In a move aimed at boosting the national economy and addressing inflation concerns, the Central Bank of Nigeria has unveiled a new 'Strategic Agenda for the Naira'. This announcement has sparked a lively national debate, leading up to a nationwide enlightenment program that will commence on November 2 to educate the public about the new policy. As we delve into this new agenda, it is crucial to understand the comprehensive nature of the four-point plan.
The strategic agenda aims to achieve multiple objectives that include anchoring inflation expectations, bolstering public confidence in the Naira, facilitating easier conversion to major currencies, eliminating currency substitution, reducing the cost of currency production and distribution, promoting the usage of coins, ensuring cleaner notes availability, deepening the Forex market, enhancing liquidity management, strengthening monetary policy, boosting the Naira's convertibility and inspiring confidence in the national economy, ultimately positioning the Naira as the 'Reference currency' in Africa.
While the new policy addresses various aspects, most of the questions raised thus far seem to revolve around currency re-denomination. It is important to note that similar concerns were raised during currency redenomination exercises in other countries, including Ghana, which is currently implementing a similar initiative. To shed light on these concerns, the Central Bank of Nigeria has provided some clarifications:
What is currency redenomination?
Currency redenomination involves replacing the existing unit of money with a new one, usually with a specific ratio. This process aims to rectify perceived misalignments in currency and pricing structures while enhancing the credibility of the local currency.
How will the Naira be redenominated?
The redenomination process entails dropping two zeros from the currency or shifting two decimal places to the left. The national currency will retain its name, the Naira. However, during the transition period, the existing Naira will be referred to as the "Old Naira," while the new currency will be called the "New Naira." After the transition period, the designation "New" may be dropped.
The conversion will result in the following equivalents:
Old Naira
(as of today)
New Naira
(from January 2024)
50 kobo
Half kobo
N1 = 1 kobo coin
N2 = 2 kobo coin
N5 = 5 kobo coin
N10 = 10 kobo coin
N20 = 20 kobo coin
N50 = 50 kobo coin or note
N100 = N1 note
N200 = N2 note
N500 = N5 note
N1000 = N10 note
N2000* = N20 note
How will the transition work?
The 'new Naira' coins and notes will have different designs, appearances, and security features compared to the existing ones. Assets and liabilities, prices, fees, rents, contracts, salaries, and wages denominated in Naira will be re-denominated by dropping two zeroes or moving two decimal points to the left. During the transition period, prices will be quoted in both the new and old Naira, and individuals can choose whether to pay in either currency.
This five-month transition period aims to familiarize everyone with the conversion process and highlight the advantages of transacting in the 'new Naira.' Prices will be displayed in both currencies in formal markets, supermarkets, and other venues where negotiation is not the norm. In informal markets, negotiations can still be conducted in 'old Naira,' converting to 'new Naira' if desired. By observing this transition period, price increases due to rounding-up can be avoided, and people will become accustomed to the conversion.
During this time, it will become evident that N50,000 of 'old Naira' holds the same purchasing power as N500 of the 'new Naira.' As a result, many individuals may prefer to transact in the 'new Naira' rather than the 'old Naira.' For example, if a bag of garri currently sells for N2,000 (in 'old Naira'), the price in 'new Naira' will automatically be N20. Customers can choose to pay either N2,000 in 'old Naira' or N20 in the 'new Naira.' This parity of value will influence decisions regarding the currency used in transactions.
In terms of banking, if you have N50,000 in your account, it will automatically become N500 in the 'new Naira.' Withdrawals can be made in either 'new Naira' or 'old Naira' during the transition period. The same flexibility applies to salaries, allowing individuals to choose between 'new Naira' and 'old Naira' for their monthly income. The purchasing power remains the same, regardless of the currency chosen.
To provide further clarity, consider the following examples of price equivalents in both the old and new Naira:
House rent (e.g., a flat in some parts of Nigeria): N5,000 per month = N50 per month
Stock price of a company: Assume it is N20 or N80 = 20 kobo or 80 kobo
Airline ticket for domestic flight: N12,500 = N125
Fuel price: N500 = N5
Exchange rate: N to US$ - Assume it is N125 or N130 or N100 to US$1 = N1.25 = US$1 or N1.30 = US$1 or N1 = US$1
This decision to re-denominate the currency demonstrates the Central Bank of Nigeria's commitment to alleviating Nigerians' suffering and combating inflation. As we prepare for the switch to the 'new Naira,' it is essential to share this message widely and ensure that everyone is well-prepared for the new currency notes. A sense of hope and renewal is on the horizon for Nigeria.
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