March 9, 2023

Naira Redesign Policy and the State of Digitalization in Nigeria

Modern development has placed digital technologies at the forefront, giving economies a chance to hasten economic expansion and ease the connection of people to services and employment. The contribution of the service sector continues to grow in most economies and at a faster rate in low and middle-income countries, with digitalization as a driving force. The Nigerian economy is on course as information & communication technology (ICT), and the digital economy contributed  18.44 percent to Nigeria’s Gross Domestic Product (GDP) in Q2 of 2022.  

To take advantage of the gains of the growth in the digital economy, the naira redesign policy, the naira swap programme, and the cashless policy deepened the use of digital means in Nigeria. The Central Bank of Nigeria (CBN), through its mandate of maintaining Nigeria’s external reserves, safeguarding the international value of the naira, promoting and maintaining monetary stability, and a sound and efficient financial system, introduced a policy that resulted in a makeover of the currency. Included in this were ancillary directives that aimed to promote the digitization of transactions and facilitate the measure and control of the money supply. Hence, the reflection on what the naira redesign policy by the Apex bank reveals about the state of digitization in Nigeria.

Objectives of the CBN’s Naira Redesign Policy

In fulfilling its mandate, the Apex bank of Nigeria rolled out the policy to redesign the denomination of the N200, N500, and N1,000-naira notes to achieve specific objectives. The stated objectives of the policy is aimed at addressing identified economic challenges in the country and are in line with the provisions of Section 2b, section 18a, and section 19, subsections a & b of the CBN Act, 2007. The control of money in circulation is one of the objectives behind the naira redesign policy. According to the CBN, as of September 2022, N2.73 trillion of the N3.23 trillion of currency in circulation was held outside the safe deposit boxes of commercial banks in Nigeria (85% of the country’s total money supply). These funds are held by the populace for several reasons, including traditional piggy banks, cash hoarding, instances of counterfeit money, fraud, and more.

Implications of Naira Redesign on the State of Digitalization in Nigeria

Increased Pressure on the Digital Infrastructure: The paucity of the new naira notes mounted unprecedented pressure on digital alternatives for transactions in Nigeria. The demand for cash far outstrips the supply of naira notes, as over N1 trillion worth of old notes has been mopped up from the Nigerian economy as of December 2022. Also contributing to this gap is the limited supply of new notes by the CBN through commercial banks and POS operators. Due to the scarcity of naira notes, commercial bank depositors and POS customers were forced to pay 10 to 40 percent premiums to complete cash withdrawals.  The daily limits on cash withdrawals imposed by the CBN also increased dependence on digital channels to facilitate effective demand. Other factors influencing the state of digitalization due to the naira redesign policy include:

  • The digital infrastructure of banks in their present state seems incapable of handling the sharp increase in transaction volume. Due to the unreliable nature of digital services, digital transfers can take up to 48 hours, while customers with failed transactions are given ten working days before their cases can be resolved. Following the high volume of failed transactions and the influx of complaints from bank customers, many banks increased staffing in customer service functions in order to meet the increase in complaints from irate customers and mobilize information technology (IT) departments. The brain drain of valuable IT support staff for more rewarding opportunities abroad contributes to the digital scalability constraints faced by the commercial banks in Nigeria.
  • Telecommunication services are an indispensable component of critical infrastructure in the digital economy. Despite its importance, telecoms are losing liquidity, as banks remain indebted to them to the tune of an estimated ₦80 billion in unstructured supplementary service data (USSD) fees as of November 2022. This marks a significant increase in commercial bank debt to telecoms from ₦42 billion in March 2021. This trend may jeopardize USSD services, which will have a significant impact on the execution of financial services and transactions. Furthermore, it hinders the actualization of the CBN’s cashless policy, as USSD services are used to facilitate financial services and transactions, particularly to the underserved and financially excluded who have unreliable internet connectivity.

Security of Digital Infrastructure: Over 50,000 cases of major harm to telecom infrastructure and facilities were reported nationwide in the five years leading up to 2021. The security of telecommunication infrastructures has an impact on user experience, accessibility, and affordability of digital services. However, legislation is necessary to safeguard the country’s infrastructure and is currently being developed.

Migration of Customers from Traditional Banks to Financial Technology Companies: Due to the CBN’s naira redesign policy’s influence on digitalization, the constraint to commercial banks’ technological scalability is a demerit, leaving depositors to rely on financial technology firms for financial services. Depositors should not be burdened by arbitrary and multi-layered changes because some digital banks offer unlimited free transfers, instant but expensive uncollateralized loans, allow their customers at least 30 free transfers per month, and provide saving options for depositors with excess funds that can earn close to 20 percent interest rate. Although Nigerian youth are the dominant users of financial technology services,  millions of people from other demographics are becoming more tech-savvy and opting for financial services offered by technology-enabled companies. The benefits of  encouraging this trend include a more-reliable alternative to completing electronic transactions and avoiding the lethargy in resolving related issues that is common among conventional banks.

Minimal Digital Services in the Informal Sector of the Nigerian Economy: In Nigeria, the financial inclusion rate was 64 percent as of April 2022, implying that 34 percent of the population did not have access to financial services such as payments, savings, credit, and insurance. The informal sector is characterized by small or ill-defined workplaces, hazardous and unhealthy working conditions, lack of regulation, low skill, and productivity levels, low or inconsistent incomes, lengthy workdays, and restricted access to markets, financing, education, training, and technology.

Given the labor intensity, the naira redesign policy curtailed real demand and plunged producer sales because there are no existing financial and payment solutions to deal with informal transactions in the informal sector, such as using public transportation, shopping at markets, and other similar activities. This had an impact on  people and business operations as financial service systems malfunctioned due to increased pressure.

The CBN’s plan to digitally onboard the public at the closest commercial bank branches is not practical for the unbanked and underserved. According to the World Bank, in 2021, more than 50 percent of Nigerians lack basic digital skills (A high level of gullibility among the underserved  may expose them to hackers and those with low digital literacy levels could go bankrupt due to glitches, outages, and unintentional mistakes). In 2022, there were 81 million mobile internet users in Nigeria (over 50% of Nigerians struggle even more because smartphones are the most popular way to conduct digital transactions). More so, the cashless policy is powered by digital technology which is powered by electricity, yet 44.6 percent of Nigerians lack access to electricity.


The naira redesign policy of the CBN is a brilliant idea. It demonstrates the government’s commitment to harnessing the gains of the digital economy. Regardless, the timing, logistics, and overall policy implementation disrupted economic activities due to a lack of digital preparedness for a cashless Nigeria. The policy revealed the deficit in the Nigerian financial and banking sector as significant digital infrastructure and innovations are required for a smooth transition to a cashless Nigeria.

The outcomes and lessons of the CBN’s naira redesign policy are digital infrastructure constraints. The digital inefficiencies experienced and its impact on the public and business reliance on digital means since the implementation of the CBN naira redesign policy require all stakeholders from policymakers, the private sector, financial & banking institutions, telecommunication companies, and others, to address the infrastructural gaps  required for the country’s  transition to a digital economy.

Finally, extensive initiatives on digital literacy are pertinent to financially include the public in the digital economy. It is also important to emphasize the importance of data governance, data privacy, and cybersecurity tips to safeguard the public from digital crime and other digital rights concerns.