Just as it is affecting the living standard of Nigerians where prices of goods and services are skyrocketing, Nigeria’s inflation at 24.08 percent as of July 2023 may be pushing lower naira notes further into extinction due to the cost of production of these notes.
The worst affected is the cost of producing smaller notes like N5, N10, N20 and N50 denominations.
As a result of this, the Central Bank of Nigeria (CBN) is intensifying efforts on a cashless policy where fewer naira notes will be in circulation.
The cashless policy was first launched in 2012 and it was launched under the CBN’s mandate in Section 2(d) and 47 of the CBN’s Act. It started on a pilot basis in Lagos State and there was the introduction of limits on transactions on N500,000 and N3 million for individuals and corporate customers, respectively, and with charges for any amount above this.
The pilot scheme was very successful and following that, the policy was extended to five other states of Abia, Anambra, Kano, Ogun and Rivers in July 2013.
Ten years on, the policy had been amended severally due to feedback from stakeholders.
Commenting on the cashless policy earlier in the year, Aishah Ahmad, Deputy Governor, Financial System Stability of the CBN, said, “Upward reviews of the initial withdrawal limits for both individuals and corporate entities have been done in response to feedback the apex bank got”.
In the last quarter of 2022 and the first quarter of 2023, Nigeria’s attempt to replace its high denomination currency notes less than a month before a crucial general election has put a spotlight on the local capacity of Nigeria’s print company.
The CBN attempted to replace N200, N500 and N1,000 notes thereby neglecting lower denominations.
Naira notes and coins are printed and minted by the Nigerian Security Printing and Minting Plc (NSPM) and, sometimes, other overseas companies and issued by the CBN.
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The CBN is mandated by law to ensure the quality, control and receipt of finished naira banknotes and coins. Also, Section 18(d) of the CBN Act 2007 authorises the CBN to regularly, under strict security, destroy currency notes and coins withdrawn from circulation deemed unfit.
Findings showed that the cost of producing the lower denominations was too expensive.
A retired director at the CBN, who spoke on condition of anonymity, told Daily Independent that the last attempt at printing lower denominations saw a huge loss to the country.
He said, “When the CBN, through the Nigerian Security Printing and Minting Plc (NSPM) printed lower denominations, it cost the bank N200 to print each lower denomination while N500 and N1000 notes cost higher due to more security features.
“So, I can tell you that any time the bank prints lower denominations it was at a loss and as a result, it is not a decent deal”.
Findings also showed that the lower denominations are not seen in circulation because they are almost not useful for any purchase.
A trader at Ogba market in Lagos, Mrs. Tito Adigwu, who spoke to Daily Independent, said the reason for the disappearance of lower denominations in circulation is that there is no need for them.
She said, “There is virtually nothing to buy with N10, N20 and even N50 notes. Inflation has swept them away. A small pack of biscuits is N100, while sweets and candies are not in N10 and N20 brackets.
“You can see that we no longer need the lower denominations. I think that is why the CBN and banks are only waiting for the return of these notes back to the banks’ vaults”.
Dr. Taiwo Abina, a financial analyst, said the gradual disappearance of the lower denominations is understandable.
“Aside from national pride, it makes no economic sense to print the lower denominations which are in polymer at a time like this. That was why the coins were systematically phased out.
“The inflation at 24.08 percent is indeed hurting the economy, the nation’s currency and Nigerians’ purchasing power and so, the lower denominations will be almost not useful at all.”
