Amid the scarcity of Naira notes, Nigerians seem to be dumping the country’s currency for Dollar as the country’s external reserves went down by –1.97 per cent since the Central Bank of Nigeria (CBN) announced its plan to redesign the Naira notes.

The central bank informed Nigerians on October 26, 2023, that the N200, N500 and N1,000 notes would be redesigned to mop up the N2.7 trillion cash in circulation that the Deposit Money Banks (DMBs) can’t account for.

CBN had revealed that over N3.3 trillion cash was in circulation, but N2.7 trillion of the cash is outside bank vaults, and to mop up the currencies, the financial regulator said redesigning the Naira notes was necessary.

Between the period CBN announced the plan to redesign the Naira notes to February 16, 2023, the external reserves dropped by $741.57 million, from $37.52 billion to $36.77 billion, Ripples Nigeria learnt from figures obtained from CBN.

Within four months, between October and January, the foreign reserves fell by -3.28 per cent or $1.25 billion to $36.99 billion as of January 31, 2023, from $38.25 billion the reserves closed September 2022.

Are Nigerians dumping Naira for Dollars?

Some of the cash in circulation, according to the central bank, is hoarded by persons who earned local currencies through illicit businesses.

The CBN governor, Godwin Emefiele, had disclosed that the Naira redesign policy was forcing hoarders to bring out the stashed Naira notes

As a result, the cash in circulation has dropped to N1.39 trillion as of January 2023, from N3.3 trillion reported in October 2022.

However, it seems as the hoarders of the Naira are freeing up the local currencies, they are hoarding the United States Dollar (USD) to replace the banknotes.

Fitch, a credit ratings agency, had warned that Nigerians might start demanding for foreign currencies due to the scarcity of Naira notes caused by the Naira redesign policy.

“Associated cash shortages may hit consumer spending and boost demand for foreign currency, aggravating foreign-exchange shortages,” Fitch wrote in its report titled ‘Nigeria’s Economic Challenges Highlight Importance of Post-Election Policies’.

Indications

Ripples Nigeria analysis showed that demand pressure for Dollars has risen based on the increase in the foreign exchange rates in the official and black markets.

Since the central bank announced the Naira redesign plan, the exchange rate between the Dollar and the Naira has appreciated by 4.48 per cent in the official market, trading at N461.50 kobo/$1 as of Monday, February 21, 2023, from N441.67/$1 as of October 26, 2022

In the black market, demand pressure for Dollars has also weakened the Naira by –3.05 per cent, with the parallel market’s exchange rate appreciating to N775/$1 by Monday, from N752/$1.

Emefiele had stated that the Naira redesign policy will positively impact the value of the local currency, however, the reverse has been the case.

The black market has been a source of obtaining and hoarding Dollars without a trace for many legal and illicit business owners, likewise the official market.

CBN had stated that the hoarding of the Dollar was affecting the external reserves, as traders obtain the USD from the official market for international transactions, but don’t repatriate the foreign currency after concluding their trade