Following the harsh impact of the naira redesign policy on economic activities across the country, the Nigeria Economic Summit Group (NESG) has joined other concerned groups to advise the Central Bank of Nigeria (CBN) to make some adjustments for the successful implementation of the policy.
In its report titled: “Naira Redesign Policy: Caught in the Web,” the NESG urged the CBN to adopt a gradual phasing out of the old naira notes by allowing them to co-circulate with the redesigned notes, per ThisDay.
The old notes stopped being a legal tender on February 10, following the expiration of the deadline issued by the central bank. Given the currency scarcity resulting from the premature phasing out of the old notes, the NESG said allowing both the old and new notes to coexist would stave off further adverse socio-economic effects the implementation of the policy is currently having on the economy and will restore confidence in the country’s financial system.
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“As laudable as the aims of the CBN were in its decision to redesign the currency, the evidence is that there has been a myriad of unintended challenges, which have been significantly disruptive to economic activity and negatively affected the welfare of citizens. Urgent redress is, therefore, required to stave off further adverse socio-economic effects and to restore confidence in the financial system,” the report said.
The group, having applauded the policy initiative, warned that the prolongation of the new naira notes scarcity will result in further slowdown in Nigeria’s economic activities. The NESG warned that cash shortage may force many productive activities to shut down, especially in the informal sector which controls about 65 percent of Nigeria’s GDP but runs primarily on cash.
The NESG said due to the consequential hardship of the policy on households and businesses, the CBN needs to reconsider prolonging the legal tender usage of the old notes side-by-side with the new notes.
“This is important to give the CBN the opportunity and time to devise effective ways of getting the new note to the unbanked populace and rural dwellers that constitute a large portion of the informal economy. As such, a gradual phasing out of the old note is advised,” the group said.
The NESG advised that the CBN should among other things, expedite the printing of new notes and streamline their distribution channels to ensure efficient delivery of the new notes to commercial banks and other financial institutions. This, it said, will help ensure an adequate supply of cash to meet the public’s demand and reduce long queues and other inconveniences.
The cash crunch resulting from the policy exposed the incapability of Nigeria’s digital financial system, as more people shift to digital transactions.
The NESG said there is an urgent need to expand the capacity of the digital financial system to accommodate the mass migration to digital channels.
“This is important to ensure a seamless transition to digital channels as alternatives to cash. The difficulty experienced by people attempting to use digital channels for transactions suggests that payment platforms are not adequately mature to adjust quickly to a cashless economy,” it said.
In addition to its impact on the informal sector, the NESG noted that the naira redesign policy is capable of dampening investors’ confidence in Nigeria, indicating the need for better policies that will boost financial inclusion.
“Policies such as this further compound the level of uncertainty in the economy, which disincentivises investors from committing their funds to the Nigerian economy.
“With nearly 40 per cent of the adult population being excluded from the financial system, the challenges emanating from the cash crunch following the redesign will amplify the trust deficit in the financial system.
“Hence, many more people will resort to stacking up cash. This will be against the cashless policy agenda of the CBN and will defeat the essence of the Naira redesign policy,” the group warned.
Like NESG, the Manufacturers Association of Nigeria (MAN) had earlier warned that the policy will yield job losses in the labor market by the first quarter of 2023.