Nigeria’s central bank governor, Godwin Emefiele has announced the apex bank is planning to reduce the volume of N500 and N1000 notes in circulation “over time”.
The governor made this known in his briefing to the media at the monetary policy communique held on November 22nd, 2022.
He was responding to questions about the ease of counterfeiting one thousand naira notes and if there are plans to reduce the volumes.
- Mr Emefiele claimed the effort is aimed at curbing the inflation rate which he partly blamed on the higher-denominated naira notes.
What Emefiele is saying:
- He started by using the UK as an example; “In the UK they have a denomination in 50 pounds but the most spent denomination is 20 pounds. Nobody spends 50 pounds. If you go around carrying 50 pounds in the UK they will suspect sic report you in fact.”
- And then compared this with Nigeria…“The reverse is what is happening in Nigeria. Nigerians want to carry N500 and N1000. And in fact, we are beginning to think that increasing the high denomination is also part of what is fueling inflation. So in fact, yes we will launch N200, N500, and N1000 over time we will reduce the volume of N500 and N1000 in circulation. Let people carry N50 around. “
- Electronic banking is the alternative – “if you want to do high-value transactions, embrace online, embrace our agency program, embrace our mobile banking program, that is what you need”
Who this will affect: If the central bank pushes with this policy as Emefiele alluded to, it is likely to affect some people in the economy.
- Businesses that rely heavily on cash will be severely affected as they will need to carry a larger volume of smaller-denominated notes to facilitate transactions.
- On the flip side, this will favour electronic banking as the policy will push for more online transactions.
- Politicians who are mostly associated with cash-based transactions, especially during elections will need to use smaller denominations or find other alternatives for funding cash-based election expenses.
- This will also affect partygoers who have fond of spraying money.
Optics: Mr Emefiele’s comment is bound to trigger another round of commentary among economists and analysts who often consider some of his off-the-cuff remarks as detrimental to the standing of the economy.
- Mr Emefiele also spoke in support of contactless banking which will resonate well with FinTech companies who have invested heavily in this sector.