In the world of economics, for every policy announcement, there will be a resulting reaction from the economic agents (Individuals, Households, Firms, & Government Institutions).
Every economic agent will want to make rational decisions or, better put, assume a state of rationality; this is a situation of trying to attain “precautionary excellence.”
For instance, when the news about the emergence of Covid-19 was building up, some people immediately started to stock up their homes with food, and some sold their assets for liquids (money). All these were assumed rationality but indirectly served as fuels to the fire of inflation/ economic crisis. And here we are today, about to witness a redesign of some selected naira notes.
To be fair enough, global practices recommendation is that countries of the world should redesign the currency notes every five to eight years. And Nigeria (where the last naira redesign happened about two decades ago) is overdue based on this recommendation.
Now, the problem is more than just the redesign but about the low confidence level of Nigerians in the naira.
We are currently witnessing an economic situation where more value is attached to the dollar currency than the naira currency.
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On the break of the news, as usual, in a bid to be rational or what I may call “financially smart,” many people will want to dispose-off all the naira notes that will soon be declared as old/ useless by January. But what will these people exchange these naira notes with?
The new notes are yet to be available, implying that people will keep trading their current naira notes for dollars.
Yes, you are thinking right; that is more value accumulation for the dollar currency in a country(Nigeria) that has her currency (naira), thereby resulting in more inflation and further depreciation of the naira to the dollar exchange rate. Coupled with the fact that we are approaching the festive season, there could be a massive increase in the prices of commodities.
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The assumed motive of the Central Bank of Nigeria (CBN) will be to use these redesigned notes to drive back value to the naira currency. After all, “value is whatever we attach importance to,” and the new designs might attract some value. Unfortunately, this policy might do more economic harm than good in the short run.
The humble recommendation is that for a developing country like Nigeria, there is a need for the CBN/ Policy makers to be more sensitizing in their approach. The people of Nigeria should be carried along on any policy announcement/ implementation, as this will help build confidence in the economy and thereby increase the “value proposition” in the “Nigeria dream”.
To wrap up, not everyone is paying attention to the selective redesign of some currency notes while others (the lower denomination) are to be left unchanged. Would these old notes become less valuable/attractive to the about-to-be-designed notes? Is it going to be a situation of the new naira notes becoming the “Nigeria Dollar”?
Time should tell.
Written by Ibrahim Babatunde Tiamiyu, Budding International Economics and Finance Analyst.