World Bank Raises Concern Over Economic Effects Of Naira Redesign

World Bank Raises Concern Over Economic Effects Of Naira Redesign

The World Bank has expressed concern about the recent naira redesign’s economic impact on Nigerian households and businesses.

President Muhammadu Buhari unveiled the newly designed N1,000, N500, and N200 notes on November 23, as proposed by the Central Bank of Nigeria (CBN).

The World Bank raised the issues in a 68-page report titled ‘Nigeria Development Update December 2022 – Nigeria’s Choice (English)’. According to the financial institution, Nigeria’s economic performance has weakened in line with the global economic environment since the previous report, “The Continuing Urgency of Business Unusual,” was published in June 2022.

“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.

According to the World Bank, the timing and short transition period of the Nigerian naira redesign may have an impact on economic activity.

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“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 common around the world, and the naira appears to be due for one, as naira notes have not been redesigned in over two decades. However, it claimed that the timing of the demonetisation and the short transition period could have “negative effects on economic activity, particularly 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 had slowed in most major economies in 2022 due to 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.

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