The World Bank has issued a warning that the short transition period to the redesigned naira notes will have a detrimental effect on economic activity, particularly for the poorest people.
On December 15th, the new N200, N500, and N1000 notes went into circulation. The old notes will no longer be accepted as legal tender as of January 31st, 2019.
The World agreed with the Central Bank of Nigeria (CBN) that a redesign of the country’s currency is long overdue given that the naira has not undergone such a change in its most recent Nigeria Development Update from December 2022.
However, it was emphasized that when quickly applied, international experience such as legislation might have a major negative impact on small enterprises and low-income individuals.
The CBN said on October 26, 2022 that it planned to redesign, print, and distribute new series of Nigerian naira (N) 200, 500, and 1,000 notes.
“Of the eight legal tender notes of Nigeria, the three notes have the highest denomination. The new currency notes will go into circulation starting on December 15 of 2022 after the new designs are introduced on November 23, 2022, with both the new and old notes being accepted as legal money until January 31, 2023.
After then, only the fresh notes will be accepted as payment. To ease the transition, bank fees for cash deposits have been stopped. Although periodic currency redesigns are common throughout the world and the naira does seem due for one, the timing of and short transition period for this demonetization may have adverse effects on economic activity, especially for the poorest households. This is because naira notes have not undergone a redesign in over twenty years.
Due to their liquidity constraints and high reliance on daily cash transactions, small enterprises and poor and vulnerable households may be disproportionately impacted by rapid demonetizations, according to international experience.
“At the moment, households and businesses are already under significant financial strain from protracted, high inflation, which has recently been exacerbated by external shocks to food and fuel prices, as well as the severe floods, and phasing out existing naira notes over a short time period may make things even more difficult for them.”