THE Nigerian Economic Summit Group (NESG) has said that the failure of Deposit Money Banks to meet the growing demand for cash implies that the banking system is unprepared for a cashless economy.
NESG in a document titled ‘Naira Redesign Policy: Caught in the Web’, said the recent cash crunch has had adverse effects on households, informal businesses and formal businesses, particularly the Nano, Micro, Small and Medium Enterprises (NMSMEs), which are the backbone of the private sector-driven economy.
It said time spent attempting to obtain new notes disrupts economic activities; makes it significantly difficult for people to engage in daily activities, as commuting becomes difficult or even impossible when cash is not in hand and when economic agents are not receptive to e-payment/bank transfers.
It,, therefore said “the failure of Deposit Money Banks (DMBs) to meet the growing demands for cash suggests that the banking system, given the existing technology, is unprepared for a sudden transition from the old Naira notes to the new ones or to a cashless economy.
“Although the CBN extended the deadline for old notes as legal tender by ten days from January 31st, 2023, the pressure on banks has persisted”.
NESG raised the alarm that social tensions have been rising recently due to inadequate cash in circulation and the uncertainty resulting from the policy.
“The excess demand for money has led to social unrest in many parts of the country, such as Ogun, Edo and Oyo states. Concerns over the implications of poor liquidity for the elections may also contribute to heightened tensions”, NESG said.
Furthermore NESG said as the elections approach, which is often associated with an increased risk of violence, the unrest arising from the effects of the policy could fuel tensions.
“The cash scarcity associated with the currency redesign policy will likely motivate a slowdown in economic growth as many productive activities have been halted due to the inability to access cash”, NESG said.
It said furthermore, the uncertainty associated with this policy and its economic effects may contribute to volatile movements in macroeconomic variables.
NESG said with the uncertainty associated with the new naira policy, “the plummeting of productivity has implications for GDP and a domino effect on other economic indices.
“This can mean fewer job opportunities, increasing poverty incidence, thus adversely impacting the collective economic health of the population.
“As employment opportunities reduce, consumer spending will also decrease, resulting in an economic slowdown. This may consequently lead to decreased government revenue, primarily from non-oil sources.
“A lack of employment opportunities could impede access to education and healthcare, leading to a decreased standard of living. People would also have reduced spending power, which in turn would further hamper demand for goods and services. Ultimately, this could result in a population’s overall decline in quality of life”.
It said the economic distress caused by low productivity; unemployment and inability to access cash could spur civil disobedience and amplify criminal activities, social unrest and security threats.
It further said the impact of the cash crunch will be most profound in the trade sector as business transactions become constricted and stiffened. Hence, there will be a slowdown in local trade.
“The Naira redesign policy, alongside other policies that have had unintended consequences, will continue to dampen investors’ confidence in Nigeria.
“Policies such as this further compound the level of uncertainty in the economy, which disincentives investors from committing their funds to the Nigerian economy”, NESG noted.
Highlighting key action points for the CBN, NESG said “due to the hardship households and businesses face, especially in the informal sector, the CBN needs to reconsider prolonging the legal tender usage of the old notes side-by-side with the new notes.
“This is important to give the CBN the opportunity and time to devise effective ways of getting the new note to the unbanked populace and rural dwellers that constitute a large portion of the informal economy. As such, a gradual phasing out of the old note is advised.
“Additionally, the apex bank should streamline distribution channels to ensure efficient delivery of the new notes to commercial banks and other financial institutions. This will help ensure an adequate supply of cash to meet the public’s demand and reduce long queues and other inconveniences.
“The CBN should launch a public sensitization campaign to educate the public on the need for new notes and the reasons behind the delayed printing process or scarcity of cash. This will help prevent negative vested interest narratives and misinformation resulting from an inadequate supply of cash.
“The campaign should emphasize the objectives and benefits of currency redesign. Also, there should be incentives to promote the use of digital channels, such as a reduction of charges on transactions associated with digital channels.
“There is an urgent need to expand the capacity of the digital financial system to accommodate the mass migration to digital channels. This is important to ensure a seamless transition to digital channels as alternatives to cash.
“The difficulty experienced by people attempting to use digital channels for transactions suggests that payment platforms are not adequately mature to adjust quickly to a cashless economy”.
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