This picture taken on January 29, 2016 in Lagos shows 1000 naira banknotes, Nigeria’s currency. Nigeria’s central bank governor, Godwin Emefiele, on January 26 dismissed calls to devalue the naira in his monetary policy committee statement. Instead he chose to continue propping up the currency at 197-199 naira to the dollar and maintain foreign-exchange restrictions. As a result, the naira on the black market is hovering around a record low of 305, fuelling complaints from domestic and foreign businesses who can’t access dollars required for imports. / AFP / PIUS UTOMI EKPEI (Photo credit should read PIUS UTOMI EKPEI/AFP/Getty Images)

 Nigerians oppose the CBN’s desire to retain cash in banks


Quadri Yahya 

The Central Bank of Nigeria and the citizens are in a tug of war as the apex bank wishes to keep the cash in circulation in commercial vaults, but the populace, on the other hand, prefers to hold (and hoard) cash.

The apex bank, last November, launched its redesigned naira notes of  ₦200,  ₦500 and  ₦1,000; but Nigerians pushed back after month-long sufferings to get cash for daily use.

The Supreme Court interfered in favor of the people. It ordered the apex bank to make the old notes vis-a-vis new notes a legal tender.

Within the uneasy period, which spans through February 2023, weekly and daily withdrawals from over-the-counter and ATM/PoS services for individuals were limited to the official figures of ₦100,000 and ₦20,000 respectively, as stated in the circular issued by the apex bank but not everyone was able to withdraw that amount

The CBN’s Money and Credit Statistics data revealed that Nigerians still desire to hold cash, rather than go cashless as wished.

This explains why the largest share of currency in circulation remains unbanked. As of March 2023, a total of ₦1.6 trillion currency is in circulation, with ₦1.4 trillion not banked in commercial banks representing an 86% share.

Although the cash swap mopped up a huge amount of money as currency in circulation dipped by 70% to ₦0.9 trillion from ₦3.2 trillion , data shows there is still more cash out of bank . 

The unbanked money rose back to its benchmark after sliding down to 57% in January, 2023 to 85% in February with ₦792,184.39 and ₦843,311.51 cash out-of-bank respectively.

Policy unnecessary; cash should be in circulation 

“First, there is nothing unusual if you have 80% of your currency outside the banking system. That’s what it is supposed to be. Nothing unusual at all. And that is the way it is in many parts of the countries and economies,” Dr Muda Yusuf, CEO, Centre for Promotion for Private Enterprise (CPPE) said.

“Money is a payment instrument. Payment instruments are not supposed to be within the bank; they are supposed to be outside the bank. That’s why it is called currency in circulation. It’s supposed to be circulating. It’s not supposed to be sitting within the bank. 

“The component of it that is within the bank is when you have old currency, and it’s been replenished. And if some people have too much cash, they deposit it. So, there is nothing unusual at all.

“So, the CBN started on a very wrong premise, saying that it’s an issue we have 80% of currency outside the bank.”

The economist further added that little cash is outside the banking sector. He noted that other objectives the CBN states for the introduction of the cashless policy are not based on economics. 

“Also, the CBN was talking about the effectiveness of monetary policy and all of that, which is also not valid because it’s a money supply that determines the effectiveness of the policy.

“Cash as a percentage of money supply in the Nigerian economy is just about 5%. So, 95% of the money is still within the banking system, informed by demand deposits and fixed deposits. 

“So, only 5% of the money supply is outside the banking system, or that’s even informed of cash. So, the whole thing doesn’t really have an economic basis.

“Of course, we later found out that CBN has some other objectives such as vote buying, kidnapping, etc.

“That’s a completely different matter; that’s not an economic policy matter. If that’s the objective CBN wants to achieve. I don’t think currency is the best way to tackle it, especially when you look at the kind of disruption and dislocation that the whole thing caused. 

“Look at where we are now. We have more old notes in circulation than the new ones that the CBN said it designed. 

“So, what have we achieved [rather] than just disrupt the lives of people and create all manners of inconveniences and pains”, Dr Yusuf said.

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