Shortage and Scarcity of Naira: Nigeria’s currency conundrum

The Central Bank of Nigeria (CBN) sudden decision to replace Nigeria’s paper money, the Naira, with new differently coloured notes has created a severe shortage and scarcity of Naira. This hastily announced and poorly executed policy has left hundreds of millions of citizens unable to pay for commodities and services and causing difficulties to businesses across the country. The policy has resulted in long queues of frustrated citizens at ATMs and inside banking halls with videos of fights breaking out as people struggle to withdrawal money viral on social media.  

The Naira redesign policy

The Central Bank of Nigeria (CBN) announced the policy last September. The plan was to redesign and replace denominations of 200-, 500- and 1,000-naira notes and place a limit on large cash withdrawals. The CBN says this would help bring back over 2 trillion naira outside the banking system apparently in store in people’s homes and possibly financing insecurity – terrorism and banditry – in the country. It also aims to deepen digital payments in Nigeria.

Poor implementation

But CBN’s implementation has been rushed and very poor. The consequence is the scarcity of Naira – the new notes. Anguished citizens throng banking halls and ATMs in an effort to access the new currencies. Long queues are evident everywhere where new currency can be gotten. However, many leave disappointed as ATMs are empty and there are not enough cash in the banks. This has created a weird situation of a parallel market of sale of the new notes. Unscrupulous elements, allegedly bank staff and their agents, are selling the new notes to anxious citizens. Point-of-sale (POS) operators are also cashing in, with obscene charges for the new monies.

The CBN has announced some successes. It says over 75% of the monies targeted by the naira redesign policy has now been deposited in banks and other financial institutions. It says it is on target to complete the new notes replacement and that the scarcity of naira is temporary. The Nigerian president, Muhammadu Buhari, approved a further 10-day extension to the early set deadline of January 31st.The old notes will cease to be legal tender by 10th of February.

The deadlines and associated problems

However, the deadline appears shaky as the scarcity of naira new notes persists. The old notes continue to be the main currency in circulation. The access to digital payments is poor and limited mainly to urban dwellers with internet network penetration. Additionally, the digital payments infrastructure is often unreliable with frequent glitches and outages often due to poor internet connections.

An uncomfortable percentage of e-payments fails with many debit errors (duplicated debits) occurring, this adds to the anguish of the citizenry. Businesses are groaning under the unusual situation of cash supply crisis. Some markets are partially closed as traders struggle inn queues at banks and ATMs. Many businesses are struggling to survive as customers are unable to find cash to pay for commodities and or services.

The rural economy is particularly worse hit. Communities in border towns have switched to using CFA franc notes of neighboring francophone countries. The rural agricultural sector is particularly badly affected as these businesses do most of their transactions in cash.

Political undertones

The simple and obvious solution would be that the CBN allows more time for the old notes to be replaced by the new ones. But it appears the CBN and the Federal Government does not want to do this. They opted to merely moved the deadline by a few days, and that date remains just short of the February 25 date of the presidential election. This, some commentators suggest, betrays the primary reason behind the policy.

Preventing vote buying is commendable as this will protect the Nigeria’s democratic system and will of the people expressed at the ballot. However, it is believed that there are better ways of achieving this rather than putting the entire citizenry and businesses in a quagmire.

Despite the repeated assurances of the Government and the CBN, citizens are skeptical about the successful implementation of the currency redesign policy. Many suggest that the rushed policy and political undertones are recipe for failure. The focus on restricting certain politicians perceived ability to buy votes in the upcoming presidential elections is a huge distraction to the primary monetary and fiscal mandate of the CBN and the Federal Government.

Conclusion

Nigerians have experienced a series of hardships particularly over the last 24 months. The perenniel fuel scarcity, forex scarcity, power blackouts, 21% inflation rate, passport booklet scarcity, Nigerian manpower loss to the ‘Japa’ phenomenon and now the new Naira scarcity. Many of these significant hardships persists 3 weeks to a closely fought presidential election where the incumbent is not on the ballot. Some members of the ruling APC party have accused some elements within their party of deliberately pushing unpopular policies to sabotage its own candidate.

This is an interesting situation – hardships engineered for political ends. The people are collateral damage in a war of the political class. The impact and outcome will be obvious on the 26th or 27th February. Meanwhile, the long suffering of Nigerians continue.