Implication Of Naira Scarcity – 5 Implication Of Prolonged Naira Scarcity On The Nigerian Economy
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- The NESG has pointed out some of the implications of continued naira scarcity on the economy of Nigeria.
- The economic advocacy group said that the policy has resulted in issues taking a toll on Nigeria’s economy.
- The report explored recommendations to help reverse the adverse socio-economic effect and help restore confidence in the apex bank.
The effects of a protracted naira shortage on Nigeria’s economy have been highlighted by the Nigerian Economic Summit Group (NESG). This comes after the Central Bank of Nigeria’s November 2022 introduction of the Naira redesign and swap policy.
This was mentioned by the NESG in its most recent report, NAIRA REDESIGN POLICY: CAUGHT IN THE WEB, which was published in February 2023 and examined the policy’s purpose, the problems that have arisen, and the likely consequences of a protracted cash crunch.
According to the private policy advocacy group, Nigeria’s economy is suffering as a result of the CBN’s plan to redesign the nation’s currency, which is permitted by Sections 18(a) and (b) of the CBN Act of 2007.
This plan has led to an artificial cash crunch, increased stress on the banking system, and heightened social tensions.
It did, however, outline the negative effects a protracted cash crunch would have on Nigeria’s economy.The following are some of the Implication Of Prolonged Naira Scarcity On The Nigerian Economy:
1. Macroeconomic Instability
Because many productive activities will be halted by a lack of cash, the scarcity of cash will probably result in a slowdown in economic growth. Unpleasant socioeconomic outcomes would be the result of the policy’s uncertainty and its economic effects.
Reduced productivity will lead to a declining Gross Domestic Product (GDP), which will have a negative impact on the economy and lead to an increase in poverty rates and a decrease in job opportunities.
Less consumer spending will result from fewer employment opportunities, which could also mean less money for the government from non-oil sources.
Reduced purchasing power and decreased demand for goods and services will also result from fewer employment opportunities.
Overall, the quality of life would go down, which could lead to things like civil disobedience, social unrest, and security threats like those seen recently in the states of Ogun, Oyo, and Edo.
2. Restrain Local Trade And Regional Trade
The trade sector will be where the effects of cash shortage will be most noticeable.
Due to the scarcity, business transactions have since become more rigid, which has caused a slowdown in local trade. The lack of money will also affect Nigeria’s trade with West African nations.
3. Constrain The Informal Sector
Nigeria’s informal economy, which relies primarily on cash, accounts for about 65% of the country’s GDP (GDP). Over 80% of the labour force is employed in the unorganized sector, so it is simple to imagine the effects of a cash shortage.
A protracted cash crunch might result in declining activity and job losses in the unorganized sector, which could slow down the economy.
4. Distrust In The Financial System
While there are still many difficulties in getting access to the limited cash available, the cash crunch continues to cause many bank customers to lose faith in the banking system.
In the long run, those who eventually find cash will turn to stockpiling rather than reintroducing it into the financial system, which is against the CBN’s naira redesign policy’s objectives.
5. Erosion Of Investment Confidence
Sometimes people don’t agree with government policies, which has unintended consequences. One such policy is the redesign of the naira, which raises the level of economic uncertainty and makes investors reluctant to invest money in the country’s economy.
NESG’s Recommendation To Help CBN’s Naira Redesign Policy
As admirable as the CBN’s naira redesign policy may be, one cannot help but acknowledge that its numerous unintended consequences have put many Nigerians through hardship, sparking protests in and from various directions.
The NESG has therefore made some recommendations to help counteract the negative socio-economic effect and aid in regaining trust in the financial system. The NESG advises the CBN to permit a phase-out of the old notes over time.
As a result, the CBN should think twice before allowing the simultaneous use of old and new notes until the old notes have finally been fully replaced in bank vaults.
In order to efficiently deliver new notes to banks and other financial institutions, the CBN should also speed up the printing of new notes and create a more transparent distribution channel.
The CBN should launch a public awareness campaign to raise awareness of the importance of the naira redesign policy and the causes of cash shortages. This would assist in calming angry and dissatisfied Nigerians who are over the policy and the current dearth of the naira.
The CBN should also support the development of digital infrastructure to increase the financial system’s capacity to handle the widespread adoption of digital channels.
Nigerians Frustrated As CBN’s Naira Policy Causes Scarcity Across Nigeria
Nigerians have experienced extreme hardship as a result of the CBN’s decision to recall old naira notes in exchange for the newly redesigned naira notes and enforce a cashless policy due to the currency’s scarcity.
The naira has become scarce, and the banks do not have enough to dispense to all of the thousands of customers who besiege different banks and ATM locations every day to withdraw money.
Nigerians have been very frustrated by the shortage, which has led to demonstrations and vandalism of bank properties in cities like Ibadan, Abeokuta, and Benin.
Videos of customers stripping off inside banking halls demanding their money surfaced while the protests were still going on. Customers are fighting with each other and with bank employees. Some customers have turned numerous ATM locations into impromptu camping grounds.
Unfortunately, since cash has become more scarce, there has been an increase in the volume of transactions, which has made bank app transactions more difficult and unreliable.
PoS operators who could have replaced them are also experiencing a cash crunch. The few who do have some cash have become “overnight celebrities” and are charging as much as N1000 more for a N5000 withdrawal, while the majority do not even have any to give out.