The World Bank and the International Monetary Fund (IMF) have joined the growing number of organizations and individuals calling for an extension of the deadline for the transition from old to new naira notes.
The Bretton Woods institutions believe that the current period for the transition is too short.
The World Bank stated its concern over the scarcity of new notes and the potential economic and social consequences that may arise if the shortage of cash continues. It also pointed out that while currency redesigns and demonetization of older notes are common practices around the world, they usually involve transition periods of at least a year to minimize economic disruption.
The World Bank expressed its concern over the short timeframe after the Central Bank of Nigeria announced the naira redesign on October 26, 2022, with a deadline for implementation on January 31, 2023 (now extended for a short additional period until February 10, 2023). The bank’s concern is based on the international experience that suggests rapid demonetizations can result in significant short-term costs, particularly for small-scale businesses and vulnerable households that rely heavily on cash transactions.
In regards to alternative payment channels, the World Bank stated that it is unlikely that digital payments can increase fast enough to compensate for the shortage of new notes. The latest data from before this policy showed that only 45% of Nigerian adults had a bank account, 34% reported paying or receiving money digitally over the past year, and only 9% made an in-store payment digitally.
The World Bank acknowledged that digitization is a structural challenge that will take time to address, especially with regard to inclusion.
The World Bank also mentioned that households and firms already faced elevated financial pressures due to prolonged high inflation, compounded by external food and fuel price shocks, and phasing out of existing naira notes over a short time period may add to their challenges.
The IMF, in a statement by Laraba Bonet, encouraged the Central Bank of Nigeria to consider extending the deadline if problems persist in the days leading up to February 10, 2023.
A member of the Monetary Policy Committee described the Supreme Court’s interim directive on the naira swap deadline as unfortunate and a sad development, adding that it was an attempt to undermine the effectiveness of monetary policy. The member claimed that politicians want to use the old notes for vote buying, and people may turn to blame the monetary authority for their inability to control inflation.
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