Naira Crisis: World Bank, IMF back calls for deadline extension

The World Bank and International Monetary Fund (IMF) yesterday joined the rising chorus of organizations and people calling for a postponement of the deadline for switching from old to new naira notes.

According to the two Bretton Woods institutions, Nigerians had a limited time to transfer from the old to the new notes.

According to the World Bank, the “scarcity of new notes and the potential negative economic and social repercussions should the shortage of cash persist” are two things that worry them.

The World Bank expressed its concern about the short timetable and urged the government to think about giving the redesign more time.

Internationally, periodic currency redesigns and the demonetization of previous notes are customary. To minimize economic disturbance, they typically entail transition periods of a year or longer.

The World Bank voiced worry about the timing and brief transition phase after the Central Bank of Nigeria announced the naira redesign on October 26, 2022, with a short implementation timetable through January 31, 2023 (since extended for a brief additional period until February 10, 2023).

This worry is based on international experience, it continued, which “indicates that rapid demonetisations can generate significant short-term costs, with small-scale businesses, and poor and vulnerable households, including in rural areas, being particularly affected as they are liquidity-constrained and rely heavily on day-to-day cash transactions.”

The bank stated the following on alternative payment methods: “It is exceedingly doubtful that digital payments would rise quickly enough to make up for the lack of new notes.

“According to the most recent information (from before this regulation), just 45% of Nigerian adults had a bank account, 34% reported sending or receiving money digitally in the previous year, and only 9% paid for items in-store using a digital method.

In order to address inclusion issues, digitization is a structural challenge that will take some time and call for a methodical strategy.

Regarding timing, the international organization stated that “households and firms already faced elevated financial pressures from prolonged high inflation, recently compounded by external food and fuel price shocks, and the phasing out of existing naira notes over a short time period may add to their challenges.”

In a statement, the IMF was quoted as saying:

Despite measures taken by the CBN to lessen the difficulties in the banknote swap process, the IMF encourages the CBN to consider extending the deadline should issues persist in the days leading up to the February 10, 2023 deadline because of the difficulties brought on by disruptions to trade and payments.

Yesterday, a Monetary Policy Committee (MPC) member called the Supreme Court’s temporary order over the naira swap deadline “unfortunate.”

The member, who did not want his identity published, continued, “It’s a retrogressive choice and a regrettable trend.”

As a “effort to subvert the effectiveness of monetary policy in ensuring price and monetary stability,” he defined the ruling.

People “would turn around and blame the monetary authorities for incapacity to manage inflation,” the member said.

He asserted that politicians intended to utilize their stockpiled old notes to compromise the integrity of the elections by purchasing votes.