World Bank Speaks On New Naira Note, Says Short Transition Period May Weigh On Economic Activities

The World Bank has expressed concern over the economic impact of the newly redesigned naira note on Nigerians and businesses considering the short transition period.

According to the bank, households and firms are already faced with elevated financial pressures from prolonged, high inflation, recently compounded by external food and fuel price shocks, and severe floods.

Naija News gathered that the World Bank made its observation in a 68-page report titled ‘Nigeria Development Update December 2022 – Nigeria’s Choice (English).’

The bank revealed that Nigeria’s economic performance has weakened since the previous report was published in June 2022 under the title of “The Continuing Urgency of Business Unusual.”

The report noted that the timing and short transition period of the Nigerian naira redesigned notes may weigh on economic activities.

It also observed that economic activity in most major economies had slowed down in 2022 in the face of high inflation and the central banks shifting toward “contractionary” monetary policies.

Naija News recalls that President Muhammadu Buhari on November 23 unveiled the redesigned ₦1,000, N500 and N200 notes as proposed by the Central Bank of Nigeria (CBN) in October.

The World Bank submitted that “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.

“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.”

It however acknowledged that the naira was due for the periodic currency redesigns because they are normal and in line with international standards.

The bank explained that the naira qualified for the redesign since it had been two decades since the last one, but argued that the short transition period for the demonetisation may have “negative impacts on economic activity, in particular for the poorest households.”

The report revealed further that the “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.

“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.”