5 reasons CBN’s naira redesign policy has not been successful - NESG

The Nigerian Economic Summit Group (NESG) has highlighted some of the reasons for the less-than-commendable rate of success of the Naira redesign and swap policy recently initiated by the Central Bank of Nigeria.

The NESG noted this in its recent report titled, "NAIRA REDESIGN POLICY: CAUGHT IN THE WEB," released in February 2023 where it analysed the CBN's intent for the policy, the issues that have emanated so far and the likely outcome of prolonged cash crunch.

The private policy advocacy group stated that the CBN's plan to redesign the country's currency which is authorised by Section 18(a) and (b) of the CBN Act of 2007 could not have come at a worse time when Nigeria was already dealing with biting fuel scarcity, inflation and other economic woes.

It however put forward the possible reasons for which the policy has been clouded in controversies and likely unsuccessful level.

Improper timing

One of the major reasons the naira redesign policy has somewhat not been successful is the relative short timeframe for implementation. It would be recalled that the CBN launched the new naira notes in November and set a deadline of January 31st for the depositing of old naira notes.

The period for which the CBN had decided to implement the policy are periods known for the high spending and increased use of cash. First, the end of December is the Yuletide season and then the month that follows is the peak of the electioneering season.

The demand for cash is stronger than usual during these periods. Restricting cash in circulation only inflicted hardship on the people despite the policy's good intentions.

High level of informality

Nigerian has a substantially large informal sector said to be contributing about 65% to the country's Gross Domestic Product (GDP). As it usually is with countries with large informal sector, currency outside the banking system is usually much and until the share of the informal sector drastically declines, the currency outside banks votes will likely keep increasing.

Low rate of financial inclusion

Much of Nigeria's population is unbanked and financially excluded. As a result, it is most difficult for those in this category to gain access to the new banknotes when it is already hard enough for those with bank accounts to get them.

So, until a large number of unbanked Nigerians are brought into the financial system, the CBN will continue to find it strenuous controlling the circulation of currency outside the banking system.

Ineffective policy coordination

Right from when the CBN announced the policy in October 2022, it became apparent that the policy lacked effective coordination with the Ministry of Finance claiming to have no knowledge about the policy.

Even some state governors at different times spoke against the timing and appropriateness of the policy, casting doubts in the minds of Nigerians about the workability of the policy and enforcement of the deadline.

The lack of coordination undermines investors' confidence and causes apprehension ahead of the country's general elections.

Lack of public sensitisation & stakeholders' engagement

Even though the constitutional right to implement the naira redesign policy lies with the CBN, the process was however truncated by its failure to carry along stakeholders in its conception and implementation of the policy.

In addition, the CBN failed to carry out enough publicity and sensitisation of the general public, resulting in delays in adjusting to the policy as seen in recent reports.

As laudable as the CBN's naira redesign policy may be, one can not help admitting the myriad of unintended challenges that has caused hardship to many Nigerians which has resulted in protests from different quarters.

It is as a result of this that the NESG has given some recommendations to help reverse the adverse socio-economic effect and help restore confidence in the financial system. The NESG recommends that the CBN allows a gradual phaseout of the old notes.

By so doing, the CBN should reconsider allowing the side-by-side usage of old and new notes until the old notes eventually all return to bank vaults.

Also, the CBN should expedite the printing of new notes and forge a more transparent distribution channel for efficient delivery of new notes to banks and other financial institutions.

Lastly, the CBN should help strengthen digital infrastructure to expand the capacity of the digital financial system to accommodate the mass migration to digital channels.