Naira Redesign: Lessons from India’s 2016 Demonization Policy


In his latest move to curb naira inflation, the Central Bank of Nigeria (CBN) announced last week that redesign the N200, N500 and N1,000 banknotes and will begin to circulate from December 15, 2023.

CBN Governor, Godwin Emfield, explaind that the proposed redesign would not only help curb inflation by absorbing excess liquidity out of the banking system, but would also improve the value of the naira.

The major 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.

Unsurprisingly, the policy move has drawn different reactions from experts and regular Nigerians. There has been criticism and praise for CBN. But the truth is that Nigeria is not the first country to implement such a move. But how did it work for those who have tried it before?

The Indian Example

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

The news continues after this announcement.

Before this, the Prime Minister of India, Narendra Modi, had declared that the magnitude of cash in circulation was directly related to corruption in the country. According to, “Inflation is made worse through the deployment of corruptly earned cash. 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 control of corruption and black money, the Indian government announced that the R500 and R1000 notes will no longer be legal tender as of November 8, 2016.

The news continues after this announcement.

  • “This means that these notes will not be acceptable for transactions after midnight. The five hundred thousand rupees notes hoarded by anti-national and anti-social elements will become mere worthless pieces of paper.
  • “This step will strengthen the hands of the common man in the fight against corruption, black money and counterfeit currency.” the government explained.

How did it end for India?

The Central Bank of India claimed the move was a “success” as its annual report showed that 99.3% of the bills were returned, despite the difficulties it caused for the poor Indians who had to stand in long queues to exchange their bills.

However, Bloomberg reported that the scheme was frozen”agriculture and small business with a liquidity shock, subjecting people to needless hardship, disrupting supply chains and destroying demand for everything from cars to property, the result cannot be such a gigantic anticlimax: Rs 107 billion ($1.5 billion) removed from a $2.5 trillion economy.”

One year after the policy was implemented, net savings in India were 50% lower than the five-year average before demonetization. This means that the Indian policy it has failed leaving banks flush with domestic savings that they could lend to productive parts of the economy.

Bloomberg data showed that The Indian currency in circulation was 18 trillion rupees when the demonization was announced. Just over a year later, it had risen to Rs 20 crore.

GDP and economic response of India

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

The demonetization campaign also caused significant job losses, eliminating at least 1% of India’s GDP and costing at least 1.5 million jobs.

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

  • “The Indian economy lost 1.5% of GDP in terms of growth, that was only a loss of Rs 2.25 lakh crore [2.25tn] one year. More than 100 lives were lost. 15 million rupees [150m] the day laborers lost their livelihood for several weeks. Thousands of SME units were closed. lakhs [hundreds of thousands] of jobs were destroyed he said.

Bottom line

the Central Bank of NigeriaChina’s currency redesign policy could also be a waste of time, judging by the example of India. It will affect the most vulnerable in society (the unbanked) the most.

Nigeria must make efforts not to repeat the mistakes made by India. The International Monetary Fund (IMF) recently urged the Central Bank of Nigeria (CBN) to proceed with caution as it attempts to redesign the naira to curb inflation.


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