Naira Redesign: Lessons from India’s 2016 demonitisation policy

In its latest move to curb naira inflation, the Central Bank of Nigeria (CBN) announced last week that it would redesign the N200, N500, and N1,000 notes and start circulating them from December 15, 2023.

The CBN Governor, Godwin Emefiele, explained that the proposed redesign would not only help curb inflation by mopping up excess liquidity outside the banking system but also improve the value of the naira.

The apex bank then gave Nigerians 100 days to return the old naira notes in their possession to the banks, as they would no longer be acceptable legal tender by February 1, 2023.

As expected, the policy move has elicited different reactions from experts and regular Nigerians. There have been criticisms and praises for the CBN. But the truth is that Nigeria is not the first country to implement such a move. But how did it work for those that have tried it before now?

The Indian example

The last major developing economy to implement such a policy move was India. In 2016, the demonetisation policy of the Reserve Bank of India involved stopping the circulation of R500 and R1,000 notes for six months.

Prior to this, India’s Prime Minister, Narendra Modi, had declared that the magnitude of cash in circulation was directly linked to corruption in the country. According to him, “inflation becomes worse through the deployment of cash earned in corrupt ways. The poor have to bear the brunt of this. It has a direct effect on the purchasing power of the poor and the middle class.”

To break the grip of corruption and black money, the Indian Government announced that R500 and R1000 currency notes would no longer be legal tender effective November 8th, 2016.

“This means that these notes will not be acceptable for transactions from midnight onwards. The five hundred and thousand rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper.
“This step will strengthen the hands of the common man in the fight against corruption, black money, and fake currency,” the government explained.
How did it end for India?
India’s Central Bank claimed the move was a “success” as its annual report showed that 99.3% of the banknotes were returned, despite the difficulties it caused poor Indians who had to endure long queues to get their banknotes changed.

However, Bloomberg reported that the scheme froze “agriculture and small businesses with a liquidity shock, put people through unnecessary hardship, disrupt supply chains, and destroy demand for everything from autos to property, the result can’t be such a gigantic anticlimax: 107 billion rupees ($1.5 billion) weeded out from a $2.5 trillion economy”.

A year after the policy was implemented, net savings in India was 50% lower than the five-year average before demonetization. This means that India’s policy failed to leave banks flush with household savings that they could lend to productive parts of the economy.

Bloomberg Data showed that Indian Currency in circulation was 18 trillion rupees by the time the demonization was announced. Just over a year later, it had risen to 20 trillion rupees.

India’s GDP and economic response

On the GDP side, the lost man productivity hours caused India’s economy to fall to a four-year low of 6.5 in 2017-18% against 7.1% in 2016-17.

The demonetisation drive also caused major job losses, as it wiped out at least 1% of India’s GDP and cost at least 1.5 million jobs.

Palaniappan Chidambaram, India’s ex-finance minister warned that India paid a “huge price” with its demonetisation policy.

“Indian economy lost 1.5% of GDP in terms of growth, That alone was a loss of Rs 2.25 lakh crore [2.25tn] a year. Over 100 lives were lost. 15 crore [150m] daily wage earners lost their livelihood for several weeks. Thousands of SME units were shut down. Lakhs [hundreds of thousands] of jobs were destroyed,” he said.



The Central Bank of Nigeria’s currency redesign policy might as well be a waste of time, judging from the Indian example. It will affect the most vulnerable in society (the unbanked) the most.

Nigeria must make efforts not to repeat the mistakes India made. The International Monetary Fund (IMF) recently urged the Central Bank of Nigeria (CBN) to apply caution in its bid to redesign the naira to curb inflation.