1.0 chapter one

introduction

1.1 Background to the Study

The Central Bank of Nigeria (CBN) revealed a new initiative on October 26, 2022, to revamp Nigeria's three biggest denomination banknotes: the 200, 500, and 1000. On December 15, 2022, new notes with enhanced security features and various hues entered circulation (CBN, 2022). An unusual cash constraint was caused by the Apex Bank's plan to demonetize the old notes by February 10, 2023 and circulate just a certain number of the new notes (Adegboyega, 2023). Transactions through e-banking channels proved particularly challenging, especially for the poor, unbanked, and unliterate parts of the population, since there was a clear infrastructure shortage for a cashless economy to effectively take off in Nigeria. Therefore, the new programme elicited responses from Nigerians.

A portion of the political class in the nation expressed outrage, claiming that the CBN was being used as an attack dog by the government to bankrupt politicians in advance of the February and March 2023 national elections. Many economic analysts believed that the scheme would have a disastrous impact on Nigeria's economy, especially given how quickly it was developed, planned, and put into action. Numerous people who felt the initiative was superfluous condemned it for things as petty as the belief that the new notes were essentially "recolored" versions of the old notes and not "redesigned," which is typical of Nigerian public discourse (Nwanma, 2023).

Foreign Exchange rate has been a major concern to policy makers in Nigeria due to its adverse effects on household purchasing power and the Nigerian economy. The foreign exchange market has come under intense pressure leading to the depreciation of the Naira and the widening of the premium between the inter-bank exchange rate and the Bureau de Change (BDC) rate. In a bid to realign the exchange rate, the Central Bank of Nigeria (CBN) embarked on several policy measures which included moving to a more flexible exchange rate regime in June 2016. Furthermore, to deepen the foreign exchange market and narrow the premium, the CBN introduced the Investors and Exporters (I&E) window, primarily to boost liquidity in the market and ensure timely execution and settlement of eligible transactions

Over the past few years, the Nigerian Naira has declined dramatically, and the Central Bank of Nigeria (CBN) has made various attempts to stabilize it with varying degrees of success. The bank has depreciated the naira three times since the beginning of 2020 as a result of strain on the nation's foreign reserves brought on by a decline in oil earnings.

Furthermore it was shown by certain financial analysts' predictions, the Central Bank of Nigeria (CBN)'s naira redesign policy has actually made the currency weaker against the US dollar, which negatively affected the performance of the economy. On December 15, 2022, the CBN issued new currency notes and established withdrawal caps for both private persons and corporate entities. But the N200, N500, and N1,000 notes are in limited supply all over the nation as a result of what is regarded to be a bad implementation. As a result, the naira has lost value in comparison to other currencies, most notably the dollar. The dollar-to-naira exchange rate on the black market increased from N736 in December 2022 to N765 in February 2023. The official exchange rate, or Nafex, has also changed, going from N449.05 in December 2022 to N461 in February 2023. Factors that affect the exchange rate of foreign currencies to a currency include: interest rates, inflation, terms of trade, and public debt, according to economists. According to Nwanma, (2023)  The country's demand for foreign currency would increase as a result of the depreciation of the naira, which would eventually result in a shortage of foreign exchange. Additionally, the naira shortages would boost consumer spending.

1.2 STATEMENT OF PROBLEM

An analysis carried out by Nwanma, (2023) demonstrated that since the banking regulator stated on October 26, 2022, that it will redesign the Naira notes, the value of the Naira had fallen by around -4.48 percent. The cost of purchasing the US dollar (USD) increased by N19.83 kobo at the CBN-backed foreign exchange window. The official market exchange rate was N441.67 kobo to $1 the day before the CBN governor announced the Naira policy, but it increased to N461.50 kobo to $1 as of February 10, 2023. Many people are not surprised by the Naira's decline in the official market since it demonstrates how severely the CBN's Naira redesign programme has affected the value of the Nigerian currency..

Again In a publication by Nwanma, (2023)  It was said that "the currency redesign programme could have a detrimental impact on the naira's exchange rate. Additionally, the Naira redesign policy has made it difficult for consumers and companies to obtain local currency in Nigeria due to a shortage of banknotes. Since Point of Sale (PoS) companies charge N1,000 or N1,500 for a N5,000 withdrawal, many Nigerians are purchasing Naira notes at a premium. Due to the need to purchase more Naira in order to buy the USD, which is likewise hard to come by, on the official or illicit market, there are now more Naira pursuing the USD. In addition, dealers who bought USD in the official market for less than N500 but sold it on the black market for more than N700 to profit from the cost of doing so have caused the exchange rate to soar. Again The exchange rate has increased, which has raised the price of goods and services as more Naira notes chase a few Dollars. The price that traders pay to purchase dollars on the official market in order to import their products into the nation is passed on to the consumers. According to reports, businesses and people are trying in vain to acquire the US dollar for legitimate reasons like importing essential raw materials and equipment. Where resources are already accessible, the high exchange rate is already increasing the cost of manufacturing, which raises the cost of goods and services. It is to the study centers on The Impact of Naira Redesign on Foreign Exchange Rate in Nigeria

1.3 Objectives Of The Study

The major aim of the study is to examine the impact of naira redesign on foreign exchange rate in Nigeria. Other specific objectives of the study include;

1)To outline the economic impact of Naira redesign in Nigeria

2) To examine the consequences of Naira redesign on the Economy of Nigeria

3) Impact of Naira Redesign on Foreign Exchange Rate in Nigeria

4) To examine the relationship between inflation caused by Naira redesign and   Foreign exchange rate in Nigeria 

1.4 RESEARCH QUESTIONS

1) What is the economic impact of Naira redesign in Nigeria?

2) What are the consequences of Naira redesign on the Economy of Nigeria?

3) What is the significant Impact of Naira Redesign on Foreign Exchange Rate in Nigeria?

4) what is significant relationship between inflation caused by Naira redesign and   Foreign exchange rate in Nigeria?

1.5 HYPOTHESES

Hypothesis 1

HO: There is no significant impact of Naira re design on Foreign exchange rate

Hypothesis 2

HO: There is no significant impact of interest rate prompted by Naira redesign on Foreign exchange rate

1.6 Significance of the study

The study will give various insights into the various implications the introduction of the Naira design will have on foreign exchange rate in the economy of Nigeria. Through examining various economic indicators such as inflation , interest rate  the study will examine and compare trends and changes to determine whether the Naira redesign  introduced by the CBN has a negative or positive effect on Exchange rate.

Various challenges and prospects identified in the study will also enable various stakeholders to tackle these challenges effectively by making policies that will address them and boost the economy of Nigeria.

1.7 Scope of the study

The Study Will Be Delimited To The Impact Of Naira Redesign On Foreign Exchange Rate In Nigeria2010-2022

1.8 Organization of the study

The study will be divided into five chapters. The first chapter will contain the introduction,  the second chapter will deal with relevant studies found in the literature and that are related to the study. The third chapter will deal with research methodology. Fourth chapter will deal with the analysis and Finally, chapters five will contain the summary, conclusions and recommendations which are derived from this study.

1.9 Limitation of the study

The researcher was faced with the following constraints in carrying out this study:

Time: The time within the researcher is too short to carry on the detail study on this topic.

Resources: Another constraint of the researcher is financial resources to carry on the detail study of this topic.

Data: Another limitation to this study will be lack of data to make valid study on the research problem.

1.10 Operational definition of terms

Foreign exchange rate: exchange rate is the rate at which one currency will be exchanged for another currency.

Interest rate: The interest rate is the amount a lender charges a borrower and is a percentage of the principal the amount loaned

Inflation: Inflation refers to a broad rise in the prices of goods and services across the economy over time, eroding purchasing power for both consumers and businesses