Currency Redesign Takes A Year Or More, World Bank Tells CBN
Reacting to the Central Bank of Nigeria naira swap deadline, the World Bank Nigeria has said though it is normal to have periodic currency redesigns and demonetisation, such a transition usually takes about one year or more.
The World Bankade this known in an email response to Punch’s enquiry on Wednesday.
According to the World Bank’s Senior External Affairs Officer for Nigeria, Mansir Nasir, the bank was concerned about the short transition period announced by the CBN.
The email response read, “Periodic currency redesigns and demonetization of older notes are normal internationally. However, they usually involve transition periods of one year or longer so as to minimize economic disruption.
“After the Central Bank of Nigeria announced the naira redesign on October 26, 2022, with a short implementation timeframe through January 31, 2023 (now extended for a short additional period until February 10, 2023), the World Bank expressed concern about the timing and short transition period (see Nigeria Development Update, December 2022).”
The bank said rapid demonetisation could be costly to small businesses and poor and vulnerable households.
It added that it was highly unlikely that digital payments would increase fast enough to cover up for the shortage of new notes.
“This concern is based on international experience which suggests that rapid demonetizations can generate significant short-term costs, with small-scale businesses, and poor and vulnerable households, including in rural areas, being particularly affected as they are liquidity-constrained and rely heavily on day-to-day cash transactions.
“It is highly unlikely that digital payments can increase quickly enough to compensate for the shortage of new notes; according to the latest available data (from before this policy), only 45 per cent of Nigerian adults had a bank account, 34 per cent reported paying or receiving money digitally over the past year, and only 9 per cent made an in-store payment by digital means.
‘’Digitisation is a structural challenge that will take time and require a systematic approach, especially to address inclusion challenges,’’ it affirmed.
The Bretton Woods institution further explained that households and firms already faced elevated financial pressures from prolonged high inflation recently compounded by external food and fuel price shocks and the phasing out of existing naira notes over a short time period may add to their challenges.
“In view of the apparent ongoing scarcity of new notes and the potential adverse economic and social impacts should the shortage of cash persist, the World Bank remains concerned about the short timeframe and would encourage the authorities to consider allowing a longer period for the redesign,” it added.