Nigeria’s drive to replace its currency notes with newly designed ones has created a shortage of cash, leaving people unable to buy what they need and forcing businesses to close across the West African nation.
The Central Bank of Nigeria says the redesigned denominations of 200, 500 and 1,000 naira notes and new limits on large cash withdrawals would help curb money laundering and make digital payments the norm in Africa’s biggest economy.
However, the process to replace the old currency notes is “rushed,” and commercial banks don’t have enough new cash to give to customers, pushing demand higher than supply, said Ayokunle Olubunmi with Nigeria’s main ratings agency, Agusto and Co.
The central bank “doesn’t want us to be spending cash; they want us to be doing transactions electronically, but you can’t legislate a change in behavior,” Olubunmi stated.
Additionally, he opined, “You have to make people see reasons and ensure those channels are reliable.”
The Nigerian government is pushing for a cashless economy that is more inclusive and says the changes will drive economic growth.
Critics are skeptical, pointing to decades of chronic corruption in which government officials are known to loot public funds and create more hardship for the many struggling with poverty.
The central bank Governor, Godwin Emefiele, disclosed over the weekend that as of October, more than 80% of the 3.2 trillion naira ($7.2 billion) in circulation in Nigeria was in private hands, but 75% of that has now been deposited with financial institutions.
The central bank Governor extended the deadline for Nigerians to deposit their old banknotes by 10 days, to February 10, 2023. The initial deadline for old notes to either be used or deposited at banks. was January 31, 2023.
Digital payments run by banks are often unreliable in Nigeria, leaving businesses struggling as growing numbers of customers have been unable to find the cash to pay for goods and services. The situation has created a parallel market for people to illegally sell the new banknotes, the Nigeria secret police divulged.
According to Muda Yusuf, Head of the Nigeria Center for Promotion of Private Enterprise, the cash supply crisis has disrupted such sales across the country, forcing a good number of businesses to shut down.
“The two critical sectors of the economy; trade and commerce as well as agriculture have been very badly affected because they do a lot of transactions in cash, especially in rural areas. This policy has brought their economic activities to a halt.”
Muda Yusuf
Yusuf suggested that authorities should allow more time for the old notes to be gradually replaced by the new ones.
“To make matters worse, the supply is extremely limited. Economic activities have been practically crippled as some people have locked their shops,” Yusuf added.
Redesigned Banknotes Hoped To Curb The Use Of Money To Influence Upcoming Election
Nigerian authorities said the redesigned banknotes and new withdrawal limits would help curb the use of money to influence the February 25 presidential election, though experts argue the currency changes are being done at the expense of most Nigerians. They’re already facing inflation of 21.3%, a 37% increase in the rate in a year.
“The currency redesign will also assist in the fight against corruption as the exercise will reign in the higher denomination used for corruption and the movement of such funds from the banking system could be tracked easily.”
Godwin Emefiele, the central bank Governor
Tunde Ajileye, a partner at Lagos-based SBM Intelligence firm, noted that “All these together are causing significant hardship in both rural and urban areas, (and) the hardship for people is merely collateral damage to the political class.”
Nigeria’s currency has not been redesigned in 19 years.
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