Naira Scarcity: What CBN Need to do to prevent another scarcity
The Naira Redesign Policy was implemented by the Central Bank of Nigeria (CBN) in 2022 with the aim of reducing inflationary pressure and improving the effectiveness of monetary policy tools. However, the policy has had mixed results, with both positive and negative effects on the Nigerian economy.
The scarcity of the Naira notes following the policy’s implementation has led to increased prices and delayed transactions for many businesses. The CBN needs to better prepare for future policy implementations to prevent such effects. The Government also needs to invest in placing Nigerians in high-value global value chains to make the Naira competitive.
Reasons for the policy:
During an MPC press briefing in October 2022, the CBN Governor, Godwin Emefiele, noted that the volume of higher denominations in the economy was fueling the rise in inflationary pressure. He stated that the apex bank was going to gradually reduce the volume of N500 and N1,000 in circulation. The President, Muhammadu Buhari, however, stated that the naira scarcity suffered by Nigerians was due to unscrupulous banking officials entrusted with the process of implementing the new monetary policy.
Nigeria’s currency in circulation fell to a record low of N982 billion in February 2022, down from N1.39 trillion recorded in January 2023, representing the lowest level since November 2008, according to data obtained from the CBN. The total amount mopped up since the policy to remove old naira notes from circulation is an estimated N2 trillion in two months. The decline followed the CBN’s aggressive monetary policy to phase out old currency notes and introduce limited new notes into the economy.
Impact on businesses:
The scarcity of Naira notes following the policy’s implementation has had a significant impact on businesses in Nigeria. Many businesses have had to increase their prices to cover the costs of lost IT-related transactions and delayed projects due to the scarcity. This has resulted in reduced profitability for businesses and increased hardship for consumers.
Experts advise that the CBN needs to work with non-cash vendors to take the demand for cash. The scarcity experienced was not due to Banks not having cash but non-cash outlets (POS, online) failing due to excessive demand. Policymakers need to balance the need for reducing inflationary pressure with the need to mitigate the negative effects of monetary policy on the general population.
Investing in high-value global value chains:
To avoid the chaos caused by the Naira redesign and the need for one, Dr. Andrew Nevin, Advisory Partner & Chief Economist of PricewaterhouseCoopers (PwC), told Nairametrics that the Government should follow the strategy of placing Nigerians in high-end Global Value Chains (GVCs) as emphasized by PwC. The solution envisages that Nigeria’s participation in GVCs will make the country more prosperous.
According to PwC, “25,000 Brain Exports each in five years (25% of the call center workforce) is achievable for medium-skill opportunities like animation and gaming. However, high-value opportunities like programming and software development need special attention, and Nigeria can produce as many as 1.5 million of these in the next five years. The programmer target is in line with capturing 17% of the software development jobs expected to hit the market in the next ten years.”
The Naira Redesign Policy has had mixed results, with both positive and negative effects on the Nigerian economy. While it has resulted in a reduction in currency outside banks and an expected improvement in the potency of monetary policy tools, it has also