The time and short transition period to the redesigned Naira notes will have a negative impact on economic activities in Nigeria with dire consequences on the poorest households in particular, the World Bank has warned.
In its latest Nigeria Development Updates, December 2022, the multilateral institution agreed with the Central Bank of Nigeria (CBN) that the need to redesign the nation’s currency was over due as the naira has not been redesigned for two decades.
The Bank, however posited that international experience such as policy when rapidly implemented generate significant short-term costs especially on small businesses and poor households.
The redesigned N200, N500 and N1000 naira notes came into circulation on Thursday December 15th while the old ones will cease to be legal tenders from January 31st 2023.
The World Bank stated: “The CBN announced on October 26, 2022, that it planned to redesign, produce, and circulate new series of Nigerian Naira (N) 200, 500 and 1,000 notes (equivalent to roughly $0.5, $1, and $2 at the official rate). The three notes are the highest denominations out of the eight legal tender notes in Nigeria. Following the launch of the new designs on November 23, 2022, the new currency notes are to be circulated from December 15, 2022, with both the new and existing notes considered legal tender until January 31, 2023.
“Thereafter, only the new notes will be legal tender. Bank charges on cash deposits have been suspended to facilitate the transition. While periodic currency redesigns are normal internationally and the Naira does appear to be due for it, since Naira notes have not been redesigned for two decades, the timing of and short transition period for this demonetisation may have negative impacts on economic activity, in particular for the poorest households. International experience suggests that rapid demonetisations can generate significant short-term costs, with small-scale businesses, and poor and vulnerable households, potentially being particularly affected due to being liquidity-constrained and heavily reliant on day-to-day cash transactions. At present, households and firms already face elevated financial pressures from prolonged, high inflation, recently compounded by external food and fuel price shocks, and the severe floods, and phasing out existing Naira notes over a short time period may add to their challenges.”