Nigeria’s external reserves have taken a hit, with figures obtained from the Central Bank of Nigeria (CBN) revealing a $427.14m fall in just one month.
This decline, which occurred from January 18 to February 16, 2023, has been attributed to the scarcity of new naira notes in the country.
The situation has created a crisis in Nigeria’s currency, causing pockets of protests that have led to the loss of lives and property.
Last year, Investors King reports that the CBN Governor, Godwin Emefiele, announced a plan to redesign the naira notes, which aimed to mop up currency outside the bank vaults. One of the objectives of this policy was to encourage the use of alternative payment channels that would drive digital payment systems in the country.
However, the scarcity of the new naira notes after the deadline has caused president Muhammadu Buhari to direct that the old N200 note should be re-circulated, and it will remain legal tender until April 10, 2023.
The Deposit Money Banks (DMBs) have also started collecting old N500 and N1,000 notes without giving depositors new naira notes in return, further exacerbating the situation.
The scarcity has had a significant impact on the economy, with the Nigeria Employers’ Consultative Association reporting a 40% drop in productive activities in the real sector. The cash squeeze has also impaired the purchasing ability of Nigerians, and thousands of productive hours are lost daily on queues by employees who can’t even get to work.
In response to the crisis, the CBN Governor launched the ‘RT200 FX Programme‘ in 2022 to boost forex supply in the country through the non-oil sector in the next three to five years. The aim of this programme is to repatriate $200bn in FX exclusively from non-oil exports. However, it remains to be seen how effective this policy will be in addressing the current crisis.
The scarcity of new naira notes has caused significant disruptions in Nigeria’s economy and further reduced the country’s external reserves. It is essential for the government and the CBN to find a lasting solution to this crisis and ensure the availability of new naira notes to drive economic growth and development.