The naira (sign: ₦; code: NGN) is the currency of Nigeria. The Central Bank of Nigeria (CBN) is the sole issuer of legal tender money throughout the Federal Republic of Nigeria and controls the volume of money supplied in the economy in order to ensure monetary and price stability.
The naira was introduced on 1 January 1973, replacing the Nigerian pound at a rate of £1 = ₦2. The coins of the new currency were the first coins issued by an independent Nigeria, as all circulating coins of the Nigerian pound were struck by the colonial government of the Federation of Nigeria in 1959, with the name of Queen Elizabeth II on the obverse. This also made Nigeria the last country in the world to abandon the £sd currency system in favour of a decimal currency system.
There was a government plan to redenominate the naira at 100:1 in 2008, but the plan was suspended. The Central Bank of Nigeria claimed that they attempted to control the annual inflation rate below 10%. In 2011, the CBN increased key interest rate six times, rising from 6.25% to 12%.
In 1973, coins were introduced in denominations of 1⁄2, 1, 5, 10 and 25 kobo, with the 1⁄2 and 1 kobo in bronze and the higher denominations in cupro-nickel. The 1⁄2 kobo coins were minted only that year. In 1991, smaller 1, 10 and 25 kobo coins were issued in copper-plated-steel, along with nickel-plated-steel 50 kobo and ₦1. On 28 February 2007, new coins were issued in denominations of 50 kobo, ₦1 and ₦2, with the ₦1 and ₦2 bimetallic.
On 1 January 1973, the Central Bank of Nigeria introduced notes for 50 kobo, ₦1, ₦5, ₦10 and ₦20. In April 1984, the colors of all naira banknotes were changed in an attempt to control money laundering. In 1991, ₦50 notes were issued, while the 50 kobo and ₦1 notes were replaced by coins in 1991. New versions of the ₦5 to ₦50 banknotes were introduced on 28 February 2007. Originally the ₦10, ₦20 and ₦50 were to be polymer banknotes, but the ₦5, ₦10 and ₦50 were delayed to late 2009 and only the ₦20 was released in polymer.
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On the ₦1,000 notes, there is a subtle shiny strip running down the back of the note to prevent counterfeiting. The strip is a shimmery gold color showing ₦1,000 and has a triangular shape in the middle of the front of the note which changes its color from green to blue when tilted. The main feature on the front is the engraved portraits of Alhaji Aliyu Mai-Bornu and Dr.
On the first prints of the ₦100 notes issued starting 1 December 1999, Zuma Rock was captioned as located in Federal Capital Territory, while actually it is situated in Niger State. In 2012, the Central Bank of Nigeria was considering the introduction of new currency denominations of ₦5,000. On 12 November 2014, the Central Bank of Nigeria issued a ₦100 commemorative note to celebrate the centennial of Nigeria's existence. The notes are similar to its regular issue with the portrait of Chief Obafemi Awolowo on the front, but are redesigned to include a new color scheme, revised security features, and the text "One Nigeria, Great Promise" in microprinting. Dr. Alhaji Aliyu Mai-Bornu, Dr.
The naira was scheduled for redenomination in August 2008, although this was cancelled by then-President Umaru Musa Yar'Adua, with 100 old naira to become 1 new naira. The Nigerian Central Bank stated that it would make the naira fully convertible against foreign currencies by 2009. Currently, the amount of foreign currency is regulated through weekly auctions, while the Central Bank sets the exchange rate. The naira appreciated against the dollar through 2007 due to high oil revenues.
With the Nigerian Naira now exchanging in the official forex market at market-determined rates, a significant market distortion has been removed. This has several potential effects:
- Significant rise in government debt in naira terms by about N12 trillion to N90 trillion.
- Government’s revenue will increase in naira terms resulting in a higher tax/revenue to GDP ratio.
- There should be some cost savings as the government discontinues the various FX interventions.
- The country will attract FX inflows, especially from portfolio investors, FDI, and exporters proceeds.
Overall, this is a positive move. However, the government needs to manage the ensuing dynamics to ensure confidence. The aggregate demand for FX across markets should reduce as the round-tripping incentive is removed, for instance, people who fake foreign travels just to get FX at discounted rates. Public debate is vital for reform.
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2022 Currency Redesign and Its Impact
In 2022, a policy was implemented by the Central Bank of Nigeria (CBN) to redesign and replace the highest denomination banknotes: the ₦200, ₦500, and ₦1,000 notes.
The Central Bank of Nigeria cited several reasons for the currency redesign and the associated demonetization policy, noting that, by global best practice, currency should be redesigned every 5 to 8 years, and the Naira was long overdue. The CBN announced its naira redesign policy. The redesign primarily focused on changing the color palette and enhancing the security features of the affected denominations. Unlike some previous currency changes, the core images (portraits of national figures and other symbols) on the front and back of the notes remained largely the same, though the aesthetic details were modernized.
The 2023 Nigerian currency crisis was precipitated in January 2023 by a shortage of naira cash amid an attempt by the Nigerian government to force citizens to use newly-designed notes, which the government said would help stem the tide of vote-buying in the lead-up to the 2023 general elections.
The scarcity of both old and new notes led to a prolonged cash crunch across Nigeria, severely impacting the economy. Businesses, particularly those in the informal sector which relies heavily on cash, suffered significant losses. The policy was highly controversial, with critics arguing the timing (just before the 2023 general elections) and implementation were flawed.
A major cash crunch occurred in February 2023 when the Nigerian government used a currency note changeover-delivering too few of the new notes into circulation-to attempt to force citizens to use a newly created government-sponsored central bank digital currency.
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Naira redesign policy and the Nigerian economy
Exchange Rates and Market Dynamics
The disparity between the official and parallel market exchange rates is a key feature of Nigeria's currency landscape. As of recent data, the parallel market rate for the U.S. dollar is significantly higher than the official Central Bank of Nigeria rate. This difference reflects the supply and demand dynamics in the unofficial market, often influenced by factors such as speculation, scarcity, and regulatory constraints.
The naira's exchange rate to the dollar experienced a notable shift following the removal of the currency peg. For instance, in June 2023, the end of Nigeria's currency peg resulted in the biggest fall in the naira's history, highlighting the volatility and sensitivity of the currency to policy changes.
The Central Bank of Nigeria (CBN) has historically intervened in the foreign exchange market to manage the naira's value. These interventions include weekly auctions and setting exchange rates. However, these measures have sometimes been insufficient to bridge the gap between the official and parallel market rates.
The parallel market, also known as the black market, operates outside the formal banking system. It is influenced by factors such as supply and demand, speculation, and regulatory loopholes. The exchange rates in this market are often less favorable than official rates, reflecting the higher risk and informality associated with these transactions.
Table: Key Events in Naira's History
| Year | Event |
|---|---|
| 1973 | Naira introduced, replacing the Nigerian pound |
| 1984 | Colors of all naira banknotes changed to control money laundering |
| 1991 | ₦50 notes introduced; 50 kobo and ₦1 notes replaced by coins |
| 2007 | New versions of ₦5 to ₦50 banknotes introduced |
| 2008 | Plan to redenominate the naira suspended |
| 2022 | Policy to redesign and replace ₦200, ₦500, and ₦1,000 notes |
| 2023 | Currency crisis due to shortage of new notes |
Conclusion
The naira's journey has been marked by significant policy changes, economic challenges, and market dynamics. Understanding the parallel market and the factors influencing exchange rates is crucial for businesses and individuals operating in Nigeria. The recent currency redesign and policy adjustments reflect ongoing efforts to stabilize the currency and address economic challenges, but their effectiveness remains a subject of debate and scrutiny.
Nigerian Naira Coins
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