The World Bank has raised alarm over the economic impact on on businesses and households as a result of the redesign of new naira notes.
In a report, titled ‘Nigeria Development Update December 2022 – Nigeria’s Choice’, Nigeria’s economic performance has weakened since the previous report was published in June 2022 under the title of “The Continuing Urgency of Business Unusual”.
“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,” the report states.
According to the report, the World Bank notes that the timing and short transition period of the Nigerian naira redesign may weigh on economic activity.
“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 US$0.5, US$1, and US$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,” the institution said.
The report states that the timing and short transition period for the demonetization may have negative impacts on economic activity, in particular for the poorest households.
“International experience suggests that rapid demonetizations 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,”.
It adds that economic activity in most major economies had slowed down in 2022 amid high inflation and central banks shifting towards contractionary monetary policies.