Nigeria’s push to replace its paper money with newly designed currency notes has created a cash shortage, leaving people unable to buy what they need and forcing businesses to close across the West African nation, experts said. and business groups.
The Central Bank of Nigeria says redesigned denominations of 200 (43 cents), 500 ($1.08) and 1,000 naira ($2.17) notes and new limits on large cash withdrawals would help curb money laundering and making digital payments the norm in Africa’s largest economy. .
But the process to replace old notes is “hurried” and commercial banks don’t have enough new cash to give out to customers, pushing demand above supply, said Ayokunle Olubunmi of Nigeria’s top ratings agency, August and Co.
The central bank “doesn’t want us to spend cash; they want us to do transactions electronically, but you can’t legislate behavior change,” Olubunmi said. “You have to get people to see the reasons and make sure those channels are trustworthy.”
The government is pushing for a cashless economy that is more inclusive and says the changes will boost economic growth. Critics are skeptical, pointing to decades of chronic corruption in which government officials have been known to loot public funds and create further hardship for the many struggling with poverty.
In October, more than 80% of the 3.2 trillion naira ($7.2 billion) in circulation in Nigeria was in private hands, but 75% has now been deposited in financial institutions, central bank Governor Godwin said. Emefiele, during the weekend.
He extended the deadline for Nigerians to deposit their old banknotes by 10 days, to February 10.
Despite more Nigerians depositing old currency in banks, The Associated Press found that some financial institutions were still issuing obsolete notes to customers as of Monday (Jan 31). Bank customers said they are allowed to withdraw very little cash and face high bank charges for each transaction.
Bank-run digital payments are often unreliable in Nigeria, leaving businesses struggling as a growing number of customers have been unable to find the cash to pay for goods and services. The situation has created a parallel market for people to illegally sell the new notes, Nigeria’s secret police said on Monday.
“Someone might want to transfer funds to you, but it can’t be processed and they don’t have cash because of this problem,” said Chima Ekwueme, who sells auto parts in the Nigerian capital Abuja. “Sometimes I ask them to leave my possessions and go find money anywhere.”
The cash supply crisis has disrupted such sales across the country, forcing a number of businesses to close, said Muda Yusuf, director of the Nigerian Center for the Promotion of Private Enterprise.
“The two critical sectors of the economy, commerce and agriculture, have been hit hard because they do a lot of cash transactions, especially in rural areas,” Yusuf said. “This policy has paralyzed their economic activities.”
Authorities should allow more time for the old banknotes to be gradually replaced by the new ones, he said.
“To make matters worse, the supply is extremely limited. Economic activities have practically come to a standstill because some people have closed their shops,” Yusuf added.
Nigerian authorities said the redesigned notes and new withdrawal limits would help curb the use of money to influence the February 25 presidential election, though experts argue the currency changes are being made at the expense of most the nigerians. They are already facing inflation of 21.3%, an increase from the rate of 37% in one year.
“All this together is causing significant hardship in both rural and urban areas, (and) the hardship for the people is just collateral damage for the political class,” said Tunde Ajileye, a partner at Lagos-based firm SBM Intelligence.