Naira crisis could fuel distrust in financial system – NESG

The Nigerian Economic Summit Group (NESG) has said the Central Bank’s naira redesign policy could generate distrust in Nigeria’s financial system if the naira crisis lingers.

In a recent report titled ‘Naira Redesign Policy: Caught in the Web’, the private policy advocacy group, said with nearly 40 percent of the adult population being excluded from the financial system, the challenges emanating from the cash crunch following the redesign, will amplify the trust deficit in the financial system.

“Hence, many more people will resort to stacking up cash. This will be against the cashless policy agenda of the Central Bank of Nigeria (CBN) and will defeat the essence of the naira redesign policy,” it said.

Apart from distrust in the country’s financial system, the report revealed that low rate of financial inclusion is one of the other reasons why the policy has not taken off successfully.

According to Enhancing Financial Innovation and Access, the financial inclusion rate was estimated at 64.1 percent in 2020.

“Much of the population is unbanked, making it difficult for this group to access the new banknotes beyond the difficulties those with bank accounts face.

“Unless a large chunk of unbanked adults is absorbed into the financial system, the CBN will find it arduous to rein in the currency outside the bank vaults,” it said.

Last October, the CBN announced that the N200, N500 and N1, 000 notes would be redesigned and introduced into the economy from December 15, 2022.

The apex bank also said the deadline for the collection of the old naira notes was January 31, 2023. But it was later extended to February 10.

But for more than three weeks, banknotes, both old and new, have been scarce in the country, with many Automated Teller Machines not dispensing money to customers.

This has made many bank customers who need small cash to pay for transport fares and other urgent needs to patronise Point of Sale agents, most of whom are charging higher fees. They charge between N1, 000 and N2, 000 for N10, 000.

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NESG said the policy is beginning to take a toll on Nigeria as the economy suffers from a significant decline in the volume and value of cash in circulation.

“According to CBN data, the currency’s value in circulation closed at three trillion naira in 2022, below its values of N3.3 trillion and N3.2 trillion in October and November 2022, respectively.

“To beat the Jan 31 2023, deadline for the old notes, people rushed to banks to deposit these notes. As of mid-December 2022, only 500 million pieces of redesigned notes estimated at N390.3 billion had been made available by the CBN,” it said.

The private think-tank added that the redesigned notes should amount to N2.9 trillion in circulation to match the currency absorbed from circulation. “This resulted in a shortfall of N2.5 trillion, translating into an 86 percent decline in total currency in circulation in three months.”

Taiwo Oyedele, West Africa tax leader at PwC Nigeria, said via his twitter handle that rather than achieve more financial inclusion and widespread adoption of e-payment, the country may inadvertently be pushing many Nigerians into the stone age of trade by barter given the epileptic bank transfers being experienced over the past few days.

“It is counterproductive to seek to implement a cashless economy abruptly at the same time the new naira notes are being rolled out in limited quantities within a very limited timeframe,” he said.

He said the focus at this time should be not to lose the support of the masses for the new policy while collecting data about those who are withdrawing unusually large sums for necessary actions subsequently.

President Muhammadu Buhari in a nationwide broadcast last week, approved that the old N200 note be released back into circulation for the next 60 days.

The President also approved that all existing old N,1000 and N500 notes remain redeemable at the CBN and designated points, in line with Section 20(3) of the CBN Act 2007.

“To further ease the supply pressures particularly to our citizens, I have given approval to the CBN that the old N200 bank notes be released back into circulation and that it should also be allowed to circulate as legal tender with the new N200, N500, and N1000 banknotes for 60 days from February 10, 2023 to April 10 2023 when the old N200 notes ceases to be legal tender,” he said.

The NESG report recommends that urgent redress is therefore required to stave off further adverse socio-economic effects and to restore confidence in the financial system.

“Adopt gradual phase out of old notes, expedite the printing of new notes, intensify public sensitization and strengthen the digital infrastructure.”