The Economic Implications of Naira Redesign and Cashless Policies on Households
Abstract
This study employed a quantitative survey research design to investigate the multifaceted impact of currency redesign and cashless policies on household financial behaviour, transaction costs, financial inclusion, and the informal economy in Nigeria. A structured questionnaire was meticulously designed to gather data from a carefully selected sample of 120 respondents, ensuring that diverse perspectives and experiences were captured. The data collected were subsequently analyzed using SPSS27, which facilitated the presentation and rigorous examination of the research findings. Hypotheses formulated at the onset of the study were tested using the t-test statistical method. The results provided valuable insights into the evolving financial landscape of Nigeria. Notably, the study found that the redesign of the Naira currency exerted a significant influence on household financial behaviour, as a considerable proportion of respondents expressed a shift toward favouring electronic transactions over cash. Furthermore, the implementation of cashless policies was revealed to have impacted transaction costs for households, with varying effects observed among different income groups. These findings underscored the potential of cashless policies to reduce transaction costs, thereby promoting financial inclusion and economic efficiency. Additionally, the study explored the complex interplay between cashless policies, financial inclusion, and the informal economy. The results suggested a positive association between cashless policies and financial inclusion among marginalized groups within the informal economy, such as women and rural populations. In conclusion, this research study offers valuable insights into the changing dynamics of Nigeria’s financial landscape. It underscores the importance of currency redesign and cashless policies in shaping household financial behaviour, reducing transaction costs, and promoting financial inclusion, particularly among underserved populations. The findings of this study have significant implications for policymakers, financial institutions, and researchers, highlighting the potential benefits of well-designed financial policies in emerging economies like Nigeria. Based on the findings, a set of recommendations is presented, aimed at enhancing the effectiveness of financial policies in the country and advancing financial inclusion.
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 CHAPTER ONE
INTRODUCTION
Background to the Study
The Nigerian economy has undergone significant transformations over the years, driven by various policies aimed at enhancing economic stability and growth (Abubakar, 2016; Ovat, 2020). Among the recent key developments are the redesign of the Naira currency and the implementation of cashless policies by the Central Bank of Nigeria (CBN) (Central Bank of Nigeria, 2021a; Fayemiwo, 2019). These policy initiatives were introduced as part of broader efforts to modernize the Nigerian financial system, reduce cash-related crimes, and promote a more efficient and transparent economy (Morphy, 2023).
The redesign of the Naira currency marked a significant shift in Nigeria’s monetary landscape (Abubakar, 2016). It involved substantial changes in the physical appearance of the currency notes and coins, including the introduction of new security features (Central Bank of Nigeria, 2022; Chukwu, 2020). The motivation behind this move was to enhance the security of the currency, making it more difficult for counterfeiters to produce fake notes (Central Bank of Nigeria, 2016; Iyatse, 2021). However, the transformation also aimed to improve the overall efficiency of the currency system, aligning it with global best practices (Nwanma, 2023).
Simultaneously, the CBN embarked on a cashless policy, signalling a shift towards a more digital and less cash-dependent economy (Ovat, 2020). This policy aimed to reduce the volume of physical cash transactions in the Nigerian economy by promoting electronic payment systems and digital financial services (Central Bank of Nigeria, 2021a). By encouraging the use of electronic means for transactions, the CBN sought to achieve several goals, including greater financial inclusion, enhanced transparency, and reduced cash-related crimes (Nweze, 2022; Okoye, 2023).
However, the introduction of these policies was met with mixed reactions from various stakeholders, including households, who constitute a vital part of the Nigerian economy (Abubakar & Wuam, 2021; Ndujihe, 2023). Some welcomed the changes, seeing them as a step towards a more secure and efficient financial system (Central Bank of Nigeria, 2021b; Ochei, 2022). The redesign of the Naira currency, with its improved security features, provided a sense of reassurance to many in a country where counterfeit currency had been a concern (Iyatse, 2021).
On the other hand, the implementation of cashless policies raised concerns and challenges for households (Nweze, 2022). One of the major concerns was the impact on transaction costs for individuals and businesses (Adegboyega, 2022). With electronic transactions often accompanied by fees, households were confronted with additional expenses in their day-to-day financial transactions (Ochei, 2022). This posed a particular challenge for low-income households who may not have easy access to digital financial services or may not be able to afford the associated fees (Ovat, 2020).
Moreover, the shift towards a cashless economy presented challenges related to financial inclusion (Ndujihe, 2023). While the policy aimed to promote greater financial access, some households, especially those in remote or underserved areas, found it difficult to adapt to digital financial services due to infrastructure limitations (Adegboyega, 2022). This raised questions about whether the policies unintentionally excluded segments of the population from the formal financial system (Okoye, 2023).
Furthermore, the redesign of the Naira currency and the promotion of digital payments had implications for the informal economy, which plays a significant role in Nigeria (Nwaoba, 2020). Cash has traditionally been the lifeblood of the informal sector, where many businesses and transactions rely heavily on physical currency (Nwanma, 2023). The transition to a cashless economy posed challenges for informal businesses and workers who faced difficulties in adapting to electronic payment methods (Morphy, 2023). This shift highlighted the need for targeted policies to support the informal economy’s integration into the formal financial system (Nwaoba, 2020).
Consequently, the redesign of the Naira currency and the implementation of cashless policies by the Central Bank of Nigeria marked significant developments in the effort to modernize the Nigerian financial system. These policies aimed to enhance security, reduce cash-related crimes, and promote efficiency and transparency. However, their impact on households, as the backbone of the Nigerian economy, was mixed. While the redesigned currency provided improved security features, the transition to a cashless economy raised concerns about transaction costs, financial inclusion, and the challenges faced by the informal economy. To maximize the benefits of these policies and ensure equitable economic growth, policymakers must address these challenges and consider the diverse needs and circumstances of Nigerian households.
Statement of Problem
The statement of the problem is a critical component of any research study as it identifies and clarifies the specific issues or challenges that the research aims to address. In the context of the economic implications of Naira redesign and cashless policies on households in Nigeria, several pressing issues need to be highlighted.
One of the foremost problems pertains to the financial burden imposed on households due to increased transaction costs associated with electronic payments (Adegboyega, 2022). As the Central Bank of Nigeria (CBN) pushes for a cashless economy, households may incur additional fees for electronic transactions, which can be particularly burdensome for low-income families (Ovat, 2020). This creates a financial challenge that requires examination.
Furthermore, the issue of financial inclusion arises as a significant problem. While the cashless policy aims to promote digital financial services, some households, especially those in underserved or remote areas, may struggle to access or afford these services (Okoye, 2023). This problem impacts their ability to participate fully in the formal financial system.
Another issue to consider is the potential disruption of the informal economy, which is a vital source of livelihood for many households in Nigeria (Nwaoba, 2020). The shift towards electronic payments may pose challenges for informal businesses and workers who rely on cash transactions (Morphy, 2023). This can have adverse effects on income stability and employment.
Additionally, the effectiveness of the redesigned Naira currency in reducing counterfeit currency issues remains a problem to be addressed (Iyatse, 2021). If counterfeit currency continues to circulate, households may lose trust in the currency, leading to economic instability.
In summary, the problems related to the economic implications of the Naira redesign and cashless policies on households in Nigeria encompass increased transaction costs, limited financial inclusion, disruption of the informal economy, and the ongoing issue of counterfeit currency. Addressing these problems is crucial for ensuring that these policies positively impact the economic well-being of Nigerian households.
 Objectives of the Study
The objectives of this study, which have already been achieved, were to:
- Assess the impact of the redesigned Naira currency on household financial behaviour.
- Analyze the economic implications of cashless policies on household transaction costs.
- Evaluate the effects of Naira redesign and cashless policies on financial inclusion and the informal economy among households.
Research Questions
To achieve the objectives of this study, the following research questions were addressed:
- How did the redesign of the Naira currency influence the financial behaviour of households in Nigeria?
- What changes in transaction costs did households experience due to the implementation of cashless policies in Nigeria?
- Did the Naira redesign and cashless policies have any discernible effects on financial inclusion and the informal economy among households?
Research Hypotheses
In line with the research questions, the following hypotheses were tested:
Null Hypotheses(H0):
- The redesign of the Naira currency has not significantly led to a shift in household financial behaviour, favouring electronic transactions over cash.
- Cashless policies have not significantly resulted in a change in transaction costs for households, with varying impacts on different income groups.
- The implementation of cashless policies has not significantly contributed to increased financial inclusion among households but may have unintended consequences for the informal economy.
Alternative Hypotheses(H1):
- The redesign of the Naira currency has significantly led to a shift in household financial behaviour, favouring electronic transactions over cash.
- Cashless policies have resulted in a significant change in transaction costs for households, with varying impacts on different income groups.
- The implementation of cashless policies has significantly contributed to increased financial inclusion among households but may have unintended consequences for the informal economy.
Significance of the Study
This study holds significant relevance for various key reasons. Firstly, it is crucial from a policy perspective, as the findings offer valuable insights for policymakers, particularly the Central Bank of Nigeria (CBN). These insights enable an assessment of the effectiveness and broader impact of the Naira redesign and cashless policies on households. This evaluation is essential in facilitating the refinement and adaptation of these policies to better align with the diverse needs and circumstances of the Nigerian population.
Secondly, the study is integral to understanding the well-being of households in Nigeria. Examining the economic implications of these policies on households is paramount in ensuring that they do not inadvertently burden or disproportionately benefit specific segments of the population. By shedding light on how these policies impact the financial stability and livelihoods of ordinary Nigerians, the research contributes to a more comprehensive understanding of their effects on the well-being of the populace.
Lastly, the study makes a notable academic contribution by enriching the existing literature on monetary policy and financial inclusion through a specific focus on the Nigerian context. Providing empirical evidence on the outcomes of currency redesign and cashless policies on households adds depth and breadth to the body of knowledge in this field. This academic contribution not only enhances our understanding of these policies in Nigeria but also serves as a reference point for similar studies in other developing economies facing similar challenges and opportunities.
In summary, this study’s significance lies in its potential to inform policy decisions, promote household well-being, and advance academic discourse in the realm of monetary policy and financial inclusion, particularly within the context of Nigeria’s currency redesign and cashless policies.
 Scope of the Study
The scope of this study involved a comprehensive examination of the economic implications of the Naira redesign and the implementation of cashless policies on households in Nigeria. The research delved into various facets of these policies to provide a nuanced understanding of their effects on the lives of ordinary Nigerians.
Firstly, the study investigated the Naira redesign, focusing on changes in the physical appearance of currency notes and coins, the introduction of new security features, and the broader impact on currency-related crimes. It also assessed the public’s perception and trust in the redesigned currency.
Secondly, the research explored the cashless policies introduced by the Central Bank of Nigeria (CBN). This included an examination of the promotion of electronic payment systems, the challenges faced by households in adopting digital financial services, and the associated transaction costs.
The study’s scope extended to an evaluation of how these policies affected financial inclusion, with a particular focus on vulnerable and underserved populations. It considered the accessibility of digital financial services in rural and urban areas, identifying potential disparities.
Furthermore, the informal economy’s response to these policies was analyzed, highlighting the challenges faced by informal businesses and workers as they navigated the shift towards electronic payments.
The geographical scope of the study covered diverse regions within Nigeria to capture regional variations in policy implementation and their impact on households.
In summary, the scope of this study encompassed a comprehensive analysis of the Naira redesign and cashless policies, with a focus on their effects on households, financial inclusion, the informal economy, and regional variations within Nigeria.
Operational Definition of Terms
To ensure clarity and consistency in the study, the following terms are defined operationally:
Redesign of Naira Currency: The process of altering the physical appearance of Nigerian currency notes and coins, including changes in design, size, and security features, initiated by the Central Bank of Nigeria.
Cashless Policies: A set of monetary policies and regulations aimed at reducing the volume of physical cash transactions in the economy, promoting electronic payments, and enhancing financial transparency.
Transaction Costs: The direct and indirect expenses incurred by households when conducting financial transactions, including fees, charges, and time spent.
Financial Behaviour: The patterns and choices made by households in managing their finances, including payment preferences, saving habits, and spending patterns.
Financial Inclusion: The extent to which households have access to and use financial services, including banking, credit, and insurance, to improve their financial well-being.
Informal Economy: Economic activities that are not regulated by the government, are often characterized by cash-based transactions and limited access to formal financial services.
Households: Individual and collective units of people living together and sharing resources in a domestic setting, including families and extended family units.
References
- Ovat, O. O. (2020). The Central Bank of Nigeria’s Cashless Policy in Nigeria: Benefits and Challenges. Journal of Economics and Sustainable Development, 5(3), 45-58.
- Peter, D. O. (2023). Currency Redesign: What Implication Does It Have for Socio-economic Development in Nigeria? Association of African Development Finance Institutions. Retrieved from https://adfi-ci.org/currency-redesign-what-implication-does-it-have-for-socio-economic-development-in-nigeria/
- The Punch. (2023). Inflation Soars to 21.82% Amid Naira Redesign. Retrieved from https://punchng.com/breaking-nigeria-inflation-rises-to-21-91/
- The Sun. (2023). The Economy and Naira Redesign Policy. Retrieved from https://sunnewsonline.com/the-economy-and-naira-redesign-policy/
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