Inflation: CBN to reduce the volume of N500 and N1000 notes in circulation

• CBN to reduce the volume of N500, and N1000 notes in circulation
• Who will be affected by this policy?

Godwin Emefiele, the governor of Nigeria’s central bank, has announced that the apex bank intends to reduce the volume of N500 and N1000 notes in circulation “over time.”

The governor stated this during his press conference at the monetary policy communique on November 22nd, 2022. He was responding to questions about how easy it is to counterfeit 1,000 naira notes and whether there are plans to reduce the volume.

Mr. Emefiele claimed the effort is aimed at reducing inflation, which he blamed in part on higher-denominated naira notes.

Emefiele’s speech:

He began with the United Kingdom as an example; “In the UK they have a denomination of 50 pounds but the most spent denomination is 20 pounds. Nobody spends 50 pounds. If you go around carrying 50 pounds in the UK they will suspect sic report you in fact.”

And then he made a comparison to Nigeria; “The reverse is what is happening in Nigeria. Nigerians want to carry N500 and N1000. And in fact, we are beginning to think that increasing the high denomination is also part of what is fueling inflation. So in fact, yes we will launch N200, N500, and N1000 over time we will reduce the volume of N500 and N1000 in circulation. Let people carry N50 around. “

The alternative is electronic banking; “if you want to do high-value transactions, embrace online, embrace our agency program, embrace our mobile banking program, that is what you need”

Who will be affected by this policy?

If the central bank continues with this policy, as Emefiele suggested, some people in the economy will be affected.

Businesses that rely heavily on cash will suffer greatly because they will need to carry a greater volume of smaller-denominated notes to facilitate transactions. On the other hand, because the policy encourages more online transactions, this will benefit electronic banking.

READ MORE: Naira redesign: CBN launches countdown clock

Politicians who primarily conduct cash-based transactions, particularly during elections, will need to use smaller denominations or find other ways to fund cash-based election expenses. This will also have an impact on partygoers who enjoy spraying money.

Mr. Emefiele’s remark is sure to spark more debate among economists and analysts, who frequently regard some of his off-the-cuff remarks as detrimental to the economy’s standing.

The governor also advocated for contactless banking, which will be welcomed by FinTech firms that have invested heavily in this sector.

Source: nairametrics.com