The Nigerian Economic Summit Group (NESG), a private policy advocacy group, says that the timing subverts the naira redesign policy’s good intentions and inflicts hardship on the people.
According to its new report titled ‘Naira redesign policy: Caught in the web’, the policy’s expected implementation timeframe is relatively short (compared with the experience of the past and other countries), given that the economy is predominantly informal.
“India, a country with a large informal sector, abruptly demonetised approximately 86 percent of its currency in 2016 to combat counterfeiting and black-market dealings,” it said.
It said over several weeks, citizens rushed to banks to redeem their money for new notes and that the economy faced a severe shortage of cash and long lines of people at banks.
“The demonetisation policy has been described as unsuccessful and is estimated to have cost the economy at least one percent of its Gross Domestic Product (GDP) and 1.5 million jobs.”
The report added that Nigeria’s naira redesign policy was situated at a period (the end of the year – the festive season – and the peak of the election season) which comes with high spending and the increased use of cash. “The demand for cash is stronger than usual during these periods. Therefore, the timing subverts the policy’s good intentions and inflicts hardship on the people,” it said.
Apart from improper timing, NESG also identified high level of informality, low rate of financial inclusion, ineffective policy coordination, lack of public sensitisation and stakeholders’ engagement as the other reasons why the policy has not taken off successfully.
Last October, the Central Bank of Nigeria (CBN) announced that the N200, N500 and N1,000 notes would be redesigned and introduced into the economy from December 15, 2022.
The CBN 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 two weeks, banknotes, both old and new, have been scarce in the country, with many Automated Teller Machines (ATMs) 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 (PoS) agents most of whom are charging higher fees. They charge between N1, 000 and N2, 000 for N10,000.
NESG said the cash scarcity associated with the currency redesign policy would likely motivate a slowdown in economic growth as many productive activities have been halted due to the inability to access cash.
“The plummeting of productivity has implications for GDP and a domino effect on other economic indices.”
The private think-tank added that the plunge in GDP could mean fewer job opportunities, increasing poverty incidence, thus adversely impacting the collective economic health of the population.
“As employment opportunities reduce, consumer spending will also decrease, resulting in an economic slowdown. This may consequently lead to decreased government revenue, primarily from non-oil sources,” it said.
Other negative implications of the policy include restrain local trade and regional trade, constrain the informal sector’s trust in the financial system and erosion of investment confidence.
President Muhammadu Buhari in a nationwide broadcast on Thursday, approved that the old N200 note be released back into circulation until April 10.
The president also approved that all existing old N1000 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 cease to be legal tender,” he said.
As laudable as the aims of the CBN were in its decision to redesign the currency, the evidence highlighted above indicates that there has been a myriad of unintended challenges which have been significantly disruptive to economic activity and negatively affected the welfare of citizens, according to NESG.
It recommended that urgent redress was 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 sensitisation and strengthen the digital infrastructure”, NESG said.
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