Research Document: Cash Crunch and Macroeconomic Stability: February 2023 A Scenario-Based Outlook for 2023

Posted Thu, Feb 23, 2023 6:58 AM

Setting the context

Although the currency redesign policy of the Central Bank of Nigeria (CBN) is commendable in terms of its appropriate objectives, its implementation has come as a surprise and has exacerbated the challenges that are currently plaguing the
Nigerian economy. The inadequate execution of this policy has intensified the impact of pre-existing shocks from the electoral process and the persistent structural difficulties that the economy faces.

As citizens struggle with confusion surrounding the currency redesign policy, the deadline for compliance was extended to February 10th, 2023. Despite delays caused by the judiciary, on the morning of Thursday, February 16th, 2023, the President issued a proclamation stating that the old N200 banknotes will be reintroduced into circulation and will be accepted as legal tender alongside the new N200, N500, and N1000 banknotes for a period of 60 days from February 10th, 2023 to April 10th, 2023, after which the old N200 notes will no longer be recognised as legal tender.

The measure of immediately phasing out the N1000 and N500 notes, which make up over 88 percent of the total currency in circulation, may appear to be a superficial solution. As a result, the currency shortage will likely persist for an extended period. Furthermore, the impact of the cash scarcity on the economy could be more severe and prolonged than previously anticipated, compounded by social and political unrest, and may alter the growth trajectory for 2023. Therefore, this brief presents a scenario-based outlook of the impact of the cash crunch on the macroeconomic environment and its implications for Nigerians.