Naira redesign may weigh on economic activity – World Bank

The World Bank has said the redesign of Nigeria’s higher-value currency notes may have negative impacts on economic activity.

The Central Bank of Nigeria announced on October 26, 2022, that it planned to redesign, produce, and circulate new series of N200, N500 and N1,000 notes, the highest denominations out of the eight legal tender notes in the country.

“The timing and short transition period of the Nigerian naira redesign may weigh on economic activity,” the World Bank said in its latest Nigeria Development Update.

Following the launch of the new designs on November 23, 2022, the circulation of the new currency notes started on Thursday, with both the new and existing notes considered legal tender until January 31, 2023.

Bank charges on cash deposits have been suspended to facilitate the transition to the new notes.

“While periodic currency redesigns are normal internationally and the naira does appear to be due for it, since naira notes have not been redesigned for two decades, the timing of and short transition period for this demonetization may have negative impacts on economic activity, in particular for the poorest households,” the multilateral lender said.

It said 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.

“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 World Bank said.