Nigeria Cans Demonetization Program That Led to Cash Shortages

(Bloomberg) -- Nigeria’s central bank said it would allow old banknotes that were due to be phased out next month to remain legal tender indefinitely.

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The central bank began replacing old high-denomination naira notes with redesigned ones in December 2022. It had planned to end their use from Feb. 10 until a court ruled that the bills should remain in circulation until Dec. 31 after the program was challenged by state governors.

“Without prejudice, the Central Bank of Nigeria wishes to inform the general public of its desire to extend the legal tender status deadline of the old design of N200, N500 and N1,000 denominations, ad infinitum,” it said in a statement on X. “This is in line with international best practices and to forestall a repeat of earlier experiences.”

The demonetization program introduced by former Governor Godwin Emefiele to mop up excess liquidity, stymie illegal activity and promote electronic payments imposed significant negative shocks on the economy. Snaking queues outside ATMs and bank branches became a common sight, while tasks such as riding the bus or buying food became an ordeal. Private-sector activity in February and March contracted as companies reduced output and cut jobs because of the cash crunch.

Read More: Chaotic Cash Shortage Forces Nigerians to Wait Hours for $43

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