The Central Bank of Nigeria has announced a new strategic agenda for the Naira. The new agenda has generated a healthy national debate. Before we begin a nationwide enlightenment program (starting on November 2) to educate the public about the new policy, it is important to address some of the emerging issues and questions.
It is needless to emphasize that in order to fully appreciate the impact of the new policy on the Naira and the national economy, we need to consider the four-point agenda as a package. As a package, the new agenda will:
1. Better anchor inflation expectations.
2. Strengthen public confidence in the Naira.
3. Make it easier to convert to other major currencies.
4. Reverse the tendency for currency substitution.
5. Eliminate higher denomination notes with lower purchasing power.
6. Reduce the cost of production, distribution, and processing of currency.
7. Promote the usage of coins and create a more efficient pricing and payments system.
8. Promote the availability of cleaner notes.
9. Deepen the Forex market.
10. Ensure more effective liquidity management and monetary policy.
11. Increase convertibility of the Naira and hence greater confidence in the national economy, leading to greater inflow of foreign investment.
12. Position the Naira to become the “Reference currency” in Africa.
However, most of the questions so far only pertain to one aspect of the agenda, which is currency re-denomination. We have been monitoring the reactions so far, and we note that the concerns and questions raised are similar to the ones raised in all the countries that have undergone re-denomination, including Ghana, which is still implementing it now. We clarify some of the concerns as follows:
1. What is currency redenomination? Currency redenomination is the process of replacing the old unit of money with a new unit at a certain ratio. It is achieved by removing zeros from a currency or moving decimal points to the left. The aim is to correct perceived misalignment in the currency and pricing structure and enhance the credibility of the local currency.
2. How will the Naira be redenominated? It will be done by dropping two zeros from the currency or moving two decimal places to the left. The name of the national currency will still be the Naira. However, during the transition period, the existing Naira will be referred to as the “Old Naira” and the new one will be called the “New Naira”. After the transition period, the word “New” may be dropped. For example, the following equivalents will be obtained after the redenomination:
Old Naira New Naira
1 (i.e., Existing Naira today) = 1 kobo coin
2 (i.e., Existing Naira today) = 2 kobo coin
5 (i.e., Existing Naira today) = 5 kobo coin
…and so on.
The new Naira coins and notes will have different designs, appearances, and security features from the existing ones. All Naira assets and liabilities, prices, fees, rents, and contracts, including salaries and wages, will be redenominated by dropping two zeroes or moving two decimal points to the left. During the transition period, prices will be quoted in both the new Naira and the Old Naira, and individuals can choose whether to pay in the new or old Naira.
These five months will be allowed so that everyone can become familiar with the conversion. It will become evident to everyone why they would prefer to transact in the new Naira rather than the old Naira. For example, if a bag of garri sells for N2,000 (Old Naira), the price in the new Naira will automatically be N20. The customer can choose to pay either N2,000 in old Naira or N20 in the new Naira.
During the transition period, prices will be displayed in both the old and new Naira in supermarkets and formal markets. In informal markets where prices are negotiated, the negotiation can be done in the old Naira as usual and converted into the new Naira if the customer prefers to pay with it. This will ensure that prices do not rise due to rounding-up.
The five months are also needed for everyone, both in the formal and informal sectors, to become fully familiar with the conversion. It will become obvious to everyone that N50,000 of the old Naira has the same purchasing power as N500 of the new Naira. Consequently, if you have N50,000 in your bank account, it will automatically become N500 in the new Naira. The same applies to someone whose monthly salary is N50,000.
Examples of price equivalents in the new and old Naira can be seen below:
House rent (e.g., a flat in some parts of Nigeria): N5000 per month = N50 per month (new Naira)
Stock price of a company: Assume it is, say, N20 or N80 (new Naira) = 20 kobo or 80 kobo (old Naira)
Airline ticket for domestic flight: N12,500 = N125 (new Naira)
Fuel Price: N500 = N5 (new Naira)
Exchange rate: N to US$ Assume it is, say, N125, N130, or N100 to US$1 = N1.25 = US$1, N1.30 = US$1, N1 = US$1
This decision has been taken by the Central Bank of Nigeria under the directive of President Bola Ahmed Tinubu to reduce the suffering of Nigerians and slow down inflation. If you possess the old Naira, start getting ready to switch to the new Naira. This message is meant to prepare Nigeria for the upcoming changes. Please share it across various platforms to create awareness.
The announcement of the new strategic agenda for the Naira by the Central Bank of Nigeria has sparked extensive discussion and debate nationwide. Prior to launching an enlightment program to inform the public about the new policy, it is crucial to address emerging issues and questions.
It should be emphasized that to fully comprehend the impact of the new agenda on the Naira and the national economy, it is important to consider the entire four-point agenda as a comprehensive package. The new agenda aims to achieve various objectives, including better anchoring inflation expectations, strengthening public confidence in the Naira, improving the ease of converting to other major currencies, reversing the trend of currency substitution, eliminating higher denomination notes with lower purchasing power, and reducing the cost of currency production, distribution, and processing.
Additionally, the agenda seeks to promote the usage of coins, create a more efficient pricing and payments system, ensure the availability of cleaner notes, deepen the Forex market, enable more effective liquidity management and monetary policy, increase the convertibility of the Naira, boost confidence in the national economy, attract greater foreign investment, and ultimately position the Naira as the reference currency in Africa.
However, the majority of questions and concerns raised thus far have solely pertained to one aspect of the agenda, which is currency redenomination. It is worth noting that similar concerns and questions have been raised in other countries that have undergone redenomination, including Ghana, which is currently implementing it. In order to address these concerns, clarification of various aspects is essential.
To begin, currency redenomination is the process of replacing the old unit of money with a new unit at a specific ratio. This typically involves removing zeros from a currency or shifting decimal points to the left. The aim is to correct perceived misalignment in the currency and pricing structure while enhancing the credibility of the local currency.
In the case of the Naira, redenomination will involve dropping two zeros from the currency or moving two decimal places to the left. The name of the national currency will still be the Naira. During the transition period, the existing Naira will be referred to as the “Old Naira,” while the new unit will be called the “New Naira.” After the transition period, the word “New” may be dropped. For example, under the new system, 1 Naira will be equivalent to 1 kobo coin, 2 Naira will be equivalent to 2 kobo coin, 5 Naira will be equivalent to 5 kobo coin, and so on.
The new Naira coins and notes will feature different designs, appearances, and security features compared to the existing currency. All Naira assets and liabilities, prices, fees, rents, contracts, salaries, and wages will be redenominated by dropping two zeros or moving two decimal points to the left. During the transition period, prices will be quoted in both the new and old Naira, giving individuals the choice to pay in either currency.
This five-month transition period will allow everyone to become familiar with the conversion process and understand the benefits of using the new Naira over the old Naira. For instance, if a bag of garri currently sells for N2,000 in the old Naira, the price in the new Naira will be automatically adjusted to N20. Customers can choose to pay either N2,000 in the old Naira or N20 in the new Naira.
In supermarkets and formal markets, prices will be displayed in both the old and new Naira. In informal markets where prices are negotiated, individuals can continue to negotiate in the old Naira if they prefer, with conversion to the new Naira if desired. This approach aims to ensure that prices do not rise as a result of rounding-up.
The five-month transition period is crucial for everyone in both formal and informal sectors to become fully accustomed to the conversion process. Over time, it will become apparent to all that N50,000 of the old Naira holds the same purchasing power as N500 of the new Naira. Therefore, if someone has N50,000 in their bank account, it will automatically become N500 in the new Naira, and the same applies to monthly salaries of N50,000.
Examples of price equivalents in the new and old Naira include house rent, stock prices, airline tickets, fuel prices, and exchange rates. The conversion aims to simplify transactions and make calculations easier for individuals.
This decision to redenominate the Naira has been taken by the Central Bank of Nigeria under the directive of President Bola Ahmed Tinubu with the objective of alleviating the suffering of Nigerians and curbing inflation. It is important for everyone to prepare for the transition from the old Naira to the new Naira.
•This message aims to create awareness and encourage individuals to share it across various platforms.
