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The Naira’s Downward Spiral

The naira plunged to record lows against both the dollar and the world’s biggest stablecoin on Friday, 48 hours after the central bank announced plans to replace higher denomination notes of its local currency. The International Monetary Fund has reached out to the central bank to get more information on the plan. The country’s banking regulator plans to issue redesigned 200-, 500- and 1,000-naira notes from mid-December, according to Central Bank Governor Godwin Emefiele. Nigerians have until Jan. 31 to exchange the existing bills for new ones, a tight deadline considering that the central bank wants to mop up 2.7 trillion naira that it says is outside banking vaults. The regulator is also hoping it will prevent currency hoarding and curtail illegal activity including kidnappings-for-ransom in Africa’s largest economy. The central bank is unlikely to get excess cash out of circulation because those that can afford it have already stopped holding naira due to low confidence in the currency, said Bongo Adi, a professor at Lagos Business School. Some traders are also worried about the six-week currency replacement window encompassing the Christmas season, when sales peak.