By the end of January, Nigerians have the opportunity to exchange their highest-value banknotes for newly issued notes, with the aim of injecting about 2.7 trillion naira (US$6 billion) into the regular banking system.

The new banknotes have been in circulation since December 15th and the central bank is changing the colours of the 200, 500 and 1000 naira notes. The central bank hopes that when people stop using the old notes, they will start managing their daily finances through electronic payments.

What’s the Significance of This?

It is much more difficult for the central bank to do its job when almost 85% of local currency does not go through the banking system and more than 90% of transactions are done with cash. Godwin Emefiele, the bank’s governor, stated that this monetary move will help control inflation which is spreading rapidly. Kidnappings are on the rise in the country, with bandits abducting thousands of Nigerians every year and their relatives often paying for their release with cash.

What Can Go Wrong?

Since 2015, the amount of cash in circulation has doubled to 3.23 trillion naira, and almost half of the population does not have a bank account. Banks are at risk of being overwhelmed in the near future with new customers wanting to open an account to deposit old banknotes.

What Are Banks Doing?

They have launched advertising campaigns and hired 1.4 million agents who have fanned out across markets and rural areas to encourage people to open accounts. The central bank temporarily halted fees on cash deposits and ordered lenders to open branches on Saturdays to encourage people to hand over old banknotes.

The Reaction of Nigerians?

Many rushed to buy dollars and this caused a temporary shortage of US currency and the naira went to a record low for a short period. Zainab Ahmed, the finance minister, questioned the policy, saying it could weaken the currency and slow economic growth. President Muhammadu Buhari has backed the minister and sees it as a way to fight corruption.