Nigeria currency scarcity triggered by currency redesign
An attempt by Nigeria’s central bank to redesign some denominations of the country’s currency and withdraw the old designs from circulation has resulted in an acute currency scarcity, breeding chaos on the streets, with bank workers fleeing for their lives.
On Tuesday morning, a video (shown below) of some bank workers clambering onto a wooden ladder across a walled fence of the bank’s premises to escape irate customers circulated on social media.
That was just one of the many chaotic scenes that have played out across many locations in Africa’s largest economy over the past week.
The plan had been simple – to redesign the N1,000, N500, and N200 notes, withdraw the old designs from circulation within 100 days, and introduce the new Naira notes at least 45 days before the old designs cease to be legal tender. The plan did not work or is not working.
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Access to the new Naira notes
More than a month after the new naira notes were released, only less than 30% of the population had sighted it. As the deadline for the withdrawal of the old designs approached, people went into a panic and deposited their notes in their accounts hoping that the new designs would become available as the Central Bank assured. That did not happen.
After the January 31 deadline elapsed and the new Naira notes were still unavailable, the Central Bank extended the deadline by 10 days. However, by then, the panic had set in. People no longer had cash to conduct simple transactions such as buying water or paying for buses. A new policy on cash withdrawal limit meant no one could take more than N20, 000 per day. Long queues formed at cash machines. Many of the Banks said they did not have the new notes to dispense.
The emergence of the Naira Black Market
The scarcity of the new naira notes opened a gateway for arbitrage. The banks’ cash agents, also known as PoS operators, who hitherto provided cash to citizens for a small fee also claimed not to have the new Naira notes.
However, with many wary of accepting the old designs even though the lifespan of their legal tender status had been extended, some of the PoS operators who had the new Naira notes began to charge exorbitant commissions on the new notes.
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This ushered in a new black market for the local currency. Anyone with access to the new Naira notes began to sell them for a fee. As of Saturday, February 4, 2023, PoS operators and/or anyone with access to the new Naira notes are charged N300 per N1,000. Before the end of Monday, February 6, 2023, the spread has risen by up to 50%, with many charging as high as N2,500 for N5,000 cash.
“I went to bed hungry on Monday night because I could not get cash to buy food. The food seller would not take the transfer and PoS operators charged me N1,500 for N5,000 cash. I did not understand it. Why should I buy my own money?” a frustrated auto-technician told Nigerian Today.
Seven out of ten Nigerians had found themselves in a similar situation over the past week as the currency scarcity unraveled. People and businesses, especially small businesses stopped accepting electronic transfers. So, with everyone insisting on cash, the Naira cash only became more expensive. Absurdly.
Banks’ electronic payment channels crashed
When people flocked to the alternative electronic payment channels of the Banks for transactions, the volume of requests overwhelmed and subsequently crashed their systems. The banks are currently in a fix with a depleted capacity to manage their payment infrastructure after most of their IT professionals moved overseas in a wave of migration that is currently sweeping the Nigerian middle class.
So, with unexplained, lingering downtime on the Banks’ electronic payment platforms, the Banks claiming there is not enough supply of the new Naira notes, the people lost their patience and became aggressive towards bank workers.
Banks issued safety advisories to employees. Many others had to close some branches and evacuated their staff to safety.
How the CBN responded
The CBN, while insisting there was enough supply of the new Naira notes also set up an enforcement committee. These enforcement committees, which comprised of Nigeria’s anti-graft agencies, the Economic and Financial Crimes Commission, EFCC, and the Independent Corrupt Practices Commission, ICPC have stormed bank branches compelling Bank managers to load their ATMs with the new Naira notes.
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The revelations from these enforcements have further angered the people who have targeted the Banks.
The CBN Governor Godwin Emefiele while addressing a press briefing in Lagos on Friday assured that the mint is printing more Naira to meet demands, and said the committee would continue to enforce compliance by the banks.
There is no guarantee that any of these measures will yield the desired outcome in the coming weeks.
It is now obvious that the CBN did not foresee the current situation and therefore failed to plan for it. The apex bank may have been engrossed with mopping up the excess naira liquidity outside of the banking system, which had fueled criminality that it failed to see how the process to recall the old notes and introduce the new ones could lead to extreme pain and inconvenience.
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The currency scarcity and the 2023 elections
Meanwhile, in the midst of these, an unspoken area of conflict is the Nigerian election, which comes up in less than 20 days. Cash is a major factor in elections in Nigeria. Desperate politicians have relied on it for decades to sway the outcome of votes as they simply handed wads of cash to impoverished voters on Election Day to claim victory. However, this new policy and the consequent naira scarcity has become a cog in the wheel of that vote-buying machine and politicians are not taking it lying low.
As you read this, Nigerian Governors have commenced a litigation move against the Nigerian Federal Government and the Central Bank of Nigeria over the redesigned Naira and the policy on cash withdrawal limit. The Government and the CBN are well aware that cash will determine the winners and losers should they bow to pressure and relax the policy and seem determined to play their part to ensure a credible poll.
The desperation of the wealthy politicians is believed to have fueled the Naira scarcity, as they are believed to have leveraged their influence on the Banks to corner the new Naira notes allotted to them ahead of the elections. Some politicians have boasted of collecting over N500 million of the new currency. This has obviously worsened the scarcity.
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However, with the CBN exposing the Banks’ obvious non-compliance to their directive, the Banks now must contend with the ire of the people and must now choose between their big-ticket customers – the politicians – and their angry small customers.