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07030248044ABSTRACT
This research examined the impact of currency re-design on economic development in Nigeria. Relevant conceptual, theoretical and empirical literature was reviewed. The result revealed that changes in currency re-designs have significant impact on government expenditure in Nigeria. The finding of the study also reveals that changes in currency re-designs have significant impact on the level of inflation in Nigeria. The findings of the study also reveal that. The finding of the study also reveals that changes in currency re-designs have significant impact real gross domestic product in Nigeria. The findings of the study reveal that relative contributions of oil revenue have significant impact on total government income and government capital expenditure in Nigeria. It was therefore concluded that changes in currency re-design significantly impact the government expenditure and economic growth in Nigeria. It was recommended that policymakers should invest in improved security features for the currency.
CHAPTER ONE
INTRODUCTION
Background of the Study
Currency reforms were seen as the cornerstone for further fortifying the macroeconomic framework. In particular, monetary transmission was viewed as crucial since it gave the government more control over macroeconomic policy the more the populace relied on the local currency as opposed to dollars.Over time, Nigeria has seen the introduction and revamping of its circulating currencies, with the CBN pivoting to maintain stability (Ghalayini, ‘2011). The Central Bank of Nigeria recently stated that the operations and performance of this sector directly affect achieving macroeconomic goals and enhancing the economy (CBN 2022) issued a statement that it has concluded plans to redesign the Naira. The extraordinary decision was made, according to the CBN Governor, in large part due to money hoarding, inflation, and counterfeiting. According to the CBN, of the N3.23 trillion in money in circulation in Nigeria, approximately N2.73 trillion is stored outside of bank vaults.This represents around 85% of the entire amount of money in use. Additionally, the Naira is not as secure as it should be because it is simpler to counterfeit notes worth N500 and N1000.
Experts in policy, including economists, lawyers, and others, have been debating this subject in depth. Many of them believe that these policy changes will have little or no economic impact for the populace and are merely a diversion from the nation's dire economic woes. According to the CBN's most recent report, the 2020 Currency Report, 67,265 counterfeit notes totaling N56.83 million in nominal value were seized in 2020, representing a 20.80% decrease in volume and 12.18% decrease in value compared to 84,934 pieces valued at N64.71 million in 2019.100 is the global average for counterfeits per million. In 2020, there were 13 pieces of counterfeit currency for every million banknotes in circulation, down from 20 pieces per million in 2019.This demonstrates that the problem of counterfeit money is not as pervasive as would require a modification of the currency. In 2008, Turkmenistan completely and orderly overhauled its currency system, which in many ways serves as a model for other nations. For instance, Afghanistan in recent years, of decline in its currency value, a new Afghanistan designed was introduced, with many zeroes abolished, meant to herald Afghanistan from the emergence of civil war.It takes serious effort to refurbish existing currencies (Kregel, 2010). Hyperinflation, exchange rate collapse, widespread currency counterfeiting, war, anxieties, and political instability are all potential drivers.Or it might be a deliberate move, like deciding to join a monetary union like the European Monetary Union. A highly political choice, changing a country's currency is. The needs of the economy are occasionally not addressed by the current currency. The typical currency reform candidate is a cash-based, heavily dollarized economy with many currencies in circulation.
Numbers are the fundamental unit of currency; at this time, paper money, coins, or plastic cards (such as credit or debit cards) serve as the fundamental units of exchange. Although the difference between money and currency is significant in some contexts, for the purposes of this study, the terms are interchangeable (Gary, 1996). People can trade indirectly for products and services thanks to money. It facilitates the exchange of information regarding product prices and gives people a place to save their money. Money doesn't always have worth, whether it's represented by a seashell, a metal coin, a piece of paper, a string of code, or is electronically mined by a computer. Instead, the value that individuals place on it as a medium of exchange determines its overall global value. Over 180 different currencies are in use worldwide in 197 countries (Isabel, 2020). The United States Dollar (USD), the European Euro (EUR), the Japanese Yen (JPY), the British Pound (GBP), the Swiss Franc (CHF), the Canadian Dollar (CAD), the South African Rand (ZAR), the Ghanaian Cedi, the Nigerian Naira, etc. are some examples of these currencies. There are 162 official currencies in use worldwide, however out of those 162, 47 have fixed exchange rates with one another.This implies that, for instance, the Danish Krone is a currency all on its own, yet it has a fixed rate of exchange with the Euro. Other currencies, like the Bahamian dollar, even immediately exchange 1:1 with the USD. The British Pound Sterling is the oldest currency still in circulation. For more than 1,200 years, it extended across Great Britain and all of its colonies, including Nigeria, Ghana, and others.
There are some reserved currencies in the globe. The US dollar, the pound sterling, and the euro are regarded as the most reserved or anchored currencies in the world. A reserved currency is one that is also utilized to some extent as a means of payment outside of its nation of origin.Central banks or other monetary authorities hold these foreign currencies in sizeable amounts as part of their exchange reserves. The restricted currencies are accepted in all international trade, investment, and economic activities. They are sometimes known as safe haven currencies or hard currencies.The US Dollar has emerged as the most important of the reserve currencies. The Central Bank of Nigeria (CBN) consciously uses monetary policy to increase aggregate demand by adjusting the money supply and interest rate. It is crucial to the redesign of the currency as well.The goal of the currency redesign is to collect the enormous quantity of cash that is currently projected to be outside the banking system, which is 2.73 trillion, or nearly 85% of the total amount of cash in circulation. As 85% of the nation's currency is allegedly stashed away in homes outside of the banking system, economic concerns motivating the redesign of the Naira include cutting inflation, preventing counterfeiting, reducing insecurity, and boosting the amount of money in circulation.
According to Antinolfi et al. (2018), monetary policy is a crucial tool that may be utilized to create price stability, control currency, and boost investment growth. According to studies, redesigning the currency is an excellent way to control the amount of money in circulation (International Monetary Fund, 2022; Kregel, 2010). In order to discourage vote-buying and the bribing of election officials, it is sought to reduce the effect of money on the nation's electoral process. The timing of this exercise in Nigeria, as many experts have contended, is consistently incorrect, and this report cannot agree more. The CBN always intends to implement the currency redesign in order to efficiently manage the flow of the currencies, according to the literature that is available(CBN, 2015). Additionally, the brief notice is in place to punish people who launder or hoard Nigerian cash. A central bank implements monetary policy to ensure economic stability, keep unemployment low, safeguard the value of the currency, and promote economic growth, which is why the naira was redesigned. It is based on this background that the present study seeks to examine the impact of currency re design on the Nigeriaeconomy; A case study of CBN.
Statement of the Problem
From November 2022 to March, 2023, the rate of money scarcity in Nigeria due to the naira re-design by the Central Bank of Nigeria (CBN). A lot of people including entrepreneurs, financial organizations as well as other financial strata faced the issues of inflations and general hardship.Studies have shown that the urgent need to redesign and take control of the currency in circulation in a country is to address the problem of hoarding of banknotes outside the banking system, the lack of clean and fit banknotes in circulation, the increase in counterfeiting of high-denomination banknotes, interest rates and inflation, trade, laundering, market expectations, among others. This may have led to the redesign of the naira note. This study is set out to evaluate the impact of currency redesign on the economy of Nigeria.
Objectives of the Study
The major aim of the study is to impact of currency re-designon economic development in Nigeria from 1997 to 2022. Other specific objectives are as follows;
Research Question
The questions were derived from the objectives of the study to give direction to the present study;
Research Hypotheses
The following were hypothesized;
Hypothesis One
H0: There is no significant impact of fluctuations in currency re-designon economic growth (gross domestic product).
Hypothesis Two
There is no significant impact of fluctuations in currency re-designon exchange rates
Hypothesis Three
There is no significant impact of fluctuations in currency re-designon government expenditure.
Significance of the Study
The significance of this study is to examine the impact of currency re-design on economic development of Nigeria. These will also analyzenaira currency as a mono-cultural product base of the Nigeria economy, knowing how much have being earned, the amount invested in other sector of the economy to boost the economic activities and its resultant multiplier effect. Again, the advantages as well as the disadvantages of the currency re-design will also be discussed.
The study would be of immense help to the government, monetary authority, individuals, economists, students, planners, financial analysts, stock brokers and others who might be interested in researching into the field in the future, by shedding more light into the widely held view about the relationship between financial development and economic development.
The results of this study would be significant for the stakeholders in the oil and gas industry and the Nigerian economy at large. It will help to further enrich the literature in this very important area of macroeconomics and finance in Nigeria. Economic planners, policymakers and macroeconomic managers will find this work as a valuable tool for improved economic planning.
Scope and Limitations of the Study
The economy is a large component with lot of diverse and sometimes complex parts; this research work will only look at a particular part of the economy (the education sector). This work cannot cover all the facets that make up the education sector, but will look at the currency re-design as being used by the government for the stabilization and attaining economic development.
The empirical analysis and estimation covers the period between 1999 and 2022. This restriction is unavoidable because of the non-availability of some data.
The main limitation of this study is time constraint. The time allotted for the completion of this research is not adequate based on recent and contemporary happening with respect to the impact of financial literacy on the development of Nigeria economy.
The data for this study would be obtained mainly from secondary sources; particularly from Central Bank of Nigeria (CBN) publications such as the CBN Statistical Bulletin, CBN Annual Reports and Statements of Accounts, and National Bureau of Statistics publications.
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