Nigeria's currency, the naira, has dropped to a record low against the U.S. dollar as Nigerians scramble to buy U.S. currency ahead of a redesign of naira notes. Nigerian authorities say replacing the notes will reduce inflation, combat counterfeiting and bring more money into circulation. But security and economic experts warn the move could damage Nigeria's economy.
It's been just over a week since the Central Bank of Nigeria (CBN) announced its plan to redesign the country’s highest paper denominations - the 200-, 500- and 1,000-naira notes.
Tijani Salisu, a black-market dealer of foreign currencies, said the demand for U.S. dollars has jumped since the announcement. On Thursday, the naira traded at 860 to the dollar, nearly double the official bank rate.
"People are coming with the naira to buy dollars and keep because of this situation,” Salisu said. “And if you go to the bank to withdraw dollars, you can't find dollars in the bank.”
The new naira notes will begin circulating in mid-December, and the old notes will cease to be legal tender by the end of January, according to the CBN.
The central bank says the move will put more money in circulation. Currently, an estimated 85% of all money in Nigeria is stashed away in homes, outside the banking system.
The CBN also says the new notes will help authorities curb fake currencies in circulation and keep criminals in check.
Experts fault the timing of the decision. Economist and head of the Center for Social Justice, Eze Onyekpere, said with the holiday season and elections set for next year, the decision could harm Nigeria's economy.
"This intervention is very wrongly timed, and it appears to address a challenge for which it cannot provide a solution,” he said. “We're discussing 15th December which is very close to the festive season of Christmas and new year and the height of commerce. It's not a particularly good period where you start asking people to pay in their money. Normally this should take between three to six months; there's no need to stampede people."
Last Friday, the International Monetary Fund (IMF) warned authorities to be cautious and not allow the decision to affect the confidence citizens have in the local currency and financial institutions.
Mike Ejiofor, a former director of the Department of State Services, said the redesigning of the currency can do the country much good, even though there might be initial hurdles to cross.
"For me, I think it's a welcome development and the timing for me is most appropriate,” he said. “Don't also forget that some kidnappers have monies stashed in their houses. It will also help the regulatory agencies, security agencies monitor inflow and outflow of cash. If these monies are withdrawn, the tendencies of politicians to go and buy votes will not be there. It will make the naira appreciate."
Exchanging the old tender for the new will be especially hard for Nigerians in rural areas who do not have easy access to banking services. Experts say that unless the CBN changes its timetable, more than 40% of Nigerians could lose their life savings when the old notes expire early next year.