This is the extract of a paper of the same title posted on SSRN (Social Science Research Network). You can download the full paper (in PDF format) here.
Naira notes have attracted global attention at the turn of 2023 for the wrong reasons. The currency redesign policy was a needless exercise that turned out to be a chaotic wild goose chase, until the Supreme Court suspended it on legal grounds.
The Supreme Court Ruling has however not completely taken the issue off the table as the N200, N500, and N1,000 currency notes may still cease to be legal tender by 31 December 2023. The policy choice Nigeria must make is whether to replace the old notes with new ones of the same face values or with new notes of larger face values.
With N1,000 note that is worth US$2.17 at N440/US$ official exchange rate as the highest denomination, the Naira is an extremely short measuring rod. The average face value of Naira (dividing total value of Naira notes of N3.32 trillion, worth US$7.64 billion, by the total pieces of Naira notes of 9.75 billion) is even shorter at N 340.97 or US$0.78.
At less than US$1 per Naira note, Nigeria has inadvertently printed far too many pieces of these small value notes to be easily manageable by CBN. The reason the CBN could never have printed enough of the N200, N500, and N1,000 new notes was that there were well over 5 billion pieces of them in circulation, and there was no way the CBN could have printed that much even if they had two years to do so.
The pieces of Naira notes in circulation had exploded to 9.75 billion pieces by December 2021. This piece demonstrates that the introduction of N2,000, N5,000, N10,000, and N20,000 notes that would be equivalent to US$4 to US$50 now is the sensible way to drastically reduce the pieces of Naira notes in circulation to between half a billion and a billion pieces before the end of 2023.