The naira scarcity is still affecting Nigerians and businesses despite the Central Bank of Nigeria (CBN) belated compliance with the recent Supreme Court judgement that the old naira banknotes will remain legal tender till the end of the year. The currency crunch persists in spite of CBN’s directive to banks to continue to dispense the old banknotes notes in line with the apex court’s decision.
According to a cost-benefit analysis by experts and a think tank group of the CBN’s naira redesign policy and its impact on the citizens and the economy, the Nigerian economy is grinding to a halt with a loss estimated at N20trillion following the over 70 per cent mop-up of the currency by the CBN. A report by the Centre for the Promotion of Private Enterprise, the protracted cash crunch has not only crippled economic activities, it has also become a major risk factor to the livelihoods of Nigerians.
Besides, there is a seeming collapse of the payment system across all platforms. Data from the Nigeria Inter-Bank Settlement System (NIBSS) indicates that the usage of electronic payment or e-payment system recorded an abysmal 41.29 per cent month-on-month rise, while cashless payment gateways used in the month of February were 901.46 million times, up from 638 million times in January. In spite of an increase in usage, the total value of cashless transactions fell in February, indicating that the number of failed transactions increased due to poor network infrastructure. This is contrary to the expectation that the naira redesign policy will increase e-payment transactions in my country.
It is ironical that in spite of the scarcity of currency, the Point of the Sale (PoS) transactions grew from N807billion in January to N883.4billion in February, while mobile transfers soared from 108.14 million times in January 2023 to 183.69 times in February. This is because many customers resorted to using e-payment systems during this period since many banks closed their branches for fear of attacks, and PoS operators cashed in on that to charge huge commission on transactions.
However, transaction value only grew marginally by 7.88 per cent from N2.37trillion in January to N2.56trillion in February. This mirrors the harrowing experience most Nigerians and businesses are going through as a result of acute currency scarcity. There is no doubt that the naira redesign policy has some economic benefits such as promoting cashless transactions, currency hoarding and counterfeiting, illicit money transfer and laundering as well as addressing the huge amount of cash outside the banking system.
Nevertheless, the fallout of the policy has proved disastrous, with far-reaching socioeconomic consequences. Obviously, the federal government and the CBN underestimated the cost-benefit side, which is now causing large-scale disruptions in the economy and loss of productivity. There have been lack of effective communication by the monetary authority (the CBN). Also, the timeframe for implementation of the policy was, from the outset, unrealistic and impracticable. We maintain that this policy was not carefully considered.
The timing was wrong, and its conflicting goals and lack of prioritisation have become very clear. It has fuelled inflation and accelerated unemployment, and slowed down economic growth. Statistics indicate that Nigeria’s Gross Domestic Product (GDP) will contract by N19trillion in the first Quarter (Q1) of 2023. Nigeria’s total GDP stood at N198trillion in 2022 as about 90 per cent of the informal sector was cash-based. This means that N106.9trillion of the country’s GDP is cash-based. With the fear of bank run looking likely, we advise the government and the CBN to do something urgently to address the naira scarcity before its effect on the economy worsens.
The CBN and commercial banks should expedite action on the supply of enough old and new banknotes. That the cash crunch has got to this crisis point is partly because the federal government, the CBN and the commercial banks were from the beginning not sincere with the Supreme Court judgement until things almost got out of hand. There is need to sensitise the public that the old naira notes remain legal tender till December 31, 2023. This is necessary to stop the rejection of the old notes by business owners, retailers and transporters. Long queues remain at various banking halls and Automated Teller Machines (ATMs) as customers go for cash withdrawals.
Nigerians have gone through so much hardship in recent times. In addition to the cash squeeze, fuel scarcity remains another problem that the citizens have been grappling with for over six months now. Addressing these issues has become expedient to avoid any possible breakdown of law and order. The country can ill-afford any bloody protests at this time in our democracy. It is, therefore, necessary that the government and the CBN should engage both the private and public sectors to ensure that the purpose of the naira redesign is achieved.
