The CBN chooses the Naira Redesign Policy as the exogenous policy variable to control the money supply, which forms the link between the policy and the equilibrium of the money market. This shows that the Naira Redesign program’s goal is to use the CBN to reintroduce currency that has been out of circulation into the nation’s financial system. As a result, people will keep less cash, increasing the demand for cash and driving up interest rates.
Will the Naira Redesign Policy cause the money market to reach equilibrium? is a relevant question. Of course, and the following are my reasons:
The Naira Redesign Policy is an exogenous (fixed) policy variable set by the CBN to control the money supply. Prior to its commencement, there was a total of 3.23 trillion in circulation, of which 500 billion was in circulation and 2.7 trillion was out of circulation. As a result of the policy, 2.1 trillion has been collected back and 900 billion is remaining. This shows that the policy is driving back the money market to equillibrium.
Also, there would be less currency flowing in the economy because the naira redesign policy is primarily intended to reclaim the majority of the money in circulation and the out-of-circulation amounts. Due to the increased need for money, interest rates on loans will also increase. The liquidity preference theory predicts that when money supply grows, interest rates would rise as well. This hypothesis is used to explain why the money market is in equilibrium. Consumers currently have to pay POS agents exorbitant interest rates in order to obtain tiny quantities of cash, which makes this quite obvious. The money market will eventually reach equilibrium if this situation persists.
Ugwu Silas Chinazaekpere
2019/244182
Economics
The CBN regulates monetary policy. It is a quintessential regulatory agency. A good cost-benefit analysis will include social and political costs and benefits, not just financial and commercial costs and benefits of the Naira redesign.
This policy has elicited serious debate amongst Economists, Lawyers, and other policy experts. Many of them hold the view that this policy change holds no significant economic benefits for the people, and is a distraction in the midst of serious economic crises buffeting. The question is whether this policy is the right policy at this time, considering its costs and benefits.
We should note that, money plays a crucial role in a country’s economy. It determines such things as the general price levels, aggregate national income, production and productivity, labour and capital employment levels, exchange rates. and the balance of payments.
It is agreed that redesigning currencies could curb counterfeiting, especially where the existing design is very worn and its security can be easily bypassed .
While we will be looking at both the merits and demerits of this Naira redesign. Let’s first consider the merits;
According to Emefiele, the central bank’s principal objective for the currency redesign initiative was to make our monetary policy decisions more efficacious, saying: “We have started to see inflation trending downwards and exchange rates relatively stable. We aim to increase financial inclusion in the country by reducing the number of the unbanked population. Thirdly, our aim is to support the efforts of our security agencies in combating banditry and ransom-taking in Nigeria through this program and we can see that the military is making good progress in this important.
Ordinarily, when CBN releases currency into circulation, it is meant to be used and after effluxion of time, it returns to the CBN thereby keeping the volume of currency in circulation under the firm control of the CBN. It should also be noted that the notes in private homes and outside the banking system are not available for economic activities and thus may affect the economy attaining its potential growth.”
Another merit is that, this measure would help to limit the use of cash for illicit activities such as banditry and terrorism financing and help to track the movement of money through electronic channels. If anything, limiting cash handling with reduce the rate of armed robbery and other associated risks.
it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth
In addition, the short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.”
Coming to the demerits;
The World Bank has warned the newly redesigned naira which went into circulation last week may have negative effect on economic activity especially poor Nigerians due to its timing and short transition period. International experience suggests that rapid demonetizations can generate significant short-term costs, with small-scale businesses, and poor and vulnerable households, potentially being particularly affected due to being liquidity-constrained and heavily reliant on day-to-day cash transactions.
The President of the Bank Customers Association of Nigeria, Dr Uju Ogunbunka, had also said the objectives of the cashless policy was understandable but noted that the execution and timing were not right.
Also, the Lagos State Chairman of the Nigerian Association of Small and Medium Enterprise, Dr Adebayo Adams, had said the policy would hit businesses and the MSMEs.
James Emejo writes that the cashless policy and naira redesign have become yet another unorthodox intervention by the Central Bank of Nigeria, which has emerged as practical tools for resolving some of the country’s macroeconomic challenges and fighting endemic corruption.
During the recent global financial crisis and the recession, unorthodox monetary policy interventions helped salvage the economy where conventional practices have failed.
Recently, the central bank’s efforts at curtailing rising inflation had proved nearly fruitless amidst growing food and commodity prices. In the same vein, attempts to stabilise the naira against the US dollar had been difficult partly due to speculative activities and other challenges.
This new naira redesign may or may not promote equilibrium in the money market but what we can deduce is we have seen the naira gain explicitly to Dollar in the black market.
The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele on October 26, 2022, announced policy initiatives to redesign the N200, N500, and N1, 000 denominations, and subsequently introduced the cash withdrawal limits to regulate the movement of cash in the system as well as solve other challenges including currency counterfeiting among others.
The merits of the Nigerian Naira redesign policy are as follows:
• By making the currency look more professional, it could potentially increase its acceptability in international markets.
• It could make counterfeiting more difficult, which reduces the risks of counterfeit currency circulating in the economy.
• It could encourage more people to use cash, which in turn could boost the economy.
The demerits of the Nigerian Naira redesign policy are as follows:
• It can be expensive to implement, as the government will need to replace all existing notes in circulation.
• It could be seen as a political statement, which could lead to public criticism.
• It could lead to a lot of confusion and inconvenience if the old notes are not accepted by merchants.
What is the nexus between Naira redesign money market equilibrium?
Naira redesign and money market equilibrium are two different concepts. However, they are related in the sense that changes to the Naira could affect the money market equilibrium. For example, if the Central Bank of Nigeria (CBN) issues new Naira notes, it could have an impact on the money market equilibrium in the country, either positively or negatively.The naira redesign policy should promote equilibrium in the money market by increasing the supply of money and improving the efficiency of the financial system.
The Naira redesign policy aims to promote equilibrium in the money market by introducing new currencies that are more secure and easier to use, encouraging the use of digital payments, and introducing new technology to ensure a more efficient and secure money market. The policy will reduce the cost of transactions and increase access to liquidity in the market, thus creating a more stable market environment.
Discussion on Naira Redesign
The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele on October 26, 2022, announced policy initiatives to redesign the N200, N500, and N1, 000 denominations, and subsequently introduced the cash withdrawal limits to regulate the movement of cash in the system as well as solve other challenges including currency counterfeiting among others. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this,I will like to discuss and analyze the merits and demerits of this policy initiative adopted by the CBN.
Merits of the Naira Redesign.
James Emejo writes that the Naira redesign and implementation of the cashless policy would
.Plug fiscal leakages
.Boost government revenues
. Aid the economic empowerment of vulnerable Nigerians as well as benefit the country as a whole.
Demerit of the Naira Redesign.
.Hoarding of money by high rank citizens
.High charges rate by POS merchants
.Slow down on economic growth
.Slow down of most small scale business
Monetary Equilibrium
The goal of monetary policy is monetary equilibrium. This is true for any monetary arrangement that claims to serve a general interest among the population rather than to simply divert wealth to the ruler and his cronies.
Monetary equilibrium is a situation where the supply of money equals the demand, given a particular constellation of prices. The supply of money includes both the monetary base and various forms of credit. In monetary equilibrium, the monetary system is doing the most it can to facilitate beneficial trades. An excess supply of money induces people to make some trades that market participants will later judge not to have been beneficial. A deficient supply of money hinders people from making some beneficial trades.
1. MERITS
Notwithstanding the antagonism against the CBN’s cashless policy direction, analysts have thrown their weight behind the move, noting that the decision to limit cash withdrawal limits to individuals and corporate organisations following the currency redesign programme was the right way to go if the country must move forward.
The central bank had placed a cap on cash withdrawals under the new dispensation, restricting the maximum cash withdrawal over the counter (OTC) by individuals and corporate organisations per week to N500,000 and N5 million respectively.
The move by the apex bank it was generally believed was aimed at discouraging vote-buying as the 2023 general election approaches as well as addressing hoarding of the local currency in a bid to check inflationary pressures as well as address critical security issues.
However, speaking in separate interviews with THISDAY, analysts said the new CBN policy will aid in accelerating the monetary policy objectives.
They said the policy will positively enhance the monetary and fiscal space as well as improve the profitability of the banking sector.
The analysts, however, cautioned that the slow adoption of e-banking, the rise in cybercrime coupled with an election year, and other macroeconomic factors could slow the benefits of the policy. They also believed that the policy could strengthen the Naira against the US Dollar.
Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, said the effectiveness of monetary policy hinged on being able to mop up excess liquidity and having the majority of the population included in the financial system.
He said, “Several initiatives by the CBN have tried to encourage both financial inclusion and a cashless society, however, these have been largely ineffective. The new CBN policy will certainly aid in accelerating the monetary policy objectives, whilst also tackling the insecurity challenges and encouraging financial inclusion.
“Though there will undoubtedly be implementation challenges, it is a step in the right direction for sanitising the economy. The excess liquidity floating around in the economy needs to be mopped as this will also help inflation.”
DEMERITS
To start with, is there anything that has happened that the CBN couldn’t have anticipated and shouldn’t have planned for or against? Hardly. Policy makers are usually advised to take Murphy’s Law as an iron law and to always factor it into policy design and implementation. Murphy’s Law roughly translates to assume that: ‘anything that can go wrong will go wrong’. Did CBN anticipate all the things that could go wrong with its Naira redesign policy and did it plan adequately against those things and how have those back-up stacked up against unfolding reality?
In other words, what risks did the CBN identify and what risk-mitigation strategies did it put in place? Or did CBN just assume that with presidential approval secured all would go swimmingly? It is apparent that CBN was surprised by the reaction to the thinness of its groundwork and has had to play catch-up to the few taking advantage of the arbitrage opportunities that it created and to its lack of rigour.
The second and related issue is that there is a serious scarcity of the new Naira notes, and the CBN cannot be absolved of the blame. The CBN governor has been busy talking about how much the apex bank has pulled in from the currency in circulation but has never mentioned how much money CBN has printed or distributed to the banks. The reason is simple: CBN has not printed enough. By its own admission, CBN is printing locally, and not a few people know the full capacity of the Mint. Beyond what people know or sense about this capacity constraints, CBN also actively signalled that it didn’t have enough notes: it didn’t make the new notes available until December 15th, it initially asked banks not to pay new notes over counter, then it imposed a limit on how much they could give out over the counter.
Nigerians easily picked up the signal that CBN was rationing the new notes. Those who have access to the new notes assign a margin. Those who get or buy the new notes are not letting go of them, so the notes are not getting back into the banks or are not going into circulation. The initial scarcity created a second order scarcity: most people are scampering to join the ever-growing queues, increasing the sense of scarcity. The inadequacy of online banking and digital payment platforms compounded the search for cash. A few have taken advantage of the scarcity, and they should be made to face the music. But the real problem is the scarcity that CBN created and signalled. Once there are enough new notes, there won’t be a reason for anyone to hoard them or pay a premium to get them or spend precious hours on queues just to get just a few thousands.
2. The Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, is not new to criticisms concerning his choice of unorthodox measures in addressing monetary policy issues – and he stands tall over this approach.
Emefiele had often told his critics not to judge his tactics but evaluate the positive results produced by such unconventional interventions.
During the recent global financial crisis and the recession, unorthodox monetary policy interventions helped salvage the economy where conventional practices have failed.
Recently, the central bank’s efforts at curtailing rising inflation had proved nearly fruitless amidst growing food and commodity prices.
In the same vein, attempts to stabilise the naira against the US dollar had been difficult partly due to speculative activities and other challenges.
NAIRA REDESIGN AND CASHLESS POLICY
However, the recent engagement between the CBN governor and the diplomatic community exposes the primary intent of the bank’s cashless and naira redesign programmes.
If anything, it showed the benefits of the cashless policy, whose implementation began in 2012; and that the currency redesign programme was initially underestimated.
Emefiele’s interaction with the diplomatic community was particularly critical to shed more light on the policies and disabuse their minds of wrong perceptions following some antagonism by some political class members.
According to the central bank governor, the main objectives of the cashless policy and currency redesign were to make monetary policy decisions more effective, deepen financial inclusion in the country, curb terror financing and banditry, and discourage vote-buying by politicians and money laundering, among others. Politicians were stocking money for election activities, according to the CBN governor.
God’spower Ekene
2016/239090
Eco major
Eco 303
The merits and demerits of the CBN redesign initiative policy in the nation.
The following merits is noted below;
1. Reducing and regulating the excess supply of money in circulation.
2. Reducing inflation in the country
3. Reducing illegal activities sponsored by money liquidity eg productivity of counterfeit money, kidnapping, etc
4. Helps to digitally synthesize people to the importance and use of online banking
5. Helps in increase in interest rates as liquidity reduces
The following are the demerits of this policy;
1. This policy is less favorable to the poor due to the fact that they cannot afford the rates to acquiring money
2. Crowding of banks, disruption and uproar in the country in trying to deposit or withdraw money
3. Corruption and Hoarding of money by banks to favour themselves
4. Discontinuation of small businesses involved in supplying of cash eg POS business, retail stores, etc
2. Will this new policy promote equilibrium in the money market?
I will say yes for the reason below;
Currency redesigning by the CBN is a means to reduce excess of money supply in circulation and reinforced more monetary policy effectiveness in curbing inflationary pressure and enhanced the exchange rate policy of the CBN.
Name: Udekwu Sharon Chikaodili
Registration Number: 2019/249132
Department: Economics
Course Code: ECO 303
The Naira Redesign Policy: Merits
A strengthening of our macro economic parameters
Reduction of broad money supply leading to a deceleration of the velocity of money in the economy which should result in less pressures on domestic prices
Lowering of Inflation as a result of the accompanying decline in money supply that will slow the pace of inflation
Collapse of Illegal Economic Activities which would help to stem corruption and acquisition of money through illegal ways
Exchange Rate stability
Availability of Easy Loans and lowering of interest rates
Greater visibility and transparency of our financial actions translating to efficient enforcement of our anti-money laundering legislations.
The Demerits of the Naira Redesign Policy.
Logistics challenge: The challenge of logistics of such printing due to the fact that Nigeria is borrowing to fund the budget deficits. In addition, to navigate the 774 local governments when some of them don’t have banking halls present in the local governments.
Checkmating electioneering spending: CBN dream of checkmating electioneering spending by redesigning the naira notes could only be achieved if the new notes were limited in supply, a task he considered would be quite tall for the apex bank.
Overcrowding in the banking halls: There will be lots of long queues in the banking hall. It’s going to create lots of inconveniences for the people. The unbanked and the elderly may not be able to cope since we don’t have banks in most local government areas
Rural dwellers factor: It is feared that rural dwellers who live far from where banking services are available would experience hardship dumping the old notes, as well as, initially, obtaining the new ones.
Fear of persistent inflation: the step would solve inflation, “because there also are other major reasons for inflation such as the forex crisis, which this new move can exacerbate, as well as the impact of the security crisis on food price inflation.”
The nexus between Naira redesign money market equilibrium.
When the supply and demand curves intersect, the market is in equilibrium. This is where the quantity demanded and quantity supplied are equal. The corresponding price is the equilibrium price or market-clearing price, the quantity is the equilibrium quantity.
However, the Naira Redesign policy has caused scarcity of valid legal tender (the new notes) as its supply is limited. The implication of this is that in the market, demand would not equal supply. The scarcity of the new notes had caused fluctuations in the general price levels causing demand and supply to move out of equilibrium causing a market disequilibrium. Well, these implications can only be experienced now in the short run when the new notes have not been fully circulated in the economy. In the long run, the new notes must have been circulated round the economy causing people to be able to make their daily transactions. Now, price levels are not fluctuating. In the market, demand and supply would interact and fix prices. The implication of this is a market equilibrium.
Equilibrium in the money market.
The money market is the interaction among institutions through which money is supplied to individuals, firms, and other institutions that demand money. Money market equilibrium occurs at the interest rate at which the quantity of money demanded is equal to the quantity of money supplied.
In the long run, the naira redesign policy would promote equilibrium in the money market as the CBN must have printed enough notes to circulate in the economy and withdrawn the old ones.
The money market would only be in equilibrium in the long run when the demand for money is equal to the supply for money. In the short run, interest rates are rising due to an increase in the demand for money. This increase in demand is caused by the unavailability of new notes. People tend to pay higher interest rates in order to acquire the new notes and also when acquiring loans from credit institutions.
1. MERITS
November 23, (THEWILL) – President Muhammadu Buhari has unveiled the redesigned Naira notes by the Central Bank of Nigeria (CBN).
The notes which include N200, N500 and N1000, were formally unveiled on Wednesday, at the state House, Abuja, before a meeting of the Federal Executive Council (FEC).
Presenting the new notes to the President, CBN Governor, Godwin Emefiele, said the redesigned currency will help control inflation.
He explained that the new notes will bring “hoarded currency” into the banking system, thereby making monetary policy more effective.”
The redesigned notes, Emefiele said, would also increase financial inclusion as the country moves towards a more cashless economy.
In addition, the new notes would assist in the fight against corruption and better design and implementation of Monetary Policy for accurate data on money supply and monetary aggregates, he said.
DEMERITS
The World Bank has warned the newly redesigned naira which went into circulation last week may have negative effect on economic activity especially poor Nigerians due to its timing and short transition period.
The Washington-based bank revealed this in a new report titled, “Nigeria Development Update.”
This came amid the mixed reactions that have been trailing the newly redesigned notes.
The Central Bank of Nigeria had last month unveiled new N,1000, N500 and N200 notes as part of measures to mop up excess cash in circulation, ransom payment for kidnapping, terrorism financing, counterfeiting, among others.
The World Bank, in its report, however, said the new policy would negatively affect small businesses especially those who day-to-day cash transactions.
The report read in part, “While periodic currency redesigns are normal internationally and the naira does appear to be due for it since naira notes have been redesigned for two decades, the timing of and short transition period for this demonetization may have negative impacts on economic activity, in particular for the poorest households.
2. The Central Bank of Nigeria (CBN) announced that the bank would release re-designed naira notes by December 15, 2022, while existing notes would cease to be regarded as legal tender by January 31, 2023. Through this policy, the apex bank aims to control the money supply, inflation, as well as, curb counterfeit currency and ransom payment to kidnappers and terrorists.
Also, the apex bank noted that available data indicated that N2.73 trillion out of the N3.23 trillion currency in circulation was outside the banking system and supposedly, held by members of the public.
Furthermore, the Nigerian currency in circulation has more than doubled since 2015, rising from N1.46 trillion in December 2015 to N3.23 trillion as at September, 2022.
Historically, the re-design of the Naira started in the last 30 years. In 1973, the naira was changed from metric to decimal which precipitated the change from pounds to naira and kobo. In 1977, the highest denomination at the time, the 20 naira note was introduced. In 1979, the government minted the N1, N5, and N10 notes respectively.
In 1984, similar reason in line with the recently announced CBN policy to issue new banknotes as regards to ameliorate the rate of trafficking and counterfeit precipitated the change of all banknote colours. During President Olusegun Obasanjo’s regime, the N100 was introduced to the economy for circulation in 1999, the N200 in the year 2000, the N500 in the year 2001, and N1000 in the year 2005. On 30th September, 2009 following the successful money supply and performance of the N20 (polymer) banknote, the CBN redesigned and converted the N50, N10 and N5 banknotes into polymer substrate.
Despite the various monetary policy measures and reasons for the re-design of the naira by the CBN, there were both positive and negative effects of the re-design. From the positive-view, the re-design would enable the apex bank effectively control the liquidity in circulation, thus reducing inflationary pressure in the economy. Also, the policy may likely improve the security situation in the country as ransom payment may be aborted.
The re-design would force people to put money into the banks which helps the cashless agenda and would be complemented by the increased minting of the e-naira. Also, this will help the Federal government reduce counterfeit notes and reduce the speculative attacks on the naira in the FX parallel market.
Although the policy comes with some positive implications to the real economy, it has several drawbacks as the economy is yet to recover from the market disruption caused by the Russia-Ukraine war.
First, with the new policy, dollarization is imminent. In situations where policies are implemented with a limited window for adoption, hoarders of local currency are likely to exchange their Naira for dollars as a store of value, thus, intensifying the dollarization trend in Nigeria.
Secondly, from the monetary economics literature, a decrease in liquidity is likely to result in reduced economic activity, which translates to lowered GDP, and increased unemployment. Thus, the apex bank must apply caution in implementing the policy as well as learn from the experiences of other developing economies such as India, Venezuela, and Zimbabwe.
Implication of re-designing the naira: A case study of some selected developing economies.
Merit
1.As you know of the contactionary monetary policy
The naira redesign can be seen as a contractionary monetary policy that which is used to reduce the supply of money and also help to promote a cashless policy by encouraging people to use electronic payment systems.
2. The CBN can hardly control cash that’s outside the banks. The Naira design policy made people to take their monies to the bank thereby making it possible for CBN to have adequate information about movement of cash in the economy.
3. It helped to curb the use of raw cash for illegal reasons. Example are use of cash in payment of ransom to kidnappers, use of cash for vote buying. Lack of raw cash limits the movement of money outside the banking system.
4. Reduces corruption in government. People in government who take or give bribe with large amount of cash will find it difficult to continue engaging in such corruptive act.
5. Size of the economy. The influx of cash into the banking system increase the size of the economy. This is because you have more availability of funds in the banking system to be converted into monetary instruments.
Demerits of the policy
1. It could cause hardship on those in the rural areas because they’re usually not exposed to financial technologies.
2. If the conversion time frame is not long enough, it could cause scarcity of cash.
3. There’s danger of social uprising and attacked on the commercial banks by their customers if the transition is not well handled.
Secondly
The nexus between Naira redesign and money market equilibrium is supposed to be significant. If all things are equal, and in a working economy
The money market is the market where short-term financial instruments are traded.
The introduction of new notes can lead to an increase in the supply of money, which can lead to inflation. However, the CBN can control the supply of money by controlling the circulation of the new notes.
If the CBN is able to successfully control the supply of money, then the new policy can promote equilibrium in the money market.
Name: Amushi Arinze Emmanuel
Reg No: 2019/245697
Department: Combined social sciences (economics/psychology)
Question
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to discuss and analyse the merits and demerits of this policy initiative adopted by the CBN. Secondly, what is the nexus between Naira redesign money market equilibrium? Will this new policy promote equilibrium in the money market? Discuss this comprehensively,
Answer
Since the CBN embarked on the redesign of the Naira as well as expanded the implementation of the cashless policy programme, which began in 2012, a section of Nigerians, apparently with vested interests have not considered the benefits of the policies but have rather criticised them and tried to stir public objection.
Critics of the cashless policy have argued that it would further impoverish Nigerians and create unemployment in the financial value chain. But they lacked evidence to buttress their rejection.It is not surprising that most of the objections to the central bank policies are by those who currently benefit from the rot in the system – politicians, and other corrupt public officials who take undue advantage of the opaque system of administration that does not allow for transparency in government business.
Corruption remains the biggest challenge facing the country and has continued to retard its growth trajectory.
At 62, Nigeria is still groping in the dark in search of its pathway to socio-economic prosperity – bad leadership, weak institutions, and abuse of due process are among a litany of moral and ethical deficits that have held it bound over the years.Corruption, including vote-buying among others, has also influenced the selection of those in the seat of power: often times those who are not qualified have succeeded, and their performance had been abysmal.
As a result of the lack of transparency in financial dealings, social safety interventions for instance have been compromised as monies end up in private pockets while the vulnerable are left in worse conditions.
Because monies cannot be partly accounted for or traced as a result of physical cash handling, a lot of underhand transactions are perpetrated and often go unnoticed by anti-graft and regulatory agencies.It is partly in view of the foregoing and the need to address some of the actions that have continued to shortchange the economy and the vulnerable in particular that the central bank, with the permission of President Muhammadu Buhari, decided to redesign the local currency as well as introduce limits on physical cash withdrawals.Naira redesign
The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele on October 26, 2022, announced policy initiatives to redesign the N200, N500, and N1, 000 denominations, and subsequently introduced the cash withdrawal limits to regulate the movement of cash in the system as well as solve other challenges including currency counterfeiting among others.In announcing the Naira redesign programme, the CBN governor said the move was aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.Emefiele, further explained that there was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks.
According to him, as of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks, describing the development as unacceptable as this has the potential to harm monetary policy actions, further leading to higher inflation and currency speculation, thereby exposing vulnerable Nigerians to further economic hardship.However considering the timing of the policies – being an election year – some Nigerians, particularly politicians, believed that the apex bank’s move was targeted against certain individuals and have refused to see beyond their assumptions to know that the actions are in the best interest of Nigerians and the economy if the country must address the current gale of insecurity, corruption and economic sabotage among other actions of some privileged elites who continued to take advantage of a dysfunctional system to short-changed the country.If anything, there have been early successes of the CBN intervention – the monetary policy committee (MPC) of the central bank recently affirmed that the various policy interventions of the bank had led to a reduction in inflation after months of an uptick in the headline index.
Also, the cashless policy has led to a reduction in banditry and kidnappings, which were rampant in the recent past
Gains
According to Emefiele, the central bank’s principal objective for the currency redesign initiative was to make our monetary policy decisions more efficacious, saying: “We have started to see inflation trending downwards and exchange rates relatively stable.“We aim to increase financial inclusion in the country by reducing the number of the unbanked population. Thirdly, our aim is to support the efforts of our security agencies in combating banditry and ransom-taking in Nigeria through this program and we can see that the military is making good progress in this important.
According to him, “Available data at the Central Bank of Nigeria showed that in 2015, Currency-in-Circulation was only N1.4trillion. As of October 2022, currency in circulation had risen to N3.23 trillion out of which only N500 billion was within the banking system and N2.7 trillion was held permanently in people’s homes.Ordinarily, when CBN releases currency into circulation, it is meant to be used and after effluxion of time, it returns to the CBN thereby keeping the volume of currency in circulation under the firm control of the CBN. It should also be noted that the notes in private homes and outside the banking system are not available for economic activities and thus may affect the economy attaining its potential growth.”
Emefiele said since the commencement of the programme, the apex bank had collected about N2.1 trillion, “leaving us with about N900 billion”. In essence, the currency redesign policy has helped to mop up monies outside the banking system that had often contributed to rising inflation and currency speculation, which had resulted in foreign exchange challenges in recent times.Experts say that there is no doubt the advantages of the currency redesign exercise will enormously benefit the economy in the long run, as emphasised by the CBN Governor.
If anything, the number of employment opportunities already created by the policies further demonstrates that rather than impoverishing Nigerians, the cashless policy has the potential to boost wealth creation across the country.Further highlighting the benefits of the cashless policy, Emefiele pointed out that generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties.
Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth
the macroeconomic impacts of currency redesign are multidimensional and could seem uncertain especially at this early stage when its inconvenience is widespread.By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behaviour, and further encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
“In addition, the short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.”
Disadvantages
The World Bank has warned the newly redesigned naira which went into circulation last week may have negative effect on economic activity especially poor Nigerians due to its timing and short transition period.
The Washington-based bank revealed this in a new report titled, “Nigeria Development Update.”
This came amid the mixed reactions that have been trailing the newly redesigned notes.
The Central Bank of Nigeria had last month unveiled new N,1000, N500 and N200 notes as part of measures to mop up excess cash in circulation, ransom payment for kidnapping, terrorism financing, counterfeiting, among others.
The World Bank, in its report, however, said the new policy would negatively affect small businesses especially those who day-to-day cash transactions.
The report read in part, “While periodic currency redesigns are normal internationally and the naira does appear to be due for it since naira notes have been redesigned for two decades, the timing of and short transition period for this demonetization may have negative impacts on economic activity, in particular for the poorest households.International experience suggests that rapid demonetizations can generate significant short-term costs, with small-scale businesses, and poor and vulnerable households, potentially being particularly affected due to being liquidity-constrained and heavily reliant on day-to-day cash transactions
Merit
1.As you know of the contactionary monetary policy
The naira redesign can be seen as a contractionary monetary policy that which is used to reduce the supply of money and also help to promote a cashless policy by encouraging people to use electronic payment systems.
2. The CBN can hardly control cash that’s outside the banks. The Naira design policy made people to take their monies to the bank thereby making it possible for CBN to have adequate information about movement of cash in the economy.
3. It helped to curb the use of raw cash for illegal reasons. Example are use of cash in payment of ransom to kidnappers, use of cash for vote buying. Lack of raw cash limits the movement of money outside the banking system.
4. Reduces corruption in government. People in government who take or give bribe with large amount of cash will find it difficult to continue engaging in such corruptive act.
5. Size of the economy. The influx of cash into the banking system increase the size of the economy. This is because you have more availability of funds in the banking system to be converted into monetary instruments.
Demerits of the policy
1. It could cause hardship on those in the rural areas because they’re usually not exposed to financial technologies.
2. If the conversion time frame is not long enough, it could cause scarcity of cash.
3. There’s danger of social uprising and attacked on the commercial banks by their customers if the transition is not well handled.
Secondly
The nexus between Naira redesign and money market equilibrium is supposed to be significant. If all things are equal, and in a working economy
The money market is the market where short-term financial instruments are traded.
The introduction of new notes can lead to an increase in the supply of money, which can lead to inflation. However, the CBN can control the supply of money by controlling the circulation of the new notes.
If the CBN is able to successfully control the supply of money, then the new policy can promote equilibrium in the money market.
Ngene Francisca onyeka
2019/249518
Economics
Merits
Many people have suggested that the new measure could restore confidence in the local currency as the bulk of the naira note stacked away by politicians, criminals and other illegal operators would be returned to the banking system, helping the CBN to monitor the currency in the economy.
It is also expected that with the new notes, most tattered naira notes currency pushed into the system would be eliminated while counterfeiters would be refrained for a couple of years in carrying out their illicit business.
Another angle to look at the measure is the positive effect it will have on crime in the country. Currently, Nigeria is having challenges with terrorists and banditry across the country with money being paid to kidnappers as ransom running to billions of naira.
It is expected that the ransom money that is yet to find its way into the banking system would be brought out to be exchanged for the newly redesigned notes. This could also lead to crime detection and probable prosecution as many who could not explain the sources of their wealth may find themselves in trouble with law enforcement agencies.
Also, politicians who have stacked away money for the purpose of vote buying during the forthcoming election may have a difficult time changing their notes into the new naira while bringing such money back to the system could upset some of their plans.
Other merits include:
Statistics had shown that over 80 per cent of the currency in circulation were outside commercial banks’ vaults, which was fuelling illicit financial flow within the economy:
A significant hoarding of banknotes by members of the public, worsening shortage of clean and fit banknotes and increasing cases and risk of counterfeiting informed the decision.
“The CBN obviously wants to force all those notes back into the banking system. Those with the notes must surrender them to get new ones or else it becomes illegal tender after Jan. 31 2023.
“This is also a way to withdraw currency from circulation, an unorthodox way of tightening the money supply since the country is battling high inflation.
“The flip side is that people who are holding huge amounts of cash outside the banking system for nefarious reasons will go to the parallel forex market to buy hard currency, putting further downward pressure on the value of the Naira as too much Naira will be chasing too few dollars.”
Checkmating electioneering spending: A 90-day window will have been better, but one can understand the need to avoid interfering with the elections.
Demerits
The huge cost of printing the new note could run to trillions of naira, which the economy may be least prepared for with the current state of the economy, the state of the nation’s foreign reserves since the currency is expected to be printed abroad and the implications for the balance sheet of the central bank.
Learning from the previous similar occurrence 38 years ago, the economy will surely be upset by the change in the currency as many merchants and petty traders would start rejecting the old notes ahead of the implementation of the policy on December 15.
The cost of food and other items will shoot up as the naira notes for transactions will become scarce while many people may go hungry because they could not get new naira to make necessary purchases.
The banking hall will be jam-packed with people scrambling to exchange their old currency for new notes, putting pressure on the lean capacity of the banks to process currency.
Armed robbery could escalate with criminals targeting bullion vans to be used in the distributions of the new notes in some rural areas in a bid to minimize their losses on the old naira notes stacked away previously in order to evade the law.
Both the CBN and the banks will face logistic challenges in the distribution of the new notes across the country with the rate of crime in form of banditry and terrorism across the country escalating. Also, security around the banks would be threatened because of the huge demand for the new notes as criminals could also take advantage of the change-over to commit their illicit trade.
There is the possibility that counterfeiters may take advantage of the lag in distribution to circulate their own notes in some parts of the country, which may not be effectively covered by the publicity around the new notes.
Other demerits include:
Logistics challenge: The challenge of logistics of such printing due to the fact that Nigeria is borrowing to fund the budget deficits. In addition, to navigate the 774 local governments when some of them don’t have banking halls present in the local governments.
Checkmating electioneering spending: CBN dream of checkmating electioneering spending by redesigning the naira notes could only be achieved if the new notes were limited in supply, a task he considered would be quite tall for the apex bank.
Overcrowding in the banking halls: There will be lots of long queues in the banking hall. It’s going to create lots of inconveniences for the people. The unbanked and the elderly may not be able to cope since we don’t have banks in most local government areas
Rural dwellers factor: It is feared that rural dwellers who live far from where banking services are available would experience hardship dumping the old notes, as well as, initially, obtaining the new ones.
Fear of persistent inflation: the step would solve inflation, “because there also are other major reasons for inflation such as the forex crisis, which this new move can exacerbate, as well as the impact of the security crisis on food price inflation.”
For an economy to grow and for people to get interest to the asset they hold, they have to be rational in thought, this can be in a way for the people, when there is high interest rate in keeping money as an asset in bond, people tend to withdraw their money from the bank and keep it as bond in order to get an interest from it, this means that the demand for holding of money in the country is low compared to interest rate, also, in a situation where the is high need of money in the country due to interest rate from it maybe for purchase of raw materials and for production and consumption in the country, then, demand for holding of money at hand is high in the economy due to interest rate gotten from it. Now the function of the government and the Central Bank is to checkmate and balance the supply and demand of money in the economy in order for the economy to move smoothly. When there is equal supply and equal demand of money in the economy, then, the economy is said to be in equilibrium with the money market. Thus, when there is equilibrium supply and demand for money, there is a well utilization of the supply of money. I’m a situation whereby there is need for money to be held as bond whereas the is surplus supply of money, then, there is disequilibrium, also, in a situation whereby there is need for money to be held by the people and also by the bank in order to carryout production and consumption in the economy, and whereas thre is little supply of money, this is also said to be a disequilibrium money market.
Haven looked at what money market equilibrium is all about, now comparing it with the situation on ground vis-a-vis the redesigned naira notes and the aftermath of what it has left behind we go this way.
Looking at the condition of the country now, we can deduce that people especially the poor and the work force of the country are highly in need or demand for the supply of money in the country because the money at hand with the people before the introduction of the new naira notes have all been ceased by the government and the Central Bank, leaving the people with nothing to hold unto, but on the contrary, we see the the demand deposit in the bank has been withheld from the people not even minding the high and clarion need for the money. Thus, instead of the economy growing in a speedy rate, it is decreasing because the urgent need for the supply of money has been withheld. Unlike holding the money as bond which should have generated interest for the people, all the money in at demand deposit which at the money is said to be in a fixed state or in a fixed account which has an infinity term of release. Looking at this critically, we can say that the economy is drastically suffering from a highly and negatively disequilibrium state of money supply in the economy, and at this level, there is no other option to be made since holding the money in bond is not there and the demand deposit has been withheld.
I’m summary, we can boldly say that, the nexus or the link between the redesigned naira notes and the money market equilibrium is negative which is adversely affecting the economy of Nigerian.
(c) Will this new policy promote equilibrium in the money market?
It is well to say that haven seen the effect of the policy and the outcome of it in the nation within a short period of its manifestion, it will not in anyway make way for an equilibrium money market. A point of reference to back up my statement can be traced to my local market here in cross river state, where an astonishing shock overwhelmed me to see that on the market day that formerly used to be filled with many buyers and sellers, behold, I was able to count the number of people who were able to come to the market for purchase of goods that day. The.market was scanty as never before, while there were few buyers and sellers due to lack of money.
This shows how drastic the economy is falling away because, people are willing to produce and sell goods but the purchasing power and capital has being withheld by the government, also people are willing to buy goods and consume from producers but their assets have being withheld by the government making it difficult to access.
In summary, this policy cannot bring about equilibrium in the money market unless the government of this country can look into it, making readjustment and following suite the adjustment made.
NAME : NDUUL MICHAEL TERUNGWA
REG NO : 2019/246514
DEP. : ECONOMICS MAJOR
COURSE : ECO 303
Naira redesign policy -merits and demerits
The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele on October 26, 2022, announced policy initiatives to redesign the N200, N500, and N1, 000 denominations, and subsequently introduced the cash withdrawal limits to regulate the movement of cash in the system as well as solve other challenges including currency counterfeiting among others.
Some of the merits includes;
1.- checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank. Emefiele, further explained that there was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks.
2.- According to Emefiele, the central bank’s principal objective for the currency redesign initiative was to make our monetary policy decisions more efficacious, saying: “We have started to see inflation trending downwards and exchange rates relatively stable.
We aim to increase financial inclusion in the country by reducing the number of the unbanked population.
3.- Thirdly, the aim is to support the efforts of our security agencies in combating banditry and ransom-taking in Nigeria through this program and we can see that the military is making good progress in this important. Emefiele said since the commencement of the programme, the apex bank had collected about N2.1 trillion, “leaving us with about N900 billion”. In essence, the currency redesign policy has helped to mop up monies outside the banking system that had often contributed to rising inflation and currency speculation, which had resulted in foreign exchange challenges in recent times.
some of the demerit includes;
1.Affects small and medium scale enterprises: the naira redesign initiative by the central bank has drastically affected and even closed up small and medium scale enterprises due to the in availability of funds for operation. The initiative has limited the supply of money which has indirectly hampered there operations
2.Increased suffering and misery: the new naira redesign has raised the standard of living that is unaffordable by the citizens which has lowered the consumption level consequently leading to deflation.
nexus between naira redesign money and equilibrium
money market equilibrium
The money market is the interaction among institutions through which money is supplied to individuals, firms, and other institutions that demand money. Money market equilibrium occurs at the interest rate at which the quantity of money demanded is equal to the quantity of money supplied. “Money Market Equilibrium”combines demand and supply curves for money to illustrate equilibrium in the market for money. With a stock of money (M), the equilibrium interest rate is r.
The market for money is in equilibrium if the quantity of money demanded is equal to the quantity of money supplied. Here, equilibrium occurs at interest rate r.
A shift in money demand or supply will lead to a change in the equilibrium interest rate. Lower interest rates in turn increase the quantity of investment. They also stimulate net exports, as lower interest rates lead to a lower exchange rate. Now suppose the market for money is in equilibrium and the Fed changes the money supply. All other things unchanged, how will this change in the money supply affects the equilibrium interest rate and aggregate demand, real GDP, and the price level? Suppose the Fed conducts open-market operations in which it buys bonds. This is an example of expansionary monetary policy. The reduction in interest rates required to restore equilibrium to the market for money after an increase in the money supply is achieved in the bond market. The increase in bond prices lowers interest rates, which will increase the quantity of money people demand. Lower interest rates will stimulate investment and net exports, via changes in the foreign exchange market, and cause the aggregate demand curve to shift to the right, as shown in Panel (c), from AD1 to AD2. Given the short-run aggregate supply curve SRAS, the econom moves to a higher real GDP and a higher price level. Open-market operations in which the Fed sells bonds—that is, a contractionary monetary policy—will have the opposite effect. When the Fed sells bonds, the supply curve of bonds shifts to the right and the price of bonds falls. The bond sales lead to a reduction in the money supply, causing the money supply curve to shift to the left and raising the equilibrium interest rate. Higher interest rates lead to a shift in the aggregate demand curve to the left. As we have seen in looking at both changes in demand for and in supply of money, the process of achieving equilibrium in the money market works in tandem with the achievement of equilibrium in the bond market. The interest rate determined by money market equilibrium is consistent with the interest rate achieved in the bond market.
In conclusion, the new naira redesign policy will discourage equilibrium in the money market as the supply of money fails to equal with the quantity of money demanded. This will lead to deflation and the economic will be depressed. People are looking for money on the daily basis unfortunately the supply of money is limited. It has increased sufferings, suspended economic activities and has put the economic in recession.
1. MERITS
Notwithstanding the antagonism against the CBN’s cashless policy direction, analysts have thrown their weight behind the move, noting that the decision to limit cash withdrawal limits to individuals and corporate organisations following the currency redesign programme was the right way to go if the country must move forward.
The central bank had placed a limit on cash withdrawals under the new dispensation, restricting the maximum cash withdrawal over the counter by individuals and corporate organisations per week to N500,000 and N5 million respectively.
The move by the apex bank was generally believed was aimed at discouraging vote-buying as the 2023 general election approaches as well as addressing hoarding of the local currency in a bid to check inflationary pressures as well as address critical security issues.
However, speaking in separate interviews with THISDAY, analysts said the new CBN policy will aid in accelerating the monetary policy objectives.
They said the policy will positively enhance the monetary and fiscal space as well as improve the profitability of the banking sector.
The analysts, however, cautioned that the slow adoption of e-banking, the rise in cybercrime coupled with an election year, and other macroeconomic factors could slow the benefits of the policy. They also believed that the policy could strengthen the Naira against the US Dollar.
Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, said the effectiveness of monetary policy hinged on being able to mop up excess liquidity and having the majority of the population included in the financial system.
He said, “Several initiatives by the CBN have tried to encourage both financial inclusion and a cashless society, however, these have been largely ineffective. The new CBN policy will certainly aid in accelerating the monetary policy objectives, whilst also tackling the insecurity challenges and encouraging financial inclusion.
“Though there will undoubtedly be implementation challenges, it is a step in the right direction for sanitising the economy. The excess liquidity floating around in the economy needs to be mopped as this will also help inflation.”
DEMERITS
To start with, is there anything that has happened that the CBN couldn’t have anticipated and shouldn’t have planned for or against? Hardly. Policy makers are usually advised to take Murphy’s Law as an iron law and to always factor it into policy design and implementation. Murphy’s Law roughly translates to assume that: ‘anything that can go wrong will go wrong’. Did CBN anticipate all the things that could go wrong with its Naira redesign policy and did it plan adequately against those things and how have those back-up stacked up against unfolding reality?
In other words, what risks did the CBN identify and what risk-mitigation strategies did it put in place? Or did CBN just assume that with presidential approval secured all would go swimmingly? It is apparent that CBN was surprised by the reaction to the thinness of its groundwork and has had to play catch-up to the few taking advantage of the arbitrage opportunities that it created and to its lack of rigour.
The second and related issue is that there is a serious scarcity of the new Naira notes, and the CBN cannot be absolved of the blame. The CBN governor has been busy talking about how much the apex bank has pulled in from the currency in circulation but has never mentioned how much money CBN has printed or distributed to the banks. The reason is simple: CBN has not printed enough. By its own admission, CBN is printing locally, and not a few people know the full capacity of the Mint. Beyond what people know or sense about this capacity constraints, CBN also actively signalled that it didn’t have enough notes: it didn’t make the new notes available until December 15th, it initially asked banks not to pay new notes over counter, then it imposed a limit on how much they could give out over the counter.
Nigerians easily picked up the signal that CBN was rationing the new notes. Those who have access to the new notes assign a margin. Those who get or buy the new notes are not letting go of them, so the notes are not getting back into the banks or are not going into circulation. The initial scarcity created a second order scarcity: most people are scampering to join the ever-growing queues, increasing the sense of scarcity. The inadequacy of online banking and digital payment platforms compounded the search for cash. A few have taken advantage of the scarcity, and they should be made to face the music. But the real problem is the scarcity that CBN created and signalled. Once there are enough new notes, there won’t be a reason for anyone to hoard them or pay a premium to get them or spend precious hours on queues just to get just a few thousands.
2. The Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, is not new to criticisms concerning his choice of unorthodox measures in addressing monetary policy issues – and he stands tall over this approach.
Emefiele had often told his critics not to judge his tactics but evaluate the positive results produced by such unconventional interventions.
During the recent global financial crisis and the recession, unorthodox monetary policy interventions helped salvage the economy where conventional practices have failed.
Recently, the central bank’s efforts at curtailing rising inflation had proved nearly fruitless amidst growing food and commodity prices.
In the same vein, attempts to stabilise the naira against the US dollar had been difficult partly due to speculative activities and other challenges.
NAIRA REDESIGN AND CASHLESS POLICY
However, the recent engagement between the CBN governor and the diplomatic community exposes the primary intent of the bank’s cashless and naira redesign programmes.
If anything, it showed the benefits of the cashless policy, whose implementation began in 2012; and that the currency redesign programme was initially underestimated.
The CBN’s Governor’s interaction with the diplomatic community was particularly critical to shed more light on the policies and disabuse their minds of wrong perceptions following some antagonism by some political class members.
According to the central bank governor, the main objectives of the cashless policy and currency redesign were to make monetary policy decisions more effective, deepen financial inclusion in the country, curb terror financing and banditry, and discourage vote-buying by politicians and money laundering, among others. Politicians were stocking money for election activities, according to the CBN governor.
Odum precious naomi
Reg.no_2019/241331
A. Currency redesign is generally aimed at achieving specific objectives such as improving security of bank notes, mitigating counterfeiting, prosecuting the Currency in circulation and reducing the overall cost of Currency management. Mr. Godwin Emefiele announced the decision of the apex bank to redesign the Naira note on October 26, 2022, he left no one in doubt that one key objectives of the exercise was to enable CBN take control of the Currency in circulation. According to him, about 85 percent of the Currency in circulation was outside the banking system and that the CBN would not allow the situation continue it was adversely affecting monetary policies of the CBN.
Advantages.
1.Curb Naira hoarding: Emefiele said ” As you all may be aware, Currency management is a key function of the central Bank of Nigeria, as enshrined in section 2(b) of the CBN act 2007.”“In recent times, however, currency management has faced several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country”. The introduction of the new naira note has reduced hoarding of naira by unscrupulous politicians and civilians.
2. Money laundering: Those in the real estate sector of the economy have told stories of how desperate members of the public move around large cash, running into billions, with the intention to buy houses and land across the country. The cashless policy helped in no small way fight against corruption in the country because public officials who always insists on cash “kick-back “before award of contracts had a rethink.
3. Reduction of insecurity: cash feuls insecurity, so therefore the cashless policy frustrated the activities of criminal gangs especially kidnappers and bandits, who abducts innocent members of the public and demand huge amount of cash.it would be a nullity to expect victims to pay huge ransome as such cash is unavailable to anyone in the first instance.
4. Reduced risk of counterfeiting: the worsening shortage of clean bank notes with attendant negative perception of the CBN increased the risk of counterfeiting evidence by several security reports. So, the redesigning of the note reduced the risk of counterfeiting.
5. Reduced terrorism:terrorism was also be halted as access to the large volume of money outside the banking system used as a source for funds to pay ransom to bandits/terrorists.
Disadvantages
The CBN promised to protect Nigerians, especially those in rural areas, without bank accounts, to ensure they don’t suffer any loss in the proposed naira redesign. According to the bank it would “protect Nigerians in unbanked, undeserved and rural areas”.
a. The promise made by the CBN to protect those in the rural areas were not met, and lot of people were left to suffer after debiting their old notes in the banks.
b. The new notes was hard to get in the urban areas , not to talk of the rural areas.
c. The policy was not properly analysed before implementation, and the old naira has been reinforced after the damage the clamour for the new note has caused.
d. It has led to lost of lives of innocent citizens who suffered standing on queues, for the money that was claimed to be available.
e. It didn’t stop hoarding, because some unscrupulous politicians were seen with the same money poor civilians stood on queues morning and night for.
f. It was a total waste of money and property, because banks were burnt down by frustrated citizens and a huge some was spent on the redesigning of the note.
B. The CBN governor cited money hoarding, inflation and counterfeiting as major reasons for its decision to redesign the Naira note. The CBN claims that about N2.73 trillion of the N3.23 trillion Currency in circulation in Nigeria is outside the bank vaults. This is about 85 percent of the total money in circulation. Also, the Naira is not as secured as it ought to be, as it is easier to counterfeit the N500 and N1000 denominations. We should note that, money plays a crucial role in a country’s economy. It determines such things as the general price levels,aggregate national income, production and productivity, labour and capital employment levels, exchange rates and the balance of payments. The short-term impacts of the proposed exercise on the economy has been unsavoury, with the Naira slumping against foreign currency, especially the Naira deprecated further against dollar by exchanging for about N850-1$. This is unprecedented. The CBN claims that it is also redesigning the Naira, due to hoarding. This claim should be scrutinised because, currently, Naira-Dollar devaluation is so high CBN has to employ artificial valuation. Between 2021 and 2022, Naira has been devalued at least three times, and with the look of things, there is a likelihood of further devaluation, coupled with an increasing inflation rate, which means that the purchasing power of Naira is weakened. It makes little economic logic that a currency whose value is highly decreasing is being massively hoarded, as claimed by CBN. Those who have the capacity to hoard such huge amounts are the political class, and would also have had the capacity to convert it to Dollars. The conversion argument further makes the claim of the CBN Governor, that a redesign in currency will hamper ransom payment, not altogether convincing. Naira redesign in itself will not remedy rising inflation in this country, especially given the fact that this policy has no way to appreciate the value of Naira in the real sense. It could actually increase inflation, as those with loads of Naira unlawfully acquired could launder them through luxury purchases, or forex transactions that could inflate the economy.However, i am of the considered view that if there is no sabotage and the exercise is carried out patriotically in the long run, CBN will achieve the noble objective in the long run, CBN will achieve the noble objective of promoting equality or equilibrium in the the money market.
James Emejo, writes that the naira redesign and implementation of the cashless policy would plug fiscal leakages,boost government revenue, and aid the economic empowerment of vulnerable Nigerians as well as benefit the country as a whole.
* Currency redesign is aimed at reducing the counterfeit in that is in circulation.
* Currency redesign is also aimed at reducing the money in circulation.
*Merits of Naira Redesign*
A.strengthening of our macro economic parameters.
b. Reduction of broad money supply leading to a deceleration of the velocity of money in the economy which should result in less pressures on domestic prices.
c. Lowering of Inflation as a result of the accompanying decline in money supply.
d. Collapse of Illegal Economic Activities which would help to stem corruption and acquisition of money through illegal ways.
e. Exchange Rate stability; the helps stabilize the value of a county’s currency.
f. Availability of Easy Loans and lowering of interest rates; Account to central bank of Nigeria (CBN).
g. Greater visibility and transparency of our financial actions translating to efficient enforcement of our anti-money laundering legislations.
*Demerits of Naira Redesign*
This policy has some short comings which affects the SMEs. This cashless policy has crumbled a lot of businesses recently, because of inadequate planning.
Especially those who engage in daily cash transactions. Many people decluttered the prices of their goods way below the cost price, once you have cash to pay.
losses as many sold below their cost price.
*The cashless policy beyond the cash supply challenge is a digital banking infrastructure issue. Digital banking deals with everyday essentials, including checking balances, reviewing transactions, making payments and transferring funds, whether using USSD, banking apps or online/web-based systems. It is thus a sad commentary on the actual state of the nation’s digital financial infrastructure to see apps and servers collapse under the strain of increased traffic. It shows a lot still needs to be done to strengthen the system.
*Transactions are not completed; alerts fail to arrive and all sorts of strange messages occur for the first time.
*One more thing, the CBN must also look at removing ALL charges for online and POS transactions in the short term. It can later look at a reduced fee for these transactions as volume has risen.
*It gave fraudsters the opportunity to exploit people. They perform transactions and send you fake alert thereby making you release goods,at the end of the day you won’t get the money.
*The nexus between the naira redesign and money market equilibrium*
When CBN releases currency into circulation, it is meant to be used and after effluxion of time, it return to the CBN thereby keeping the volume of money in circulation under the firm control of the CBN.
Currency are redesigned to reduce and maintain the money in circulation.
Money market equilibrium occurs at the interest rate at which the quantity of money demanded equals the quantity of money supplied. All other things unchanged, a shift in money demand or supply will lead to a change in the equilibrium interest rate and therefore to changes in the level of real GDP and the price level.
The CBN of the country has the sole Authority of controlling the amount of money in circulation.
To my understanding the nexus between the naira redesign and money market equilibrium is the CBN because the are the ones that determines the volume of money in circulation, they also control the supply of money.
*will this lead to equilibrium*
The rate of interest, according to J.M Keynes is determined by demand for money (liquidity preference). The supply of money at a given time,is fixed by the monetary by the monetary authority of the country.
The money market is at equilibrium when the demand for money equals the supply of money.
MS=MD
Since the demand for money (liquidity preference) is determined by the interest rate. We can say that the money market is not in equilibrium, currently because of the high rate of interest involved.
For the money market to be at equilibrium the firms has to hold leas money at a higher interest rate
Name: Ogbonna Sandra Chinenye
Department: Economics
Reg Number: 2019/245659
Course code: Eco 303
The Central Bank of Nigeria (CBN) stated on October 26, 2022, that the redesigned 200, 500, and 1,000 naira notes would be introduced to the nation’s financial system. The objective of this policy initiative was to strengthen the security aspects of Nigerian money and to mark the nation’s 62nd anniversary of independence. Yet, since since the notes were released, Nigerians in all regions of the nation have had trouble getting access to them at banks and ATM cash points. I shall explore and evaluate the benefits and drawbacks of this policy effort adopted by the CBN in this article. I will also look at the relationship between the redesign of the naira, money market equilibrium, and how this new policy can help to foster that equilibrium.
Benefits and Drawbacks of Redesigning the Nigerian Naira:
Merits:
a:Increased Security: Enhancing security features is one of the main advantages of redesigning the Nigerian Naira. The new notes will make it more challenging for counterfeiters to create phony money, which will aid in lowering the prevalence of financial fraud in the nation.
b:Supports National Identity: The new Nigerian currency design includes pictures of famous Nigerian figures, places, and cultural objects, which aids in promoting the nation’s identity.
c:Improved International Recognition: By projecting the nation’s cultural richness and extensive history, the redesigned money would aid in enhancing Nigeria’s international recognition.
d:Lower Cost of Producing Money: Because the new notes will last longer than the old notes, the CBN will spend less money creating money.
Demerits:
a:High Cost of Implementation: Because new notes must be used to replace the old ones now in circulation, there will be a substantial cost associated with implementing this policy effort. It will be expensive to print new notes, upgrade cash registers, and ship the new notes to banks all around the nation.
b:Restricted Access to New Currency: Since the introduction of the new money, Nigerians have had difficulty accessing it. This is because ATM cash stations and banks do not currently stock a lot of the new notes. Nigerians who require the new currency have been inconvenienced and frustrated by this.
c:Potential Rise in Inflation: The adoption of the new currency raises the prospect of rising inflation. This is due to the possibility that the cost of printing and executing the new notes may result in an expansion of the money supply and inflation.
Nexus Between Naira Redesign, Money Market Equilibrium, and Promotion of Equilibrium in the Money Market:
a:Short-term financial securities including Treasury bills, commercial papers, and certificates of deposit are exchanged on the money market. The following ways the new currency’s introduction may affect the stability of the money market:
b:New currency notes could result in an increase in the amount of money in circulation, which would likely result in a drop in interest rates. This might result in more borrowing and investing, which might help maintain the money market’s equilibrium.
c: Increased Demand for New Currency: The issuance of new money may result in an increase in consumer demand, which could raise the currency’s value. This would result in a drop in inflation, which might help the money market reach equilibrium.
d:Reduced Money Velocity: The introduction of new currency notes could result in a reduced money velocity. This is due to the fact that people frequently save new currency notes as a store of value. This would cause people to spend less, which would be bad for the money market’s stability.
In conclusion, there are advantages and disadvantages to the CBN’s introduction of the new currency notes.The impact of currency redesign on the money market depends on a variety of factors, including the implementation of the redesign, the public’s reaction to the new currency, and the economic and political conditions in the country.
Innocent Love Ihunanya
2019/251037
Economics Department
On 26 October,2022, Central Bank of Nigeria (CBN) announced the introduction of redesigned #200,#500 and #1000 bank notes and to be in circulation from 15 December,2022, making the old banknotes not a legal tender as of January 31st,2023. The CBN governor, Godwin Emefiele had said that redesign was due to the request from the federal government. According to Mr Godwin Emefiele, the policy will give the CBN control over naira circulation,manage inflation, fight the use of counterfeit and ransom payment.
But since the unveiling of redesiocent Love Ihunanya.
gned banknotes, Nigerians have been struggling to access it from banks. In fact,it is said that Nigerians use naira to buy naira due to the high scarcity of it.
There have been back and forth between the judiciary, the federal government and the CBN about the deadline of the old notes as a legal tender. While, the CBN insist on the two month’ notice, the government and the court (judiciary) also insisting on extension (no particular date fix yet).
The Senate House Speaker,Femi Gbajabiamila had advised the CBN that even when the policy is at its full effect, the apex bank should allow the use of old banknotes at the same time until it completely phased out but it fell on deaf ears.
The demerit of it is that, since the unveiling of the new notes, Nigerians have been struggling to get it, resulting to hardship. People now buy naira with naira.
The policy was meant fight inflation,but it seems like it is not. Inflation is increasing as most business owners who are mostly old women don’t know anything about cashless especially in rural areas, therefore, increasing inflation as people who are into cashless charge more than the price of the goods.
But despite the hardship it has put Nigerians into and the complains of how hard it is to access it, the redesign policy has merits
Reduce Counterfeiting: According to Mr Godwin Emefiele,as of September 2022, a total of #3.2 trillion was in circulation of which#2.73 trillion outside the vaults of the bank . The business of counterfeiting money is as old as man. Counterfeiting contribute to the reduction in the value of money and increase inflation due to more money getting cirlpC@culated in the economy. The naira redesigned is meant to make the counterfeit useless.
Security: Nigeria have been experiencing high rate of kidnapping, robbery and terrorism. The redesign policy is to reduce insecurities since the old banknotes will soon be no legal tender, people are meant to deposite then in the bank and at such process, people with huge money are to answer questions on how they got such money. And since the new naira is scarce, most people are now into cashless, this actually help the government to monitor the flow of money.
Control Money Supply: The major thing the redesign policy does is to help the apex bank and federal government control the circulation of money in the economy. To much money in circulation tends to increase inflation. The redesigning helps to take-in more than half money in circulation and as such help reduce inflation. According to the CBN, the policy has sucked in about #1.81 trillion while crashing currency-in-circulation to #1.4 trillion in January,2023.
I think if the CBN should follow the due process, then, they are going to achieve their goals.
The policy will not promote equilibrium in the money market . In the short run, people are still struggling to get the money, this actually does not balance the money market. In the long run, people are now getting used to the money, they have access to it but not yet in equilibrium.
Name: OFFOR UGOCHUKWU IKENNA
REG NO:2019/245050
The advantages of the policy initiated by the Central bank of Nigeria include: Effective monetary policy, the central bank will be able to control the amount of money in circulation, curbing political theft and thuggery, money laundering would be discouraged as a result of keen censoring, the technological sector would improve based on the cashless transactions. It would also beautify the currency as our old notes are damaged and dirty. Even though there are benefits, the demerits are heart wrenching as illiterates who have no formal education are cash strapped because of lack of information, no access to android phones or smartphones and having no bank account. The ATMs are not dispensing cash which is really affecting small scale businesses. Network is really bad in Nigeria as people find it hard to transfer using the USSD code. Banks are claiming not to be in possession of these new notes and this is causing hunger, anger and violence in the country. For me personally, the timing of this policy was really bad considering the economic condition of Nigeria. Even if they wanted to implement this policy, they should have given a larger deadline so that the transition would be smooth.
Concerning the relation between the Naira redesign and the money market equilibrium, the Central bank is able to control inflation in the country. As the cashless policy is in place, less cash holding reduces currency outside banks and retard money circulation, which would decline money supply and slow the pace of inflation. The New naira notes would help CBN to control money supply in the country. They do this using interest rates to control the amount of money in circulation. In the shortrun, CBN can achieve this using monetary policy.
NAME: DIKE JOHN CHUKWUDOZIE
REG NO: 2018/241837
COURSE: ECO 303
DEPARTMENT:ECONOMICS MAJOR
1. After the Central Bank of Nigeria’s Naira Redesign Policy was implemented in October 26th, 2022. We will critically discuss the merits and demerits of this initiative by the CBN. The following are a few of the policy’s advantages:
(i) Cutting back on overall money supply: Currency redesigns that are successfully implemented lead to a decrease in the money supply. By reducing the value of money in circulation and slowing the velocity of money in the economy, this will relieve pressure on domestic prices.
(ii) Decrease Inflation: It is frequently expected that the policy will lead to market deflation as less money is circulated and stored outside of banks. So, the parallel decline in the money supply will slow the rate of inflation.
(iii) Reduction in illegal economic activity: Those who have made money illegally could be reluctant to declare it because they risk facing legal action from the Income Tax Department if their income is determined to be legal.
(iv) Straightforward Loans: Borrowing will be less complicated, and interest rates may decrease. Banks will provide more loans as a result of having more money, increasing the amount of money in circulation.
Having spoken about the advantages of the Naira Redesign Policy, it is important to also talk about its disadvantages. Some disadvantages of the policy’s adoption are listed below:
(I)logistical challenge: Since Nigeria borrows to make up for budgetary shortfalls, the logistics of such printing provide a challenge. Also, to navigate the 774 municipal administrations, some of which lack any financial services.
(ii) Keeping an eye on election spending: Some people think that the CBN’s plan to reduce election spending by redesigning the naira notes can only be successful if the new notes are created in a limited number.
(iii) Banking halls will be crowded: There will be a lot of people waiting in long lines. It will generate a tremendous inconveniences for the public. Since most local government regions lack banks, the elderly and unbanked might not be able to manage.
(iv) Factor involving rural residents: Rural residents who live far from banking facilities worry that replacing their old notes and initially obtaining the new ones will be challenging.
(v) The persistent inflation concern: As there are other major factors that contribute to inflation, such as the Currency crisis, which the new measure may exacerbate, and the effects of the security situation on food price inflation.
(2) The supply of money and the demand for money make up the money market equilibrium. Money supply is an exogenous (fixed) policy variable, in this case the Naira Redesign policy, which is determined by the central bank. The desire for money is endogenous (it is not fixed), and the demand for money is determined by the interest rate. The Naira Redesign Policy is the exogenous policy variable that the CBN selects to govern money supply, which is the nexus between the policy and the money market equilibrium. This suggests that the Naira Redesign programme is intended to reintroduce out-of-circulation currency into the country’s financial system via the CBN. People will hold less money as a result, which will boost the demand for money and raise interest rates. As a result, the money market will reach equilibrium as the demand for and supply of money balance each other out.
Will the Naira Redesign Policy lead to a state of equilibrium in the money market? is a related query. Of course, and here are my justifications:
Because the naira redesign policy is primarily designed to recover the majority of the money in circulation and the out-of-circulation amounts, there would be less currency flowing in the economy. The demand for money will rise as a result, which will raise the interest rates paid to lend money. According to the liquidity preference theory, an increase in the supply of money will result in an increase in interest rates. This theory is used to explain why there is equilibrium in the money market. This is fairly visible at the moment, as consumers pay POS agents astronomical interest rates in order to obtain small amounts of cash. If this keeps happening, the money market will eventually return to equilibrium. If there is a change, the CBN may use a different policy variable in the future to raise the amount of money in circulation and restore equilibrium to the money market.
UGWU ONYINYECHI
2019/242302
SOCIAL SCIENCE EDUCATION(ECONOMICS)
ASSIGNMENT on Eco 303
Number one
The new notes was released to the public on December 15th, 2022 and Nigerians had up till January 31th, 2023 when the old notes will cease to be legal tender. This announcement has decided opinions among many Nigerians and for good reasons, this move is likely to have a positive effect on the country’s general election, at the same time, the price tag for this redesign will be staggering for a country like Nigeria that needs to make sure every Penny it is spending is well optimised.
Announcing that everyone will have to make a change in such a short period will surely cause some ripple effects and have some unintended consequences.
MERITS OF THE POLICY ADOPTED BY CBN
1. Positive effect on the general election
The biggest merit of redesigning the naira notes this Close to the general elections is perhaps the fact that it might disrupt vote buying. In Nigeria’s election, votes usually goes to the highest bidder, politicians who have been hoarding money to buy votes will find it more difficult as they will not be able to have access to large amount of cash without declaring what they intend to use it for. Furthermore, those who already hoard cash at home will not be able to deposit the money at bank without answering where they got the money from.
2. Might have a positive effect on inflation
One thing that will be visible in bank branches over the next couple of weeks will be the fact that lots of individuals and businesses will be depositing high volume of cash. This will give the banks more money to give out as loans. If individuals and businesses can access loans a little easier, it will boost economic activities that will create wealth and reduce inflation.
3. Effect on crime
One thing criminals like kidnappers, armed robbers and drug dealers cannot do is to open a bank account or have any sort of transaction that can be traced. These criminals rely on cash only and with the old notes becoming obsolete by January 31, this means they have a very short time window to launder all the cash in their possession. Some might out of desperation decide to walk into a legitimate financial institution to exchange their cash, the authorities should be waiting for them when they do so.
4. Better adoption of digital payment
If the naira becomes obsolete, some businesses will begin to demand that customers pay them through pos, bank transfer or other digital means. This will be good for the economy because it will lead to more efficient bookkeeping and bettax collection by the government.
DEMERITS
1. High cost
Nigeria is broke,the cost of redesigning and printing trillions of naira that will go into circulation will be staggering. But it might be worth it in the long run if the government does it efficiently.
2. Might further crash the naria against dollar
Naira has fallen by over #190/$1 to date from an average of #565/$1 recorded as of 31th December 2021, currently tradias high as #760/$1 and still raising. This fall might be exacerbated over the next few weeks if those who have hoard the naira decided to buy dollars with their money. Too much naira chasing a few supplies of dollars will crash the exchange rate at the black market.
3. Overcrowding at the bank
Visiting any bank branch these few weeks is sure to be an unpleasant experience. Lots of people will be out to make cash deposit of the old notes before January 31 deadline, which will led to massive crowds at the banks.
Number two
There is no relationship between the naira redesign and money Market equilibrium. An equilibrium in the money Market holds when the money demanded equals money supplied. One reason people hold their assets as money is so that they can purchase goods and services. The money held for the purchase of goods and services maybe for everyday transaction such as buying groceries or paying for rent or it maybe kept on hand for contingencies such as having funds available to repair a car, pay for petrol or pay for a trip to the doctors.
As it stands now in the country, the amount of money demanded for the redesign naira is not equal to the amount supplied.
Number three
This new policy will not promote equilibrium in the money market because the quantity money people hold to pay for transaction and to satisfy precautionary and speculative demand will reduce because of the redesign naira scarcity.
NAME:EKE EJIEKE KALU
REG NO: 2019/244150
LEVEL: 300 LEVEL
DEPARTMENT:ECONOMICS
1. After the Naira Redesign policy was put into effect by the Nigerian central bank on October 26th, 2022. We will discuss the benefits and drawbacks of the Nigerian central bank’s initiative. In the sentences that follow, we will talk about a few of the initiative’s advantages first.
The ransom money, which has not yet made it into the financial system, is expected to be hauled out and exchanged for the new-looking notes. While many people who could not explain where their money came from may find themselves in legal trouble, this might also lead to criminal identification and potential prosecution.
Also, politicians may find it challenging to exchange their notes into the new naira, which would obstruct some of their objectives. Furthermore, politicians who have saved money to buy votes in the approaching election may encounter similar difficulties.
Another way to look at it is the policy’s positive effect on the country’s crime rate. Currently, Nigeria is coping with terrorism, banditry, and the payment of billions of naira in ransom to kidnappers.
According to many who have suggested that the new measure could restore confidence in the local currency, the majority of the naira notes that politicians, criminals, and other illegal actors have stored away would be returned to the banking system, aiding the CBN in monitoring the currency in the economy.
The majority of the worn-out naira notes that were previously circulated are also expected to be eliminated by the new notes, which is expected to put an end to counterfeiting for a few years.
After going over the benefits of the Naira Redesign Policy, it is important to also talk about its shortcomings, some of which are covered below.
Having learned from a previous similar occurrence that occurred 39 years ago, the economy will undoubtedly be affected by the currency transition because many small-time traders and merchants will begin rejecting the old notes before the policy is put into effect.
If naira notes for transactions become scarce, the price of food and other goods will rise, and many people may go hungry because they are unable to obtain new naira to make essential purchases.
People will be dashing to exchange their old currency for new notes in the banking hall, which will put strain on the institutions’ limited ability to process currency.
The CBN and the commercial banks would both encounter logistical difficulties when distributing the new notes throughout the nation due to the rise in banditry and terrorism. In addition, the massive demand for the new notes would compromise bank security because of the possibility that criminals would utilise the transition to further their unlawful activities.
There is a chance that forgers will use the delay in delivery to circulate their own notes in some regions of the nation, which may not be adequately covered by the press surrounding the new notes.
2. The money supply and the money demand make up the money market equilibrium. In this instance, the Naira Redesign policy is an exogenous (fixed) policy variable that is determined by the central bank. The desire for money is endogenous, which means that it is not fixed and is affected by the interest rate. To control the money supply, which serves as the link between the policy and the equilibrium of the money market, the CBN selects the Naira Redesign Policy as the exogenous policy variable. This demonstrates that the Naira Redesign program’s objective is to use the CBN to restore currency into the country’s financial system after it has been out of circulation. People will therefore keep less cash on hand, which will increase the demand for cash and raise interest rates.
Will the money market equilibrium be brought about by the Naira Redesign Policy? is an important query. Of course, and these are the reasons I believe it would:
The naira redesign policy is largely meant to recover the majority of the money in circulation and the out-of-circulation amounts, thus there would also be less money circulating through the economy. Loan interest rates will rise as a result of the increased demand for cash. According to the liquidity preference theory, interest rates will increase along with an increase in the money supply. This theory is put up to explain why there is equilibrium in the money market. Customers presently have to pay POS agents high interest rates in order to obtain modest quantities of cash, which makes this fairly evident. If this condition continues, the money market will finally attain equilibrium.
Also,the CBN established the Naira Redesign Policy as an exogenous (fixed) policy variable to manage the money supply. Prior to its start, there were 3.23 trillion in circulation overall, of which 500 billion were in use and 2.7 trillion were not. The policy has resulted in 2.1 trillion being recovered, leaving 900 billion uncollected. This demonstrates how the policy is bringing the money market back to balance.
NAME: MBAH JULIET EZINNE
REG NO: 2019/241713
DEPARTMENT: EDUCATION AND ECONOMIC
COURSE: MACRO ECONOMIC
ASSIGNMENT
On 26th October, 2022, Nigeria CBN announced about the redesigned of another new naira note which includes; 200, 500, 1000 which was not in circulation till around January time in which it was given deadline of the used of the old naira note for the used of new naira note to circulate and the deadline was on January 31st, 2023, but later extended to February 10th .
These issues of New and Old naira note really affect the masses due to the new naira note is not in circulation and old naira note is in circulation in which you will go to the bank to withdraw money based on that you will b given a new naira note but you will end up withdrawing the same old naira note.
This made that there are too much queue in the bank. The bank complained heavily about the CBN not circulating the new money and sometimes the one given to the are been sold which made the POS operatos to increase their charges because due to there is no money in the ATM unless you want to do transfer or check balance even the transfer was not an easy something to do because so many people are doing transfer which made the service low.
So therefore, based on this; the merits of these is that, it makes the politicians to bring out their hidden money, because some of them have hidden a lot of money due to upcoming election or campaign. It makes people to learn how to economizing things for does that live extravagant lives. It makes some people to learn new system of life by being expose to technology because it made them to learn how to do transfer of money with their phone and also have a bank account for those doing business and other things.
The demerit aspect of it is that, it makes people’s business to go down due to transfer and classless issues. It makes the poor masses to find it difficult in feeding. It also makes goods and services to increase and also scarcity of fuel as well. To withdraw your own money which is the bank is hard for the masses because someone of went to the bank to collect money but end up not collecting any because of too much of queue in the bank, some also sleep in bank side in order to withdraw money the next day. Some people even fall sick at the process and died due to money scarcity in which some hospital refused to accept transfer.
Therefore; based on the situation now, CBN said that the masses are free to use the old naira note till December 31st, 2023 but the Business men and women refused to accept due to they don’t know what will be the outcome of it unless the president in person ( Muhammadu buhari ) said it with his mouth, then they can collect it.
We this some people are requesting for a POS machine to help out in the market equilibrium. In this situation have made the market equilibrium not to be equal because of the cashless issues that is on board.
1.Discuss and analyse the merit and demerit of naira redesign policy by CBN
Merits:
1. It reduces underground or illicit economy:it reduces the amount of cash in underground or illicit Economy. The underground economy refers to economic transactions that are deemed illegal, either because the goods or services traded are unlawful in nature, or because transactions fail to comply with governmental reporting requirements. Statistics had shown that over 80 per cent of the currency in circulation were outside commercial banks’ vaults, which was fuelling illicit financial flow within the nigeria economy. The most immediate impact of illicit financial flows (IFFs) is a reduction in domestic expenditure and investment, both public and private. This means fewer hospitals and schools, fewer police officers on the street, fewer roads and bridges. It also means fewer jobs. So with the naira redesign money are returned back to the bank and there will be few flow of cash which will help prevent illicit cash flow.
2.Improved Security Features: The redesigned naira is expected to have better security features that would make it harder to counterfeit. Money which plays much crucial roles in a country’s economy such as general price
level, labor and productivity, aggregate national income, balance of payment and
exchange rates, redesigning the currencies will curb intense money counterfeiting by reintensifying its security measures.It will bring about a total decrease in the circulation of fake notes which could undermine the economy.
Demerits:
1.Cost Implications : The redesign policy could be expensive for the CBN, which would have to invest in new technology, materials, and equipment to print and distribute the new notes. This could lead to a strain on the government’s finances. The cost implication of this exercise is the fact that the country is borrowing for over
60% of government expenditure, of where the redesign will be funded, it should be of
high priority to the CBN that by printing of more money not supported with high value
or increased purchasing power is fuelling more inflationary pressure. This borrowing would have been used to bring about more to human capital development for the country which would have led to economic growth of nigeria but is been used for naira redesign, with this underdevelopment is been encouraged.
2.Inflationary Pressure: The redesign policy could put pressure on inflation, especially if the CBN decides to introduce new denominations of the naira. This could lead to a rise in the cost of goods and services, which would affect the purchasing power of Nigerians. The borrowing for the redesign of naira account to over 60% of government expenditure which is not supported with high purchasing power causes inflation
3.Public Acceptance: The redesign policy may face resistance from the public, who may find it difficult to adapt to the new notes.A significant hoarding of banknotes by members of the public, worsening shortage of clean and fit banknotes like some illiterate or old age citizen who prefer to save their money in their houses won’t find it easy and politicians who have stolen public money and his them in their houses etc for the upcoming election etc will not find it easy to accept because it is stressful to change the money in the bank. This could slow down the circulation of the new notes and undermine the objectives of the policy.
2.What is the nexus between naira redesign money market equilibrium
The nexus between naira redesign, money market, and equilibrium is related to the impact that redesigning the naira currency can have on the money market and the overall economic equilibrium in Nigeria.
The naira redesign refers to the process of changing the design of the Nigerian currency, which can include changes to its appearance, security features, and denomination. Redesigning the currency can have an impact on the money market by influencing the demand and supply of money.
Money market equilibrium is achieved when the demand for money equals the supply of money, which determines the interest rates. When the redesign of the naira currency leads to changes in the demand for money, it can shift the equilibrium in the money market.
For instance, if the redesign increases the demand for naira currency, it can lead to an increase in its value and a decrease in interest rates. Conversely, if the redesign decreases the demand for naira currency, it can lead to a decrease in its value and an increase in interest rates.
3. Yes it will
Equilibrium in the money market occurs when the money demand equals the money supply. At that point, the equilibrium interest rate is formed. For the equilibrium interest rate to change, either the money supply curve or the money demand curve should shift. Before the the money market was not at its equilibrium because we had more money supplied than its been demanded for. That is we had more money in circulation than in the banks. Excess withdrawal of money by politicians and illicit hoarding of money by individuals. The legal imposition of the redesign of naira has made many nigerians hoarding money to return them back to the bank,in return for new currency, which will cause the demand for money to shift and will bring about the supply and the demand for money to be at it equilibrium in the money market
GABRIELS SHARON CHISOM
2019/241572
ECONOMICS
The Naira redesign policy and money equilibrium are two separate economic concepts, but they can have an impact on each other.
Money equilibrium refers to the state of balance between the money supply and demand in an economy. In simple terms, it means that the amount of money in circulation is in line with the amount of goods and services being produced and exchanged in the economy. When there is too much money in circulation, inflation can occur, while too little money can lead to deflation.
The redesign policy of the Naira can potentially impact money equilibrium in a few ways. Firstly, if the cost of redesigning the banknotes is high, it could lead to an increase in the money supply, as the Central Bank of Nigeria may need to print more money to cover the costs. This could potentially lead to inflation if the increased money supply is not met by an increase in goods and services in the economy.
On the other hand, if the redesign policy is successful in improving the security and durability of the banknotes, it could lead to an increase in demand for the Naira, as people would have more confidence in the currency. This could potentially increase the value of the Naira and improve money equilibrium by reducing the risk of inflation.
As I mentioned earlier, if the redesign policy leads to an increase in the money supply, it could potentially result in inflation. This is because an increase in the money supply without a corresponding increase in goods and services could lead to a decrease in the value of the Naira. Inflation can occur when there is too much money chasing too few goods, leading to an increase in the prices of goods and services.
However, it is important to note that the Central Bank of Nigeria has a mandate to control inflation and maintain price stability. Therefore, it is unlikely that the redesign policy would lead to a significant increase in the money supply that could trigger inflation. The Central Bank would likely take measures such as tightening monetary policy or increasing interest rates to manage the money supply and control inflation if necessary.
On the other hand, if the redesign policy is successful in improving the security and durability of the Naira, it could lead to an increase in demand for the currency. This could result in an appreciation of the Naira and improve money equilibrium by reducing the risk of inflation.
Furthermore, an improvement in the security and durability of the Naira could also enhance its acceptability in international markets, which could increase demand for the currency from foreign investors. This, in turn, could lead to an increase in foreign exchange reserves, which could boost the value of the Naira and further improve money equilibrium.
In conclusion, the Naira redesign policy has the potential to impact money equilibrium in various ways, depending on the success of the policy and the measures taken by the Central Bank of Nigeria to manage the money supply. However, if the policy is successful in improving the security and acceptability of the Naira, it could lead to an appreciation of the currency and enhance money equilibrium.
Name: Otutu Chisom Judith
Reg no: 2019/242963
Department: Economics
Course: ECO 303
ANSWERS
The governor of the Central Bank of Nigeria, Mr. Godwin Emefiele on October 26th, 2022 announced policy initiatives to redesign the #200,#500 and #1000 denominations and subsequently introduced the cash withdrawal limits to regulate the movements of cash in the system as well as solve other challenges including currency counterfeiting. He said the move was aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports and also curtailing the significant hoarding of naira notes by members of the public.
However, considering the timingof the policies and being an election year, some Nigerians believed that the apex bank’s move was targeted against certain individuals.
Now, let’s look at the merits of redesigned cash policy initiative
*According to Emefiele, the Central Bank principal objective for the currency redesign initiative was to make our monetary policy decisions more efficacious
*Available data at the CBN showed that in 2015, currency-in-circulation was only 1.4trillion. As of October 2022, it had risen to 3.23 trillion out of which only #500billion was within the banking system and 27trillion was held permanently in people’s homes.
Ordinarily, when CBN releases currency into circulation, it is meant to be used and after effluxion of time, it returns to the CBN thereby keeping the volume of money in circulation under the firmhold of the CBN. Since the commencement of the programme, the CBN has collected about #2.1trillion leaving us with about #900billion. In essence, the currency redesign policy has helped to mop up monies outside the banking system that has often contributed to rising inflation
*Currency redesign policy are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties
*This policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behavior.
The demerits are:
*The government is struggling with a huge debt deficit and would likely borrow massively to fund the naira redesigning
*The redesigning policy will trigger economic dislocation especially considering the short time frame and rush by the people to the banks to dispose old notes
*Rural dwellers who live far from where banking services are available would experience hardship depositing the old notes as well as obtaining new notes
*There will be lots of long queues in the banking hall and it’s going to create lots of inconveniences for the people.
2)Money market equilibrium occurs at the interest rate at which the quantity of money demanded equals the quantity of money supplied. All other things unchanged, a shift in money demand or supply will lead to a change in the equilibrium interest rate and therefore to changes in the level of real GDP and the price level. The money market is the interaction among institutions through which money is supplied to individuals, firms, and other institutions that demand money. Money market equilibrium occurs at the interest rate at which the quantity of money demanded is equal to the quantity of money supplied. For the money market to be in equilibrium, the quantity of money demanded has to be equal to the quantity of money supplied.
The nexus between the naira redesign policy and the money market equilibrium is the money supply. That is, money supply connects the redesign policy and the money market equilibrium
3)The naira redesign policy was introduced to curtail the money in circulation since more than half of the money in circulation ttwere being kept/hidden by the individuals. Because of this redesign policy, people would have to deposit the hidden money into the bank, which will enable the CBN have firm hold over the money in circulation which will in turn promote equilibrium in the money market
Name: ASOGWA IJEOMA AGATHA
Reg no: 2019/251105
Department: ECONOMICS
Course title: INTERMEDIATE MACROECONOMIC THEORY 1
Course code: ECO 303
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500, 1000 naira note into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to-
1. Discuss and analyze the merits and demerits of this policy initiative adopted by the CBN.
2. Secondly what is the nexus between Naira redesign and money market equilibrium?
Will this policy promote equilibrium in the money market? Discuss this comprehensively
ANSWER
1.
Nigeria’s financial system generally has a rich history of monetary reforms and currency withdrawal/redesigning has occurred at different times in the country’s history. Different redesign events have occurred over the years since independence. In 2022 the Central Bank of Nigeria (CBN) issued a statement that it has concluded plans to redesign the Naira.
Purported merits of this policy as cited by the CBN include tackling rising inflation, combating money hoarding, strengthening the macroeconomic parameters and equally combating social improprieties, reducing currency outside banks vault, increasing financial inclusion by banking the unbanked population and supporting the efforts of our security agencies in combating banditry and ransom taking in Nigeria. The CBN governor also claims that about N2.73 trillion of the N3.23 trillion currency in circulation in Nigeria, is outside the bank vaults.
However, the policy has elicited serious debate across different parts of the country. Many people accuse the policy of being a mismatch to current economic realities on ground such as severe inflation and high rate of unemployment and underemployment. As such, it is just a distraction in the midst of serious ravaging economic issues and carries no significant economic benefits for the average Nigerian.
The policy has also been criticized for its bad timing. According to the daily newspaper published by Business Day, the timing subverts the naira redesign policy’s good intentions and inflicts hardship on the people. The cash scarcity associated with the currency redesign policy has motivated a slowdown in economic growth as many productive activities have been halted due to the inability to access cash. “The plummeting of productivity has implications for GDP and a domino effect on other economic indices.”
Other negative implications of the policy include restrain local trade and regional trade, constrain the informal sector’s trust in the financial system and erosion of investment confidence.
2
Money market equilibrium is a situation where demand for real money balances equates the supply for real money balances. It consist of the money demand, which refers to the aggregate demand for money, and money supply, which is the overall supply of money in the economy. The interest rate influence’s the interaction between money supply and money demand in the economy a d the quantity of money demanded by institutions and individuals.
Equilibrium in the money market occurs when the money demand equals the money supply. There is a relationship between the redesign of Naira and the money market equilibrium, because naira redesign is a contractionary monetary policy. The aim of the CBN is to bring money market equilibrium in the economy and ensure stability in the general price level of the economy.
Central banks are charged with the responsibility of ensuring the stability of the general price level through monetary policy. This is achieved by Censuring sustainable levels of money supply and indirectly, money demand. In a bid to ensure the stability of prices, central banks employ policies, which work through the action of several tools of monetary policy. These include the use of open market operations, bank reserve requirements, and non conventional monetary policies. Although there is a relationship between money market and naira redesign there has not been any positive or visible effect of the policy on the money market. Also there has not been any equilibrium because there is no stability in general price level of goods and the amount of money demanded do not equal the amount the commercial banks supply to the public.
The policy was implemented during a period when Nigeria is facing some socio economic crisis and global backwardness, she is experiencing budget deficit, effect of the fall of oil price domestically she faces all sort of attacks, making the policy not so necessary at this point. The economy of Nigeria is fragile making any policy which is not properly implemented will have an adverse effect even if the policy is good as in the case of Nigeria and the current financial policy.
The policy in some way have affected sales negatively, some sellers still practice cash based sales policy they have no bank account to run their business transaction, simultaneously production is affected negatively, appropriate consideration were not given as regards the economic situation of the country before the policy was enacted, the policy makers only looked at the narrow picture without looking at the macro effect of the policy. The economy of Nigeria is currently in stagnation until considerable changes are made the economy will not grow and money market will not be at equilibrium.
Edwin-Ugodu Stephen Chidi
2019/251264
Intermediate Macroeconomics 1
ECONOMIC 303
Assignment:
Answers,
Firstly, giving a good perspective to the merits and the demerits of the currency redesigning policy by CBN, the following were noted:
MERIT:
1. Many people have suggested that the new measure could restore confidence in the local currency as the bulk of the naira note stacked away by politicians, criminals and other illegal operators would be returned to the banking system, helping the CBN to monitor the currency in the economy. It is also expected that with the new notes, most tattered naira notes currency pushed into the system would be eliminated while counterfeiters would be refrained for a couple of years in carrying their illicit business.
2. Another angle to look at the measure is the positive effect it will have on crime in the country. Currently, Nigeria is having challenges with terrorists and banditry across the country with money being paid to kidnappers as ransom running to billions of naira. It is expected that the ransom money that is yet to find its way into the banking system would be brought out to be exchanged for the newly redesigned notes. This could also lead to crime detection and probable prosecution as many who could not explain the sources of their wealth may find themselves in trouble with law enforcement agencies.
3. Also, politicians who have stacked away money for the purpose of vote buying during the forthcoming election may have a difficult time changing their notes into the new naira while bringing such money back to the system could upset some of their plans.
Other merits include:
4. Statistics had shown that over 80 per cent of the currency in circulation were outside commercial banks’ vaults, which was fuelling illicit financial flow within the economy: a significant hoarding of banknotes by members of the public, worsening shortage of clean and fit banknotes and increasing cases and risk of counterfeiting informed the decision.
“The CBN obviously wants to force all those notes back into the banking system. Those with the notes must surrender them to get new ones or else it becomes illegal tender after Jan. 31 2023. “This is also a way to withdraw currency from circulation, an unorthodox way of tightening the money supply since the country is battling high inflation.
“The flip side is that people who are holding huge amounts of cash outside the banking system for nefarious reasons will go to the parallel forex market to buy hard currency, putting further downward pressure on the value of the Naira as too much Naira will be chasing too few dollars.” Checkmating electioneering spending: A 90-day window will have been better, but one can understand the need to avoid interfering with the elections.
DEMERIT
1. The huge cost of printing the new note could run to trillions of naira, which the economy may be least prepared for with the current state of the economy, the state of the nation’s foreign reserves since the currency is expected to be printed abroad and the implications for the balance sheet of the central bank.
2. Learning from the previous similar occurrence 38 years ago, the economy will surely be upset by the change in the currency as many merchants and petty traders would start rejecting the old notes ahead of the implementation of the policy on December 15. The cost of food and other items will shoot up as the naira notes for transactions will become scarce while many people may go hungry because they could not get new naira to make necessary purchases.
3. The banking hall will be jam-packed with people scrambling to exchange their old currency for new notes, putting pressure on the lean capacity of the banks to process currency.
4. Armed robbery could escalate with criminals targeting bullion vans to be used in the distributions of the new notes in some rural areas in a bid to minimize their losses on the old naira notes stacked away previously in order to evade the law.
5. Both the CBN and the banks will face logistic challenges in the distribution of the new notes across the country with the rate of crime in form of banditry and terrorism across the country escalating. Also, security around the banks would be threatened because of the huge demand for the new notes as criminals could also take advantage of the change-over to commit their illicit trade.
6. There is the possibility that counterfeiters may take advantage of the lag in distribution to circulate their own notes in some parts of the country, which may not be effectively covered by the publicity around the new notes.
Other demerits include:
7. Logistics challenge: The challenge of logistics of such printing due to the fact that Nigeria is borrowing to fund the budget deficits. In addition, to navigate the 774 local governments when some of them don’t have banking halls present in the local governments.
8. Checkmating electioneering spending: CBN dream of checkmating electioneering spending by redesigning the naira notes could only be achieved if the new notes were limited in supply, a task he considered would be quite tall for the apex bank.
9. Overcrowding in the banking halls: There will be lots of long queues in the banking hall. It’s going to create lots of inconveniences for the people. The unbanked and the elderly may not be able to cope since we don’t have banks in most local government areas
10. Rural dwellers factor: It is feared that rural dwellers who live far from where banking services are available would experience hardship dumping the old notes, as well as, initially, obtaining the new ones. Fear of persistent inflation: the step would solve inflation, “because there also are other major reasons for inflation such as the forex crisis, which this new move can exacerbate, as well as the impact of the security crisis on food price inflation.”
CONCLUSION
It’s imperative that the CBN should embark on massive public enlightenment across the country to sensitize Nigerians to the new measure and its implications for their daily lives. There are millions of Nigerians living in rural areas who may never get to know about the new development while criminals may also likely exploit such ignorance to deprive them of their hard-earned money. The CBN should also come clean on the cost implications of the new measure to the economy and ensure that it tightens up all loopholes that may impact negatively on the implementation of the new policy.
Also, security agencies such as the Economic and Financial Crime Commission (EFCC), the Nigerian Financial Intelligence Unit (NFIU) and other relevant security agencies should ensure that ill-gotten money is traced and the criminals are punished for their maleficence against the collective interest of the Nigerians. The regulatory bank should also work hard to ensure that its currency management team is properly scrutinized to ensure that they do not compromise the security and efficiency of the new process.
Secondly, before understanding the nexus between the Naira redesigning and the money market equilibrium, what is money market equilibrium?
Money market equilibrium occurs at the interest rate at which the quantity of money demanded equals the quantity of money supplied. All other things unchanged, a shift in money demand or supply will lead to a change in the equilibrium interest rate and therefore to changes in the level of real GDP and the price level.
The recent currency redesigning policy of the Apex bank has altered the initial interactions between demand and supply of money in the economy, as supply can not match up with the panic demand for money, thereby causing a negative impact on the money market equilibrium.
Lastly, the policy can only promote equilibrium in the long run; if not, its impact on the money market would cause a disequilibrium because the supply of money is in shortage compared to the demand for it. Which has resulted to high interest rate in the market.
REFERENCES
Central Bank of Nigeria, CBN Circular on Project CURE, http://www.cenbank.org.ng
Chukwu, D.O. (2022), ‘Trends and Changes in the Nigerian Currency System, Colonial Period – 2022
https://www.thisdaylive.com/index.php/2022/10/31/benefits-of-planned-naira-redesign/
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Peter Lawson
Peter Hezekiah Lawson (Sir Pee). The CEO of onlineproject.com.ng.
https://open.lib.umn.edu/principleseconomics/chapter/25-2-demand-supply-and-equilibrium-in-the-money-market/#:~:text=Money%20market%20equilibrium%20occurs%20at,GDP%20and%20the%20price%20level.
Name: ASOGWA IJEOMA AGATHA
Reg no: 2019/251105
Department: ECONOMICS
Course title: INTERMEDIATE MACROECONOMIC THEORY 1
Course code: ECO 303
ASSIGNMENT
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500, 1000 naira note into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to-
1. Discuss and analyze the merits and demerits of this policy initiative adopted by the CBN.
2. Secondly what is the nexus between Naira redesign and money market equilibrium?
Will this policy promote equilibrium in the money market? Discuss this comprehensively.
1.
Nigeria’s financial system generally has a rich history of monetary reforms and currency withdrawal/redesigning has occurred at different times in the country’s history. Different redesign events have occurred over the years since independence. In 2022 the Central Bank of Nigeria (CBN) issued a statement that it has concluded plans to redesign the Naira.
Purported merits of this policy as cited by the CBN include tackling rising inflation, combating money hoarding, strengthening the macroeconomic parameters and equally combating social improprieties, reducing currency outside banks vault, increasing financial inclusion by banking the unbanked population and supporting the efforts of our security agencies in combating banditry and ransom taking in Nigeria. The CBN governor also claims that about N2.73 trillion of the N3.23 trillion currency in circulation in Nigeria, is outside the bank vaults.
However, the policy has elicited serious debate across different parts of the country. Many people accuse the policy of being a mismatch to current economic realities on ground such as severe inflation and high rate of unemployment and underemployment. As such, it is just a distraction in the midst of serious ravaging economic issues and carries no significant economic benefits for the average Nigerian.
The policy has also been criticized for its bad timing. According to the daily newspaper published by Business Day, the timing subverts the naira redesign policy’s good intentions and inflicts hardship on the people. The cash scarcity associated with the currency redesign policy has motivated a slowdown in economic growth as many productive activities have been halted due to the inability to access cash. “The plummeting of productivity has implications for GDP and a domino effect on other economic indices.”
Other negative implications of the policy include restrain local trade and regional trade, constrain the informal sector’s trust in the financial system and erosion of investment confidence.
2
Money market equilibrium is a situation where demand for real money balances equates the supply for real money balances. It consist of the money demand, which refers to the aggregate demand for money, and money supply, which is the overall supply of money in the economy. The interest rate influence’s the interaction between money supply and money demand in the economy a d the quantity of money demanded by institutions and individuals.
Equilibrium in the money market occurs when the money demand equals the money supply. There is a relationship between the redesign of Naira and the money market equilibrium, because naira redesign is a contractionary monetary policy. The aim of the CBN is to bring money market equilibrium in the economy and ensure stability in the general price level of the economy.
Central banks are charged with the responsibility of ensuring the stability of the general price level through monetary policy. This is achieved by Censuring sustainable levels of money supply and indirectly, money demand. In a bid to ensure the stability of prices, central banks employ policies, which work through the action of several tools of monetary policy. These include the use of open market operations, bank reserve requirements, and nonconventional monetary policies. Although there is a relationship between money market and naira redesign there has not been any positive or visible effect of the policy on the money market. Also there has not been any equilibrium because there is no stability in general price level of goods and the amount of money demanded do not equal the amount the commercial banks supply to the public.
The policy was implemented during a period when Nigeria is facing some socio economic crisis and global backwardness, she is experiencing budget deficit, effect of the fall of oil price domestically she faces all sort of attacks, making the policy not so necessary at this point. The economy of Nigeria is fragile making any policy which is not properly implemented will have an adverse effect even if the policy is good as in the case of Nigeria and the current financial policy.
The policy in some way have affected sales negatively, some sellers still practice cash based sales policy they have no bank account to run their business transaction, simultaneously production is affected negatively, appropriate consideration were not given as regards the economic situation of the country before the policy was enacted, the policy makers only looked at the narrow picture without looking at the macro effect of the policy. The economy of Nigeria is currently in stagnation until considerable changes are made the economy will not grow and money market will not be at equilibrium.
Name: ASOGWA IJEOMA AGATHA
Reg no: 2019/251105
Department: ECONOMICS
Course title: INTERMEDIATE MACROECONOMIC THEORY 1
Course code: ECO 303
ASSIGNMENT
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500, 1000 naira note into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to-
Discuss and analyze the merits and demerits of this policy initiative adopted by the CBN.
Secondly what is the nexus between Naira redesign and money market equilibrium?
Will this policy promote equilibrium in the money market? Discuss this comprehensively.
1.
Nigeria’s financial system generally has a rich history of monetary reforms and currency withdrawal/redesigning has occurred at different times in the country’s history. Different redesign events have occurred over the years since independence. In 2022 the Central Bank of Nigeria (CBN) issued a statement that it has concluded plans to redesign the Naira.
Purported merits of this policy as cited by the CBN include tackling rising inflation, combating money hoarding, strengthening the macroeconomic parameters and equally combating social improprieties, reducing currency outside banks vault, increasing financial inclusion by banking the unbanked population and supporting the efforts of our security agencies in combating banditry and ransom taking in Nigeria. The CBN governor also claims that about N2.73 trillion of the N3.23 trillion currency in circulation in Nigeria, is outside the bank vaults.
However, the policy has elicited serious debate across different parts of the country. Many people accuse the policy of being a mismatch to current economic realities on ground such as severe inflation and high rate of unemployment and underemployment. As such, it is just a distraction in the midst of serious ravaging economic issues and carries no significant economic benefits for the average Nigerian.
The policy has also been criticized for its bad timing. According to the daily newspaper published by Business Day, the timing subverts the naira redesign policy’s good intentions and inflicts hardship on the people. The cash scarcity associated with the currency redesign policy has motivated a slowdown in economic growth as many productive activities have been halted due to the inability to access cash. “The plummeting of productivity has implications for GDP and a domino effect on other economic indices.”
Other negative implications of the policy include restrain local trade and regional trade, constrain the informal sector’s trust in the financial system and erosion of investment confidence.
2
Money market equilibrium is a situation where demand for real money balances equates the supply for real money balances. It consist of the money demand, which refers to the aggregate demand for money, and money supply, which is the overall supply of money in the economy. The interest rate influence’s the interaction between money supply and money demand in the economy a d the quantity of money demanded by institutions and individuals.
Equilibrium in the money market occurs when the money demand equals the money supply. There is a relationship between the redesign of Naira and the money market equilibrium, because naira redesign is a contractionary monetary policy. The aim of the CBN is to bring money market equilibrium in the economy and ensure stability in the general price level of the economy.
Central banks are charged with the responsibility of ensuring the stability of the general price level through monetary policy. This is achieved by Censuring sustainable levels of money supply and indirectly, money demand. In a bid to ensure the stability of prices, central banks employ policies, which work through the action of several tools of monetary policy. These include the use of open market operations, bank reserve requirements, and nonconventional monetary policies. Although there is a relationship between money market and naira redesign there has not been any positive or visible effect of the policy on the money market. Also there has not been any equilibrium because there is no stability in general price level of goods and the amount of money demanded do not equal the amount the commercial banks supply to the public.
The policy was implemented during a period when Nigeria is facing some socio economic crisis and global backwardness, she is experiencing budget deficit, effect of the fall of oil price domestically she faces all sort of attacks, making the policy not so necessary at this point. The economy of Nigeria is fragile making any policy which is not properly implemented will have an adverse effect even if the policy is good as in the case of Nigeria and the current financial policy.
The policy in some way have affected sales negatively, some sellers still practice cash based sales policy they have no bank account to run their business transaction, simultaneously production is affected negatively, appropriate consideration were not given as regards the economic situation of the country before the policy was enacted, the policy makers only looked at the narrow picture without looking at the macro effect of the policy.
The economy of Nigeria is currently in stagnation until considerable changes are made the economy will not grow and money market will not be at equilibrium.
Ezeoha Nnenna Mercy
2019/249099
Economics Edu
Redesign
Nigerians lament as banks, motoriss, others reject old notes, Millions of Nigerians continue to grapple with hardship amid the cash crunch. As tension continued to rise over the scarcity of the newly redesigned N200, N500, and N1,000 currency notes, commercial banks, motorists and major sales outlets across the country have refrained from the collection of old notes.
survey within the week showed that many Nigerians are still in possession of the old naira notes due to poor circulation of the newly designed currency, but are not able to carry out their daily transactions because banks have commenced the implementation of the CBN deadline for the phasing out of the new notes. Across Abuja, Lagos and other major cities visited, our reporters observed that commercial banks, transport workers and some shopping outlets refused to accept the old notes since Monday, despite a Supreme Court order restraining the CBN from phasing out the old notes.
Some business owners who spoke lamented they do not know what to do with the old notes in their possession as banks battle with the scarcity of the new notes amid public outrage.
President Muhammadu Buhari, Thursday announced that the CBN will extend the use of the old N200 notes. But in what analysts consider an affront to the Supreme Court, the president insisted that the CBN directive on the phasing out of the old N500 and N1,000 notes remains.
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash points.
As Nigerians expressed frustration over their inability to access the new notes, the CBN extended the deadline for the phasing out of the old notes from 31 January to 10 February. Yet, many Nigerians have had a hard time getting the new notes. The Supreme Court gave an order restraining the CBN from going ahead with the implementation of the 10 February deadline set for the phasing out of the notes.
But both Mr Buhari and the CBN governor, Godwin Emefiele, refused to adhere to the court order. On Wednesday, the Supreme Court adjourned the suit filed by some state governments to challenge the 10 February deadline set by the CBN to end the use of old naira notes to 22 February later this month. Millions of Nigerians have continued to grapple with hardship amid the cash crunch that has worsened business transactions and stifled trade in the informal economy.
In some parts of the Lugbe axis of Nigeria’s capital city, Abuja, our reporters observed that the old naira notes are being rejected in places like parks, fuel stations and marketplaces among others despite the extension of their validity by the Supreme Court.
“On Wednesday, I entered a cab that was bringing me back to school (UNN), on my way back , The driver of the cab I entered was asking me if I had the new naira note with me. I asked him why he asked and he said he won’t take me to my destination if I’m going to pay with the old note, At first, I thought the taxi driver was joking, but everything changed when we arrived at the destination. When we got to our destination, I gave him the old note, but he outrightly rejected it, insisting on the new note. I was so shocked and I ended up transferring N300 to him, That’s when I got to understand that this money crisis is not funny again. The country has become something else where you have your money and you can’t spend it because of the CBN policy.
CBN brought out a process that if you still have the money, you will bring the money to them individually. They will collect the money from you, they will do some investigation, they will interrogate you (on) why you still have the money, what type of business you are doing and all the rest.
The CBN in its earlier memo communicating the 10 February deadline extension had said a seven-day grace period, beginning on February 10 to 17 February, would be allotted to allow depositing their old notes at the CBN after the February deadline, But many Nigerians are yet to understand how feasible and seamless the procedure would be.
gathered from bank officials and customers Wednesday that the banks are rejecting the old notes in compliance with CBN directives.
A bank staffer who declined to have his name in print emphasised that the currency reform would have a reverse effect in the days ahead, noting that the ramifications may be dire for the populace.
“There are still lots of old notes in circulation apart from the ones some people have stashed away. So stopping it now and not pumping in more new notes I believe will cause a lot of pressure. Starting from Wednesday, the pressure will be so much,” he explained. Come to think of it, most politicians still have that money. So they will want to instigate the masses. If the pressure is huge, there will be an outburst. Also, another cash officer at one of the Stanbic IBTC branches in Lagos who does not want his name in print as he was not authorised to speak on the matter, said he is aware banks like Ecobank, Zenith and Stanbic IBTC have stopped taking the old notes from customers. For now banks are just playing safe since they don’t know the policy direction the CBN might want to take. As of Monday morning, we had to evacuate everything we had in old notes and move everything to the CBN because nobody knows what the CBN is going to do. He said that banks evacuate cash to the CBN only on weekdays, noting that some other banks did it over the weekend to avoid the risk of the cash being rejected by the apex bank
DESTRUCTION
In the midst of the uncertainties, many Nigerians have taken to the streets on major cities to protest the hardship caused by the policy.
In parts of southern Nigeria, many protesters were said to have sustained injuries and some were arrested for vandalising bank properties. On Wednesday in Benin City, Edo State, residents attacked some of the banks in the city, including Ecobank, Firstbank and UBA, according to the police spokesperson in the state, Chidi Nwabuzor. Similarly, groups of protesters have also hit the streets in Delta, Akwa Ibom, Ogun and Oyo states on recent weeks, The protest necessitated some banks to suspend activities and several shops and market stores were shut.
Speaking on the developments, CEO of Dairy Hills Limited, Kelvin Emmanuel, said the decision of the Supreme Court and President Buhari’s Thursday broadcast reflect the lack of coordination in policy making in Nigeria.
“The people who say the deliberate hoarding of new naira notes as well as the hoarding of the old notes by the Central Bank as a strategy to curb vote buying is not covered anywhere in sections 19 & 20 of the CBN Act, and is an invitation to Anarchy. This is because, if pandemonium breaks out across the entire nation, there will be no elections in Nigeria,
On his part, Kazeem Oyinwola, an Abuja-based legal practitioner and consultant, said by virtue of section The decisions of the Supreme court shall be enforced in any part of the Federation by all authorities and persons, and by courts with subordinate jurisdiction to that of the supreme Court.
“Thus, to this extent, the Federal Government, and by extension, the Central Bank of Nigeria, is bound by the interim injunction granted against it by the Supreme Court to the effect that the old naira notes continue to be legal tender pending the determination of the Motion on Notice filed by the Kaduna State Government,
Mr Oyinwola said the refusal of the federal government to comply with the verdict of the Supreme Court in this regard does not only constitute executive lawlessness but also violates the provision of section 287 of the Constitution.
the executive and its agents be seen to be flagrantly violating the constitution by virtue of which they’re in office? The answer is no. And that’s why the decision of Emefiele to the extent to which he insisted that the old naira notes cease to be legal tender from February 10, 2023 is not only irresponsible but constitutes shameless but reckless disregard for the constitution of the federation. Banks must accept old naira notes after 10 February Let me also add that under no circumstance can a party unilaterally modify the decision of a court to suit its own position. The effect of the interim injunction of the Supreme Court is that the old notes of N1000, N500 and N200 remain legal tenders. Can the federal government now modify the decision to say only the N200 notes should remain legal tenders? This is executive lawlessness, a federal government having scornful disregard for the judicial institution. This should only happen in a banana republic
On Thursday, the federal government announced that the old 200 naira note should be accepted as a legal tender for the next 60 days, and that there is no going back on the phasing out of the old 500 and 1000 naira notes, which has already taken effect.
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MERITS
Since the CBN embarked on the redesign of the Naira as well as expanded the implementation of the cashless policy programme, which began in 2012, a section of Nigerians, apparently with vested interests have not considered the benefits of the policies but have rather criticised them and tried to stir public objection.
Critics of the cashless policy have argued that it would further impoverish Nigerians and create unemployment in the financial value chain. But they lacked evidence to buttress their rejection.
It is not surprising that most of the objections to the central bank policies are by those who currently benefit from the rot in the system – politicians, and other corrupt public officials who take undue advantage of the opaque system of administration that does not allow for transparency in government business.
Corruption remains the biggest challenge facing the country and has continued to retard its growth trajectory.
At 62, Nigeria is still groping in the dark in search of its pathway to socio-economic prosperity – bad leadership, weak institutions, and abuse of due process are among a litany of moral and ethical deficits that have held it bound over the years.
Corruption, including vote-buying among others, has also influenced the selection of those in the seat of power: often times those who are not qualified have succeeded, and their performance had been abysmal.
As a result of the lack of transparency in financial dealings, social safety interventions for instance have been compromised as monies end up in private pockets while the vulnerable are left in worse conditions.
Because monies cannot be partly accounted for or traced as a result of physical cash handling, a lot of underhand transactions are perpetrated and often go unnoticed by anti-graft and regulatory agencies.
It is partly in view of the foregoing and the need to address some of the actions that have continued to shortchange the economy and the vulnerable in particular that the central bank, with the permission of President Muhammadu Buhari, decided to redesign the local currency as well as introduce limits on physical cash withdrawals.
Naira redesign
The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele on October 26, 2022, announced policy initiatives to redesign the N200, N500, and N1, 000 denominations, and subsequently introduced the cash withdrawal limits to regulate the movement of cash in the system as well as solve other challenges including currency counterfeiting among others.
In announcing the Naira redesign programme, the CBN governor said the move was aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
Emefiele, further explained that there was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks.
According to him, as of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks, describing the development as unacceptable as this has the potential
Emefiele said since the commencement of the programme, the apex bank had collected about N2.1 trillion, “leaving us with about N900 billion”. In essence, the currency redesign policy has helped to mop up monies outside the banking system that had often contributed to rising inflation and currency speculation, which had resulted in foreign exchange challenges in recent times.
The cashless policy
Though the CBN cashless policy began in 2012, but the expansion of its scope following the currency redesign has attracted attention and relevance. Following the naira redesign, the CBN had limited cash withdrawals to N500,000 per week for individuals and N5 million for corporate organisations.
The bank had explained this measure would help to limit the use of cash for illicit activities such as banditry and terrorism financing and help to track the movement of money through electronic channels. If anything, limiting cash handling with reduce the rate of armed robbery and other associated risks.
Cashless Policy Benefits
Experts say that there is no doubt the advantages of the currency redesign exercise will enormously benefit the economy in the long run, as emphasised by the CBN Governor.
If anything, the number of employment opportunities already created by the policies further demonstrates that rather than impoverishing Nigerians, the cashless policy has the potential to boost wealth creation across the country.
Already over 30,000 super agents had been engaged to carry out mobile services across the country.
Further highlighting the benefits of the cashless policy, Emefiele pointed out that generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties.
“Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth,” Emefiele said.
According to him, the macroeconomic impacts of currency redesign are multidimensional and could seem uncertain especially at this early stage when its inconvenience is widespread.
Emefiele said, “By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behaviour, and further encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
“In addition, the short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.”
Speaking on the long-term benefits of the cashless policy, the Central Bank Governor said the policy improves the sophistication of tax collection and would no doubt reduce tax evasion and tax avoidance.
“As experiences from other jurisdictions have shown, effective currency redesign can support regulatory reform, increased legislative reach and coordinated fiscal and structural policies,
According to the apex bank boss, the recent policy interventions would also help Nigerians to access easy loans with affordable interest rates.
DEMERITS
Public perception
High banking charges
Unbanked majority and absence of legal framework.
NAIRA REDESIGN MONEY MARKET EQUILIBRIUM
In this piece, James Emejo writes that the cashless policy and naira redesign have become yet another unorthodox intervention by the Central Bank of Nigeria, which has emerged as practical tools for resolving some of the country’s macroeconomic challenges and fighting endemic corruption.
The Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, is not new to criticisms concerning his choice of unorthodox measures in addressing monetary policy issues – and he stands tall over this approach.
Emefiele had often told his critics not to judge his tactics but evaluate the positive results produced by such unconventional interventions.
During the recent global financial crisis and the recession, unorthodox monetary policy interventions helped salvage the economy where conventional practices have failed.
Recently, the central bank’s efforts at curtailing rising inflation had proved nearly fruitless amidst growing food and commodity prices.
In the same vein, attempts to stabilise the naira against the US dollar had been difficult partly due to speculative activities and other challenges.
Naira Redesign and Cashless Policy
However, the recent engagement between the CBN governor and the diplomatic community exposes the primary intent of the bank’s cashless and naira redesign programes
If anything, it showed the benefits of the cashless policy, whose implementation began in 2012; and that the currency redesign programme was initially underestimated.
Emefiele’s interaction with the diplomatic community was particularly critical to shed more light on the policies and disabuse their minds of wrong perceptions following some antagonism by some political class members.
According to the central bank governor, the main objectives of the cashless policy and currency redesign were to make monetary policy decisions more effective, deepen financial inclusion in the country, curb terror financing and banditry, and discourage vote-buying by politicians and money laundering, among others. Politicians were stocking money for election activities, according to the CBN governor.
Naira Redesign:
Nigerians lament as banks, motorists, others reject old notes, Millions of Nigerians continue to grapple with hardship amid the cash crunch. As tension continued to rise over the scarcity of the newly redesigned N200, N500, and N1,000 currency notes, commercial banks, motorists and major sales outlets across the country have refrained from the collection of old notes.
survey within the week showed that many Nigerians are still in possession of the old naira notes due to poor circulation of the newly designed currency, but are not able to carry out their daily transactions because banks have commenced the implementation of the CBN deadline for the phasing out of the new notes. Across Abuja, Lagos and other major cities visited, our reporters observed that commercial banks, transport workers and some shopping outlets refused to accept the old notes since Monday, despite a Supreme Court order restraining the CBN from phasing out the old notes.
Some business owners who spoke lamented they do not know what to do with the old notes in their possession as banks battle with the scarcity of the new notes amid public outrage.
President Muhammadu Buhari, Thursday announced that the CBN will extend the use of the old N200 notes. But in what analysts consider an affront to the Supreme Court, the president insisted that the CBN directive on the phasing out of the old N500 and N1,000 notes remains.
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash points.
As Nigerians expressed frustration over their inability to access the new notes, the CBN extended the deadline for the phasing out of the old notes from 31 January to 10 February. Yet, many Nigerians have had a hard time getting the new notes. The Supreme Court gave an order restraining the CBN from going ahead with the implementation of the 10 February deadline set for the phasing out of the notes.
But both Mr Buhari and the CBN governor, Godwin Emefiele, refused to adhere to the court order. On Wednesday, the Supreme Court adjourned the suit filed by some state governments to challenge the 10 February deadline set by the CBN to end the use of old naira notes to 22 February later this month. Millions of Nigerians have continued to grapple with hardship amid the cash crunch that has worsened business transactions and stifled trade in the informal economy.
In some parts of the Lugbe axis of Nigeria’s capital city, Abuja, our reporters observed that the old naira notes are being rejected in places like parks, fuel stations and marketplaces among others despite the extension of their validity by the Supreme Court.
“On Wednesday, I entered a cab that was bringing me back to school (UNN), on my way back , The driver of the cab I entered was asking me if I had the new naira note with me. I asked him why he asked and he said he won’t take me to my destination if I’m going to pay with the old note, At first, I thought the taxi driver was joking, but everything changed when we arrived at the destination. When we got to our destination, I gave him the old note, but he outrightly rejected it, insisting on the new note. I was so shocked and I ended up transferring N300 to him, That’s when I got to understand that this money crisis is not funny again. The country has become something else where you have your money and you can’t spend it because of the CBN policy.
CBN brought out a process that if you still have the money, you will bring the money to them individually. They will collect the money from you, they will do some investigation, they will interrogate you (on) why you still have the money, what type of business you are doing and all the rest.
The CBN in its earlier memo communicating the 10 February deadline extension had said a seven-day grace period, beginning on February 10 to 17 February, would be allotted to allow depositing their old notes at the CBN after the February deadline, But many Nigerians are yet to understand how feasible and seamless the procedure would be.
gathered from bank officials and customers Wednesday that the banks are rejecting the old notes in compliance with CBN directives.
A bank staffer who declined to have his name in print emphasised that the currency reform would have a reverse effect in the days ahead, noting that the ramifications may be dire for the populace.
“There are still lots of old notes in circulation apart from the ones some people have stashed away. So stopping it now and not pumping in more new notes I believe will cause a lot of pressure. Starting from Wednesday, the pressure will be so much,” he explained. Come to think of it, most politicians still have that money. So they will want to instigate the masses. If the pressure is huge, there will be an outburst. Also, another cash officer at one of the Stanbic IBTC branches in Lagos who does not want his name in print as he was not authorised to speak on the matter, said he is aware banks like Ecobank, Zenith and Stanbic IBTC have stopped taking the old notes from customers. For now banks are just playing safe since they don’t know the policy direction the CBN might want to take. As of Monday morning, we had to evacuate everything we had in old notes and move everything to the CBN because nobody knows what the CBN is going to do. He said that banks evacuate cash to the CBN only on weekdays, noting that some other banks did it over the weekend to avoid the risk of the cash being rejected by the apex bank
DESTRUCTION
In the midst of the uncertainties, many Nigerians have taken to the streets on major cities to protest the hardship caused by the policy.
In parts of southern Nigeria, many protesters were said to have sustained injuries and some were arrested for vandalising bank properties. On Wednesday in Benin City, Edo State, residents attacked some of the banks in the city, including Ecobank, Firstbank and UBA, according to the police spokesperson in the state, Chidi Nwabuzor. Similarly, groups of protesters have also hit the streets in Delta, Akwa Ibom, Ogun and Oyo states on recent weeks, The protest necessitated some banks to suspend activities and several shops and market stores were shut.
Speaking on the developments, CEO of Dairy Hills Limited, Kelvin Emmanuel, said the decision of the Supreme Court and President Buhari’s Thursday broadcast reflect the lack of coordination in policy making in Nigeria.
“The people who say the deliberate hoarding of new naira notes as well as the hoarding of the old notes by the Central Bank as a strategy to curb vote buying is not covered anywhere in sections 19 & 20 of the CBN Act, and is an invitation to Anarchy. This is because, if pandemonium breaks out across the entire nation, there will be no elections in Nigeria,
On his part, Kazeem Oyinwola, an Abuja-based legal practitioner and consultant, said by virtue of section The decisions of the Supreme court shall be enforced in any part of the Federation by all authorities and persons, and by courts with subordinate jurisdiction to that of the supreme Court.
“Thus, to this extent, the Federal Government, and by extension, the Central Bank of Nigeria, is bound by the interim injunction granted against it by the Supreme Court to the effect that the old naira notes continue to be legal tender pending the determination of the Motion on Notice filed by the Kaduna State Government,
Mr Oyinwola said the refusal of the federal government to comply with the verdict of the Supreme Court in this regard does not only constitute executive lawlessness but also violates the provision of section 287 of the Constitution.
the executive and its agents be seen to be flagrantly violating the constitution by virtue of which they’re in office? The answer is no. And that’s why the decision of Emefiele to the extent to which he insisted that the old naira notes cease to be legal tender from February 10, 2023 is not only irresponsible but constitutes shameless but reckless disregard for the constitution of the federation. Banks must accept old naira notes after 10 February Let me also add that under no circumstance can a party unilaterally modify the decision of a court to suit its own position. The effect of the interim injunction of the Supreme Court is that the old notes of N1000, N500 and N200 remain legal tenders. Can the federal government now modify the decision to say only the N200 notes should remain legal tenders? This is executive lawlessness, a federal government having scornful disregard for the judicial institution. This should only happen in a banana republic
On Thursday, the federal government announced that the old 200 naira note should be accepted as a legal tender for the next 60 days, and that there is no going back on the phasing out of the old 500 and 1000 naira notes, which has already taken effect.
Good journalism costs a lot of money. Yet only good journalism can ensure the possibility of a good society, an accountable democracy, and a transparent government.
For continued free access to the best investigative journalism in the country we ask you to consider making a modest support to this noble endeavour. you are helping to sustain a journalism of relevance and ensuring it remains free and available to all.
MERITS
Since the CBN embarked on the redesign of the Naira as well as expanded the implementation of the cashless policy programme, which began in 2012, a section of Nigerians, apparently with vested interests have not considered the benefits of the policies but have rather criticised them and tried to stir public objection.
Critics of the cashless policy have argued that it would further impoverish Nigerians and create unemployment in the financial value chain. But they lacked evidence to buttress their rejection.
It is not surprising that most of the objections to the central bank policies are by those who currently benefit from the rot in the system – politicians, and other corrupt public officials who take undue advantage of the opaque system of administration that does not allow for transparency in government business.
Corruption remains the biggest challenge facing the country and has continued to retard its growth trajectory.
At 62, Nigeria is still groping in the dark in search of its pathway to socio-economic prosperity – bad leadership, weak institutions, and abuse of due process are among a litany of moral and ethical deficits that have held it bound over the years.
Corruption, including vote-buying among others, has also influenced the selection of those in the seat of power: often times those who are not qualified have succeeded, and their performance had been abysmal.
As a result of the lack of transparency in financial dealings, social safety interventions for instance have been compromised as monies end up in private pockets while the vulnerable are left in worse conditions.
Because monies cannot be partly accounted for or traced as a result of physical cash handling, a lot of underhand transactions are perpetrated and often go unnoticed by anti-graft and regulatory agencies.
It is partly in view of the foregoing and the need to address some of the actions that have continued to shortchange the economy and the vulnerable in particular that the central bank, with the permission of President Muhammadu Buhari, decided to redesign the local currency as well as introduce limits on physical cash withdrawals.
Naira redesign
The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele on October 26, 2022, announced policy initiatives to redesign the N200, N500, and N1, 000 denominations, and subsequently introduced the cash withdrawal limits to regulate the movement of cash in the system as well as solve other challenges including currency counterfeiting among others.
In announcing the Naira redesign programme, the CBN governor said the move was aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
Emefiele, further explained that there was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks.
According to him, as of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks, describing the development as unacceptable as this has the potential to harm monetary policy actions, further leading to higher inflation and currency speculation, thereby exposing vulnerable Nigerians to further economic hardship.
However considering the timing of the policies – being an election year – some Nigerians, particularly politicians, believed that the apex bank’s move was targeted against certain individuals and have refused to see beyond their assumptions to know that the actions are in the best interest of Nigerians and the economy if the country must address the current gale of insecurity, corruption and economic sabotage among other actions of some privileged elites who continued to take advantage of a dysfunctional system to short-changed the country.
If anything, there have been early successes of the CBN intervention – the monetary policy committee (MPC) of the central bank recently affirmed that the various policy interventions of the bank had led to a reduction in inflation after months of an uptick in the headline index.
Also, the cashless policy has led to a reduction in banditry and kidnappings, which were rampant in the recent past.
Gains
According to Emefiele, the central bank’s principal objective for the currency redesign initiative was to make our monetary policy decisions more efficacious, saying: “We have started to see inflation trending downwards and exchange rates relatively stable.
“We aim to increase financial inclusion in the country by reducing the number of the unbanked population. Thirdly, our aim is to support the efforts of our security agencies in combating banditry and ransom-taking in Nigeria through this program and we can see that the military is making good progress in this important.
According to him, “Available data at the Central Bank of Nigeria showed that in 2015, Currency-in-Circulation was only N1.4trillion. As of October 2022, currency in circulation had risen to N3.23 trillion out of which only N500 billion was within the banking system and N2.7 trillion was held permanently in people’s homes.
when CBN releases currency into circulation, it is meant to be used and after effluxion of time, it returns to the CBN thereby keeping the volume of currency in circulation under the firm control of the CBN. It should also be noted that the notes in private homes and outside the banking system are not available for economic activities and thus may affect the economy attaining its potential growth.”
Emefiele said since the commencement of the programme, the apex bank had collected about N2.1 trillion, “leaving us with about N900 billion”. In essence, the currency redesign policy has helped to mop up monies outside the banking system that had often contributed to rising inflation and currency speculation, which had resulted in foreign exchange challenges in recent times.
The cashless policy
Though the CBN cashless policy began in 2012, but the expansion of its scope following the currency redesign has attracted attention and relevance. Following the naira redesign, the CBN had limited cash withdrawals to N500,000 per week for individuals and N5 million for corporate organisations.
The bank had explained this measure would help to limit the use of cash for illicit activities such as banditry and terrorism financing and help to track the movement of money through electronic channels. If anything, limiting cash handling with reduce the rate of armed robbery and other associated risks.
Cashless Policy Benefits
Experts say that there is no doubt the advantages of the currency redesign exercise will enormously benefit the economy in the long run, as emphasised by the CBN Governor.
If anything, the number of employment opportunities already created by the policies further demonstrates that rather than impoverishing Nigerians, the cashless policy has the potential to boost wealth creation across the country.
Already over 30,000 super agents had been engaged to carry out mobile services across the country.
Further highlighting the benefits of the cashless policy, Emefiele pointed out that generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties.
“Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth,” Emefiele said.
According to him, the macroeconomic impacts of currency redesign are multidimensional and could seem uncertain especially at this early stage when its inconvenience is widespread.
Emefiele said, “By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behaviour, and further encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
“In addition, the short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.”
Speaking on the long-term benefits of the cashless policy, the Central Bank Governor said the policy improves the sophistication of tax collection and would no doubt reduce tax evasion and tax avoidance.
“As experiences from other jurisdictions have shown, effective currency redesign can support regulatory reform, increased legislative reach and coordinated fiscal and structural policies,
According to the apex bank boss, the recent policy interventions would also help Nigerians to access easy loans with affordable interest rates.
DEMERITS
Public perception
High banking charges
Unbanked majority and absence of legal framework.
NAIRA REDESIGN MONEY MARKET EQUILIBRIUM
In this piece, James Emejo writes that the cashless policy and naira redesign have become yet another unorthodox intervention by the Central Bank of Nigeria, which has emerged as practical tools for resolving some of the country’s macroeconomic challenges and fighting endemic corruption.
The Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, is not new to criticisms concerning his choice of unorthodox measures in addressing monetary policy issues – and he stands tall over this approach.
Emefiele had often told his critics not to judge his tactics but evaluate the positive results produced by such unconventional interventions.
During the recent global financial crisis and the recession, unorthodox monetary policy interventions helped salvage the economy where conventional practices have failed.
Recently, the central bank’s efforts at curtailing rising inflation had proved nearly fruitless amidst growing food and commodity prices.
In the same vein, attempts to stabilise the naira against the US dollar had been difficult partly due to speculative activities and other challenges.
Naira Redesign and Cashless Policy
However, the recent engagement between the CBN governor and the diplomatic community exposes the primary intent of the bank’s cashless and naira redesign programes
If anything, it showed the benefits of the cashless policy, whose implementation began in 2012; and that the currency redesign programme was initially underestimated.
Emefiele’s interaction with the diplomatic community was particularly critical to shed more light on the policies and disabuse their minds of wrong perceptions following some antagonism by some political class members.
According to the central bank governor, the main objectives of the cashless policy and currency redesign were to make monetary policy decisions more effective, deepen financial inclusion in the country, curb terror financing and banditry, and discourage vote-buying by politicians and money laundering, among others. Politicians were stocking money for election activities, according to the CBN governor.
Naira Redesign:
Nigerians lament as banks, motorists, others reject old notes, Millions of Nigerians continue to grapple with hardship amid the cash crunch. As tension continued to rise over the scarcity of the newly redesigned N200, N500, and N1,000 currency notes, commercial banks, motorists and major sales outlets across the country have refrained from the collection of old notes.
survey within the week showed that many Nigerians are still in possession of the old naira notes due to poor circulation of the newly designed currency, but are not able to carry out their daily transactions because banks have commenced the implementation of the CBN deadline for the phasing out of the new notes. Across Abuja, Lagos and other major cities visited, our reporters observed that commercial banks, transport workers and some shopping outlets refused to accept the old notes since Monday, despite a Supreme Court order restraining the CBN from phasing out the old notes.
Some business owners who spoke lamented they do not know what to do with the old notes in their possession as banks battle with the scarcity of the new notes amid public outrage.
President Muhammadu Buhari, Thursday announced that the CBN will extend the use of the old N200 notes. But in what analysts consider an affront to the Supreme Court, the president insisted that the CBN directive on the phasing out of the old N500 and N1,000 notes remains.
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500 and 1,000 naira notes into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash points.
As Nigerians expressed frustration over their inability to access the new notes, the CBN extended the deadline for the phasing out of the old notes from 31 January to 10 February. Yet, many Nigerians have had a hard time getting the new notes. The Supreme Court gave an order restraining the CBN from going ahead with the implementation of the 10 February deadline set for the phasing out of the notes.
But both Mr Buhari and the CBN governor, Godwin Emefiele, refused to adhere to the court order. On Wednesday, the Supreme Court adjourned the suit filed by some state governments to challenge the 10 February deadline set by the CBN to end the use of old naira notes to 22 February later this month. Millions of Nigerians have continued to grapple with hardship amid the cash crunch that has worsened business transactions and stifled trade in the informal economy.
In some parts of the Lugbe axis of Nigeria’s capital city, Abuja, our reporters observed that the old naira notes are being rejected in places like parks, fuel stations and marketplaces among others despite the extension of their validity by the Supreme Court.
“On Wednesday, I entered a cab that was bringing me back to school (UNN), on my way back , The driver of the cab I entered was asking me if I had the new naira note with me. I asked him why he asked and he said he won’t take me to my destination if I’m going to pay with the old note, At first, I thought the taxi driver was joking, but everything changed when we arrived at the destination. When we got to our destination, I gave him the old note, but he outrightly rejected it, insisting on the new note. I was so shocked and I ended up transferring N300 to him, That’s when I got to understand that this money crisis is not funny again. The country has become something else where you have your money and you can’t spend it because of the CBN policy.
CBN brought out a process that if you still have the money, you will bring the money to them individually. They will collect the money from you, they will do some investigation, they will interrogate you (on) why you still have the money, what type of business you are doing and all the rest.
The CBN in its earlier memo communicating the 10 February deadline extension had said a seven-day grace period, beginning on February 10 to 17 February, would be allotted to allow depositing their old notes at the CBN after the February deadline, But many Nigerians are yet to understand how feasible and seamless the procedure would be.
gathered from bank officials and customers Wednesday that the banks are rejecting the old notes in compliance with CBN directives.
A bank staffer who declined to have his name in print emphasised that the currency reform would have a reverse effect in the days ahead, noting that the ramifications may be dire for the populace.
“There are still lots of old notes in circulation apart from the ones some people have stashed away. So stopping it now and not pumping in more new notes I believe will cause a lot of pressure. Starting from Wednesday, the pressure will be so much,” he explained. Come to think of it, most politicians still have that money. So they will want to instigate the masses. If the pressure is huge, there will be an outburst. Also, another cash officer at one of the Stanbic IBTC branches in Lagos who does not want his name in print as he was not authorised to speak on the matter, said he is aware banks like Ecobank, Zenith and Stanbic IBTC have stopped taking the old notes from customers. For now banks are just playing safe since they don’t know the policy direction the CBN might want to take. As of Monday morning, we had to evacuate everything we had in old notes and move everything to the CBN because nobody knows what the CBN is going to do. He said that banks evacuate cash to the CBN only on weekdays, noting that some other banks did it over the weekend to avoid the risk of the cash being rejected by the apex bank
DESTRUCTION
In the midst of the uncertainties, many Nigerians have taken to the streets on major cities to protest the hardship caused by the policy.
In parts of southern Nigeria, many protesters were said to have sustained injuries and some were arrested for vandalising bank properties. On Wednesday in Benin City, Edo State, residents attacked some of the banks in the city, including Ecobank, Firstbank and UBA, according to the police spokesperson in the state, Chidi Nwabuzor. Similarly, groups of protesters have also hit the streets in Delta, Akwa Ibom, Ogun and Oyo states on recent weeks, The protest necessitated some banks to suspend activities and several shops and market stores were shut.
Speaking on the developments, CEO of Dairy Hills Limited, Kelvin Emmanuel, said the decision of the Supreme Court and President Buhari’s Thursday broadcast reflect the lack of coordination in policy making in Nigeria.
“The people who say the deliberate hoarding of new naira notes as well as the hoarding of the old notes by the Central Bank as a strategy to curb vote buying is not covered anywhere in sections 19 & 20 of the CBN Act, and is an invitation to Anarchy. This is because, if pandemonium breaks out across the entire nation, there will be no elections in Nigeria,
On his part, Kazeem Oyinwola, an Abuja-based legal practitioner and consultant, said by virtue of section The decisions of the Supreme court shall be enforced in any part of the Federation by all authorities and persons, and by courts with subordinate jurisdiction to that of the supreme Court.
“Thus, to this extent, the Federal Government, and by extension, the Central Bank of Nigeria, is bound by the interim injunction granted against it by the Supreme Court to the effect that the old naira notes continue to be legal tender pending the determination of the Motion on Notice filed by the Kaduna State Government,
Mr Oyinwola said the refusal of the federal government to comply with the verdict of the Supreme Court in this regard does not only constitute executive lawlessness but also violates the provision of section 287 of the Constitution.
the executive and its agents be seen to be flagrantly violating the constitution by virtue of which they’re in office? The answer is no. And that’s why the decision of Emefiele to the extent to which he insisted that the old naira notes cease to be legal tender from February 10, 2023 is not only irresponsible but constitutes shameless but reckless disregard for the constitution of the federation. Banks must accept old naira notes after 10 February Let me also add that under no circumstance can a party unilaterally modify the decision of a court to suit its own position. The effect of the interim injunction of the Supreme Court is that the old notes of N1000, N500 and N200 remain legal tenders. Can the federal government now modify the decision to say only the N200 notes should remain legal tenders? This is executive lawlessness, a federal government having scornful disregard for the judicial institution. This should only happen in a banana republic
On Thursday, the federal government announced that the old 200 naira note should be accepted as a legal tender for the next 60 days, and that there is no going back on the phasing out of the old 500 and 1000 naira notes, which has already taken effect.
Good journalism costs a lot of money. Yet only good journalism can ensure the possibility of a good society, an accountable democracy, and a transparent government.
For continued free access to the best investigative journalism in the country we ask you to consider making a modest support to this noble endeavour. you are helping to sustain a journalism of relevance and ensuring it remains free and available to all.
MERITS
Since the CBN embarked on the redesign of the Naira as well as expanded the implementation of the cashless policy programme, which began in 2012, a section of Nigerians, apparently with vested interests have not considered the benefits of the policies but have rather criticised them and tried to stir public objection.
Critics of the cashless policy have argued that it would further impoverish Nigerians and create unemployment in the financial value chain. But they lacked evidence to buttress their rejection.
It is not surprising that most of the objections to the central bank policies are by those who currently benefit from the rot in the system – politicians, and other corrupt public officials who take undue advantage of the opaque system of administration that does not allow for transparency in government business.
Corruption remains the biggest challenge facing the country and has continued to retard its growth trajectory.
At 62, Nigeria is still groping in the dark in search of its pathway to socio-economic prosperity – bad leadership, weak institutions, and abuse of due process are among a litany of moral and ethical deficits that have held it bound over the years.
Corruption, including vote-buying among others, has also influenced the selection of those in the seat of power: often times those who are not qualified have succeeded, and their performance had been abysmal.
As a result of the lack of transparency in financial dealings, social safety interventions for instance have been compromised as monies end up in private pockets while the vulnerable are left in worse conditions.
Because monies cannot be partly accounted for or traced as a result of physical cash handling, a lot of underhand transactions are perpetrated and often go unnoticed by anti-graft and regulatory agencies.
It is partly in view of the foregoing and the need to address some of the actions that have continued to shortchange the economy and the vulnerable in particular that the central bank, with the permission of President Muhammadu Buhari, decided to redesign the local currency as well as introduce limits on physical cash withdrawals.
Naira redesign
The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele on October 26, 2022, announced policy initiatives to redesign the N200, N500, and N1, 000 denominations, and subsequently introduced the cash withdrawal limits to regulate the movement of cash in the system as well as solve other challenges including currency counterfeiting among others.
In announcing the Naira redesign programme, the CBN governor said the move was aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
Emefiele, further explained that there was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks.
According to him, as of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks, describing the development as unacceptable as this has the potential to harm monetary policy actions, further leading to higher inflation and currency speculation, thereby exposing vulnerable Nigerians to further economic hardship.
However considering the timing of the policies – being an election year – some Nigerians, particularly politicians, believed that the apex bank’s move was targeted against certain individuals and have refused to see beyond their assumptions to know that the actions are in the best interest of Nigerians and the economy if the country must address the current gale of insecurity, corruption and economic sabotage among other actions of some privileged elites who continued to take advantage of a dysfunctional system to short-changed the country.
If anything, there have been early successes of the CBN intervention – the monetary policy committee (MPC) of the central bank recently affirmed that the various policy interventions of the bank had led to a reduction in inflation after months of an uptick in the headline index.
Also, the cashless policy has led to a reduction in banditry and kidnappings, which were rampant in the recent past.
Gains
According to Emefiele, the central bank’s principal objective for the currency redesign initiative was to make our monetary policy decisions more efficacious, saying: “We have started to see inflation trending downwards and exchange rates relatively stable.
“We aim to increase financial inclusion in the country by reducing the number of the unbanked population. Thirdly, our aim is to support the efforts of our security agencies in combating banditry and ransom-taking in Nigeria through this program and we can see that the military is making good progress in this important.
According to him, “Available data at the Central Bank of Nigeria showed that in 2015, Currency-in-Circulation was only N1.4trillion. As of October 2022, currency in circulation had risen to N3.23 trillion out of which only N500 billion was within the banking system and N2.7 trillion was held permanently in people’s homes.
when CBN releases currency into circulation, it is meant to be used and after effluxion of time, it returns to the CBN thereby keeping the volume of currency in circulation under the firm control of the CBN. It should also be noted that the notes in private homes and outside the banking system are not available for economic activities and thus may affect the economy attaining its potential growth.”
Emefiele said since the commencement of the programme, the apex bank had collected about N2.1 trillion, “leaving us with about N900 billion”. In essence, the currency redesign policy has helped to mop up monies outside the banking system that had often contributed to rising inflation and currency speculation, which had resulted in foreign exchange challenges in recent times.
The cashless policy
Though the CBN cashless policy began in 2012, but the expansion of its scope following the currency redesign has attracted attention and relevance. Following the naira redesign, the CBN had limited cash withdrawals to N500,000 per week for individuals and N5 million for corporate organisations.
The bank had explained this measure would help to limit the use of cash for illicit activities such as banditry and terrorism financing and help to track the movement of money through electronic channels. If anything, limiting cash handling with reduce the rate of armed robbery and other associated risks.
Cashless Policy Benefits
Experts say that there is no doubt the advantages of the currency redesign exercise will enormously benefit the economy in the long run, as emphasised by the CBN Governor.
If anything, the number of employment opportunities already created by the policies further demonstrates that rather than impoverishing Nigerians, the cashless policy has the potential to boost wealth creation across the country.
Already over 30,000 super agents had been engaged to carry out mobile services across the country.
Further highlighting the benefits of the cashless policy, Emefiele pointed out that generally, currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macroeconomic parameters and equally combat social improprieties.
“Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth,” Emefiele said.
According to him, the macroeconomic impacts of currency redesign are multidimensional and could seem uncertain especially at this early stage when its inconvenience is widespread.
Emefiele said, “By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behaviour, and further encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.
“In addition, the short-term decline in cash holding and the increased formalization of business activities as the cashless policy forces more economic agents to open bank accounts, will also boost fiscal policy. With more transactions going through e-channels and bank accounts, more agents come within view of the government’s tax net. This enlarges the base of taxable activities and increases the possibility of more tax receipts by various tiers of government.”
Speaking on the long-term benefits of the cashless policy, the Central Bank Governor said the policy improves the sophistication of tax collection and would no doubt reduce tax evasion and tax avoidance.
“As experiences from other jurisdictions have shown, effective currency redesign can support regulatory reform, increased legislative reach and coordinated fiscal and structural policies,
According to the apex bank boss, the recent policy interventions would also help Nigerians to access easy loans with affordable interest rates.
DEMERITS
Public perception
High banking charges
Unbanked majority and absence of legal framework.
NAIRA REDESIGN MONEY MARKET EQUILIBRIUM
In this piece, James Emejo writes that the cashless policy and naira redesign have become yet another unorthodox intervention by the Central Bank of Nigeria, which has emerged as practical tools for resolving some of the country’s macroeconomic challenges and fighting endemic corruption.
The Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, is not new to criticisms concerning his choice of unorthodox measures in addressing monetary policy issues – and he stands tall over this approach.
Emefiele had often told his critics not to judge his tactics but evaluate the positive results produced by such unconventional interventions.
During the recent global financial crisis and the recession, unorthodox monetary policy interventions helped salvage the economy where conventional practices have failed.
Recently, the central bank’s efforts at curtailing rising inflation had proved nearly fruitless amidst growing food and commodity prices.
In the same vein, attempts to stabilise the naira against the US dollar had been difficult partly due to speculative activities and other challenges.
Naira Redesign and Cashless Policy
However, the recent engagement between the CBN governor and the diplomatic community exposes the primary intent of the bank’s cashless and naira redesign programes
If anything, it showed the benefits of the cashless policy, whose implementation began in 2012; and that the currency redesign programme was initially underestimated.
Emefiele’s interaction with the diplomatic community was particularly critical to shed more light on the policies and disabuse their minds of wrong perceptions following some antagonism by some political class members.
According to the central bank governor, the main objectives of the cashless policy and currency redesign were to make monetary policy decisions more effective, deepen financial inclusion in the country, curb terror financing and banditry, and discourage vote-buying by politicians and money laundering, among others. Politicians were stocking money for election activities, according to the CBN governor.
Naira Redesign:
Nigerians lament as banks, motorists, others reject old notes, Millions of Nigerians continue to grapple with hardship amid the cash crunch. As tension continued to rise over the scarcity of the newly redesigned N200, N500, and N1,000 currency notes, commercial banks, motorists and major sales outlets across the country have refrained from the collection of old notes.
survey within the week showed that many Nigerians are still in possession of the old naira notes due to poor circulation of the newly designed currency, but are not able to carry out their daily transactions because banks have commenced the implementation of the CBN deadline for the phasing out of the new notes. Across Abuja, Lagos and other major cities visited, our reporters observed that commercial banks, transport workers and some shopping outlets refused to accept the old notes since Monday, despite a Supreme Court order restraining the CBN from phasing out the old notes.
Some business owners who spoke lamented they do not know what to do with the old notes in their possession as banks battle with the scarcity of the new notes amid public outrage.
President Muhammadu Buhari, Thursday announced that the CBN will extend the use of the old N200 notes.
Name: ASOGWA IJEOMA AGATHA
Reg no: 2019/251105
Department: ECONOMICS
Course title: INTERMEDIATE MACROECONOMIC THEORY 1
Course code: ECO 303
ASSIGNMENT
On 26 October, 2022, Nigeria’s CBN announced the introduction of redesigned 200, 500, 1000 naira note into the country’s financial system. But since the notes were unveiled, Nigerians across different parts of the country have been struggling to access it from banks and ATM cash point. In view of this, you are required to-
Discuss and analyze the merits and demerits of this policy initiative adopted by the CBN.
Secondly what is the nexus between Naira redesign and money market equilibrium?
Will this policy promote equilibrium in the money market? Discuss this comprehensively.
1.
Nigeria’s financial system generally has a rich history of monetary reforms and currency withdrawal/redesigning has occurred at different times in the country’s history. Different redesign events have occurred over the years since independence. In 2022 the Central Bank of Nigeria (CBN) issued a statement that it has concluded plans to redesign the Naira.
Purported merits of this policy as cited by the CBN include tackling rising inflation, combating money hoarding, strengthening the macroeconomic parameters and equally combating social improprieties, reducing currency outside banks vault, increasing financial inclusion by banking the unbanked population and supporting the efforts of our security agencies in combating banditry and ransom taking in Nigeria. The CBN governor also claims that about N2.73 trillion of the N3.23 trillion currency in circulation in Nigeria, is outside the bank vaults.
However, the policy has elicited serious debate across different parts of the country. Many people accuse the policy of being a mismatch to current economic realities on ground such as severe inflation and high rate of unemployment and underemployment. As such, it is just a distraction in the midst of serious ravaging economic issues and carries no significant economic benefits for the average Nigerian.
The policy has also been criticized for its bad timing. According to the daily newspaper published by Business Day, the timing subverts the naira redesign policy’s good intentions and inflicts hardship on the people. The cash scarcity associated with the currency redesign policy has motivated a slowdown in economic growth as many productive activities have been halted due to the inability to access cash. “The plummeting of productivity has implications for GDP and a domino effect on other economic indices.”
Other negative implications of the policy include restrain local trade and regional trade, constrain the informal sector’s trust in the financial system and erosion of investment confidence.
2
Money market equilibrium is a situation where demand for real money balances equates the supply for real money balances. It consist of the money demand, which refers to the aggregate demand for money, and money supply, which is the overall supply of money in the economy. The interest rate influence’s the interaction between money supply and money demand in the economy a d the quantity of money demanded by institutions and individuals.
Equilibrium in the money market occurs when the money demand equals the money supply. There is a relationship between the redesign of Naira and the money market equilibrium, because naira redesign is a contractionary monetary policy. The aim of the CBN is to bring money market equilibrium in the economy and ensure stability in the general price level of the economy.
Central banks are charged with the responsibility of ensuring the stability of the general price level through monetary policy. This is achieved by Censuring sustainable levels of money supply and indirectly, money demand. In a bid to ensure the stability of prices, central banks employ policies, which work through the action of several tools of monetary policy. These include the use of open market operations, bank reserve requirements, and nonconventional monetary policies. Although there is a relationship between money market and naira redesign there has not been any positive or visible effect of the policy on the money market. Also there has not been any equilibrium because there is no stability in general price level of goods and the amount of money demanded do not equal the amount the commercial banks supply to the public.
The policy was implemented during a period when Nigeria is facing some socio economic crisis and global backwardness, she is experiencing budget deficit, effect of the fall of oil price domestically she faces all sort of attacks, making the policy not so necessary at this point. The economy of Nigeria is fragile making any policy which is not properly implemented will have an adverse effect even if the policy is good as in the case of Nigeria and the current financial policy.
The policy in some way have affected sales negatively, some sellers still practice cash based sales policy they have no bank account to run their business transaction, simultaneously production is affected negatively, appropriate consideration were not given as regards the economic situation of the country before the policy was enacted, the policy makers only looked at the narrow picture without looking at the macro effect of the policy. The economy of Nigeria is currently in stagnation until considerable changes are made the economy will not grow and money market will not be at equilibrium.
NAME: OMEJE PHILOMENA OLUCHUKWU
REG NO: 2019/243750
DEPARTMENT: SOCIAL SCIENCE EDUCATION (ECONOMICS)
ECO 303 ASSIGNMENT
ANSWERS No:1
On 26 October 2022 the central Bank of Nigeria received the approval of president Muhammadu Buhari to redesign the 200, 500 and 100 Nigeria Notes. Currency redesign policies (sometimes called demonetization policies) are designed by countries to strengthen the performance of key macro economic parameters and equally combat social improprieties.
Chiefly, it is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth.
The Governor of the Central Bank of Nigeria, Godwin Emefiele, said the decision to redesign the selected naira notes was to give the apex bank more control over the amount of money in circulation. “This move is to enable the Central Bank of Nigeria have control over the size of money in circulation. The amount of money that can be withdrawn from the counter would be reduced drastically and bulk withdrawal would require several procedures and security checks to track its use,” he said, adding that this move would ensure a steady transition into a cashless economy like the rest of the civilized world.
The merits of the naira redesign policy initiated and adopted by CBN are as follows:
1.Reduction of Broad Money Supply: Effectively implemented currency redesign large causes a fall in money supply. This will lead to reduction of value of money in circulation and a deceleration of the velocity of money in the economy leading to less pressures on domestic prices.
2. Lowering Inflation: the policy is typically expected to cause deflation in the market as less cash holding reduces currency outside banks and retards money circulation. The accompanying decline in money supply will thus slow pace of inflation.
3. Collapse of Illegal Economy Activities: People who have earned money through illegal ways would be afraid to decl