At the beginning of 2017, Nigeria’s central bank announced plans to scrap its rejection of old or torn United States dollars, alongside the introduction of an informal notice for traders to stop accepting old banknotes. The policy was apparently introduced in 2014 after the Central Bank of Nigeria (CBN) had spent “more than N1.6 billion” replacing the old currency. The Bank also said it could not afford to replace the notes, and that it was concerned about counterfeit notes.
As we all know, cryptocurrency has been in the news lately for one reason or the other. One of the reasons why some governments have been skeptical of cryptos is that they are a currency that is not issued by a central bank or a government. This has led to concerns about how, if they should be adopted, they will be regulated. Recently, the government of Nigeria has made the news for a different reason. The government has instructed banks in the country to stop rejecting torn or defaced USD notes. This has been seen as a step in the right direction.
In early April 2021, the Central Bank of Nigeria (CBN) issued a circular warning Nigerian institutions to stop the practice of disposing of old US dollar notes or small denominations. The CBN issued this warning after being inundated with complaints from citizens about the refusal of these notes by banks and other authorised dealers.
Refusal of counterfeit or stamped U.S. dollar bills
A circular issued by Ahmed Umar, director of the foreign exchange department of the CBN, says the central bank will impose sanctions on institutions that refuse to accept the old series/small dollar notes of their customers.
Moreover, the CBN has warned the same institutions to stop spoiling/stamping US dollar bills as they invariably pass the authenticity test when processed or sorted.
Meanwhile, Nigeria is not the only African country affected by inflation and in this difficult situation. In Zimbabwe, where the value of the currency has also collapsed in recent years, the transfer of old or tattered US dollars remains a problem. At one point, the US Embassy in Harare was forced to issue a statement assuring Zimbabweans that all US banknotes were still legal tender, regardless of when they were issued.
U.S. Embassy Insurance
In its September 2020 statement, the U.S. Embassy said:
A note which is heavily soiled, dirty, damaged, dilapidated, torn or worn, which is clearly larger than half the size of the original note and which does not require special examination to determine its value is not considered to be damaged.
This message was later confirmed by the Reserve Bank of Zimbabwe (RBNZ) in December 2020 when it sought to end the practice.
But despite these insurances, torn or worn banknotes are still refused by companies and citizens. In addition, the continued surrender of old or worn US dollar bills has created a new black market for this currency. According to a report, some Zimbabwean currency traders are charging a premium of up to 50% for some torn or old US dollar notes.
While the U.S. dollar is a proven alternative to local fiat currencies, it’s disadvantages like these that make cryptocurrencies an even better option. Crypto assets like Bitcoin (BTC) or Bitcoin Cash (BCH) are therefore not only safe from local inflation and depreciation, but also allow users to pay the amount they want without worrying about the small dollar bills or tattered notes they receive as change.
In cases where a payment needs to be made across the border, cryptocurrencies are again the best option as the recipient receives the exact amount owed. As the central banks of Nigeria and Zimbabwe have found, coercion will not force people to accept any currency, including the US dollar.
On the contrary, innovative and reliable money has the best chance of solving this problem.
What do you think about handing in old or torn banknotes? Tell us what you think in the comments below.
Tags in this story
BCH, BTC, Central Bank of Nigeria, crypto currency, currency abolition, devaluation, inflation, Nigeria, Reserve Bank of Zimbabwe, US dollar, US dollar bills.
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