The World Bank has expressed concern over the economic impact of the recent naira redesign on Nigerian households and businesses.
The newly designed N1,000, N500 and N200 notes were unveiled by President Muhammadu Buhari on November 23 as proposed by the Central Bank of Nigeria (CBN).
The issues raised by the World Bank were contained in a 68-page report titled ‘Nigeria Development Update December 2022 – Nigeria’s Choice (English)’.
According to the financial institution, similar to the global economic environment, 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,” it stated.
The World Bank stated 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 World Bank acknowledged that periodic currency redesigns are normal internationally and the naira appears to be due for it, since naira notes have not been redesigned for two decades.
But it argued that the timing of and short transition period for the 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,” the global financial body explained.
It noted that economic activity in most major economies had slowed in 2022 amid high inflation and central banks shifting toward “contractionary” monetary policies.
“External financing conditions, particularly for governments and private borrowers in frontier markets such as Nigeria, have tightened, as the US dollar has appreciated sharply against most other currencies to historically strong levels, and global benchmark interest rates have risen.
“Moving into 2023, growth in most regions is expected to weaken further, and uncertainty regarding the outlook remains elevated, partly because of key unknowns such as future developments related to the Russian Federation’s invasion of Ukraine,” the World Bank stated.