NAIRA REDESIGN, CASH WITHDRAWAL LIMIT AND IMPLICATION ON THE FINANCIAL ECONOMY
CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
The recent redesign of the Naira, Nigeria’s national currency, and the ensuing cap on cash withdrawals, may have a variety of effects on the financial system of the nation.
The makeover aims to increase the currency’s security measures and lessen the use of fake notes. This could boost confidence in the currency and lower the chance of financial losses brought on by fraudulent notes.
In order to decrease the quantity of physical cash in circulation and promote electronic transactions, banks are required to impose a cash withdrawal restriction that caps the amount that can be withdrawn from them. This could boost financial inclusion while lowering transaction costs and increasing transaction efficiency.
However, there may be some unfavorable consequences as well, such as annoyance for consumers who rely on cash transactions and higher expenses for companies that must deal with big amounts of cash. Furthermore, some people might be hesitant to use electronic transactions, which could reduce the policy’s efficacy.
Overall, the Naira redesign and the cash withdrawal cap are intended to support a more effective and safe financial system in Nigeria, but whether they are successful will rely on how well the government and banking institutions manage the reforms and put them into place.
With the agreement of the President, Major General Muhammadu Buhari (ret.), the Governor of the Central Bank of Nigeria announced the naira redesign policy on October 26, 2022, calling for the issuance of new naira notes to replace the current N200, N500, and N1,000 notes. The existing N200, N500, and N1,000 notes will no longer be accepted as legal tender in the nation after January 31, 2023, but all other denominations, including the N100, N50, N20, N10, and N5 notes, would remain in use.
On December 6 and December 21, 2022, two related and complementary policies regarding cash withdrawal caps were revealed. In response to concerns expressed by a section of the public, the withdrawal limits established on December 6 were altered and replaced by the December 21 regulation.
The naira policy measures, as was to be expected, sparked controversy as certain players focused on the potential effects on their own interests and pet projects rather than the overall effects on the population and economy. While it’s possible that some people did not truly understand the purpose of the policy measures in the lack of robust public education, there may also be others who choose to misinterpret the measures in light of their own interests.
In reference to the naira redesign program, a prominent and seasoned journalist stated the following on December 23, 2022 in the Guardian Newspaper: “Not many Nigerians comprehend the significance of this in the management of our national economy. Will the new N1,000, N500, and N200 notes reduce inflation and release the energy that underpins all economic activity? This is a completely elite remark that may have some justification but lacks rhyme. The most compelling justification we have heard for this is that it is meant to deal with the rich politicians who have amassed enormous sums of naira at home in preparation for the 2023 presidential election and other elections. Its intention and execution appear silly.
The author of this passage questioned if the revised notes would reduce inflation and release the energy that underlies all economic activity. Yes, in my opinion; by addressing the monetary aspects of inflation, it will considerably aid attempts to contain the current galloping inflation. The fiscal authorities will also need to take action to address the non-financial aspects of inflation-insecurity, aging infrastructure deficits, growing fiscal deficits and deficit financing, low economic productivity, etc.
Politicians and their allies read the naira redesign policy in a way that links it to a political goal. In terms of the exercise’s goals as stated by the CBN in the context of its enabling Act, it is fiction. The strategy has been linked to the interests of politicians and their allies. They would acknowledge that the policies will help Nigerians as a whole and the economy as a whole if they truly have the interests of the economy in mind.
However, I am aware that most public policies have both intentional and unexpected consequences. One of the unforeseen consequences of the naira redesign policy may be a restriction on politicians’ power to influence voters’ freedom of choice by purchasing their votes with the enormous sums of money at their disposal. However, if this result comes about, it will be a positive development for our weakened democracy and the nation as a whole. It would be a triumph for the policy to redesign the naira.
It is important to keep in mind that the makeover of the naira notes is nothing new. Everywhere in the globe, currencies are frequently redesigned. Every six and a half years, on average, countries revamp their currencies. Although the naira has undergone a few redesigns in the past, the most recent one took place roughly 20 years ago. The revamp is a positive development since it has been long overdue in the nation. The CBN Act of 2007 stipulates that one of the CBN’s primary responsibilities is currency management, which is the framework in which the naira redesign process is being carried out. Currency management allows the CBN to achieve efficiency in the conduct of monetary policy, that is, maintain vigilance over the increase of the money supply, ensure the integrity of the naira as legal tender, and ensure the efficiency of supply of the local legal tender.
Statement of the problem
In an effort to fight corruption and encourage the use of digital transactions, the Central Bank of Nigeria (CBN) has limited the amount of cash that can be taken from banks. The Naira makeover aims to increase the currency’s security features and decrease the use of fake notes. Concerns have been expressed regarding these measures’ possible effects on the financial system, including how easy and affordable it is to use cash for regular transactions and if firms and people can withdraw enough money to cover their demands.
Objective of the study
The objectives of the study are;
- To find out the effect of naira redesign on the financial economy in Nigeria
- To find out the effect of cash withdrawal limit on the financial economy in Nigeria
- To find out challenges for individuals and businesses that rely on physical cash transactions, particularly in rural areas with limited access to digital payment infrastructure.
Research question
The following research hypotheses are formulated
H1: there is no effect of naira redesign on the financial economy in Nigeria
H2: There are no effect of cash withdrawal limit on the financial economy in Nigeria
H3: There are no challenges for individuals and businesses that rely on physical cash transactions, particularly in rural areas with limited access to digital payment infrastructure.
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