In the face of a record inflation rate, the Central Bank of Nigeria, CBN, within the week, announced the redesigning of Naira’s higher denominations in a bid to take control of money in circulation.
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| Naira Notes |
The apex bank set January 31st as the deadline to phase out the existing N200, N500, and N1,000 notes out of circulation and replace them with new notes.
The CBN governor, Godwin Emefiele, while announcing the new policy, said over 85% of Naira notes are outside the vaults of the commercial banks. The CBN governor said specifically, out of the N3.23 trillion in circulation, over N2.27 are out of the vaults of the commercial banks.
“To be more specific, as at the end of September 2022, available data at the CBN indicate 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 the public,” he said.
This situation takes away the power of the CBN to regulate money in circulation through monetary policy.
It would be recalled that the bank had raised the Cash Reserve Ratio from 22.5% to 32.5% in order to reduce money in circulation and curb inflation.
To curb inflation, the CBN uses monetary policies to regulate total money in circulation. By reducing the quantity of money in circulation, it helps to curb demand-push inflation, which is derived from the “more money chasing fewer goods” principle.
If truly over 85% of cash in circulation are outside the vault of the commercial banks, then the monetary policy of the bank may not be able to have the desired effect on inflation which stands above 23% as of September.
Aside from inflation, the other issue the CBN is trying to checkmate is the money in the hands of bandits sourced from ransom.
According to Emefiele “the bank is convinced that “the incidents of terrorism and kidnapping would be minimized as access to large volume of money outside the banking system used as source of funds for ransom payment will begin to dry up.”
Section 20(3) gives the CBN the power to recall notes, subject to the approval of the president. DailyPostNG
