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New Nigeria banknotes may have mixed results

Thursday, December 15, 2022

Significance

This follows an October 26 Central Bank of Nigeria (CBN) statement announcing the withdrawal of older notes from circulation. The CBN argued this was necessary to check counterfeiting, to mop up currency outside the banking system and to restrain inflation. The announcement triggered a major short-term fall in the naira’s exchange rate on the parallel market.

Impacts

  • The conversion of old notes may provide opportunities for increasing financial inclusion.
  • The new policy may make vote-buying for the 2023 elections more difficult due to the reduced availability of cash.
  • If it faces escalating US dollar shortages, the CBN may intensify US dollar rationing.
  • The new CBN policies may negatively impact the cash-dependent informal sector.

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