In his bid to solve a problem, excess liquidity-induced inflation, that does not exist in Nigeria, governor of the Central Bank of Nigeria (CBN), Godwin Ifeanyichukwu Emefiele, has only succeeded in creating an artificial currency scarcity of a magnitude without precedence anywhere in the modern world. With the approval of President Muhammadu Buhari, Emefiele had, in October 2022, announced a currency redesign programme of Nigeria’s N200, N500 and N1,000 bills for reasons such as mopping up excess liquidity to curb inflation, combat the booming kidnap-for-ransom cash payment and tightening of anti-money laundering regulations, among many others. A window of 90 days, which was to close in February 2023, was opened for Nigerians to swap their old naira notes for the newly redesigned ones.
Everything appeared well intentioned until, midway into the currency swap programme, Emefiele’s CBN pronounced a “cashless” policy decision, which placed limits on withdrawals from individual and corporate accounts domiciled in deposit money banks in Nigeria. According to the CBN, there was too much cash money, about N3 trillion, outside the banking system and the cashless policy, in addition to the currency swap programme, was to reduce excess cash in circulation by nudging Nigerians to adopt a cashless economic lifestyle. A political twist to what ordinarily should be an economically motivated monetary policy of the CBN was added when it suddenly emerged that the twin measures of naira swap and cashless policy was to combat the menace of vote-buying as Nigeria goes into a general election from February 25, 2023.
Thus far, the result of Emefiele’s experimentation with a politically motivated monetary policy has been sorrow, tears and blood as Nigerians in millions that have returned their old naira notes are finding it impossible to retrieve their hard-earned money in his redesigned naira notes. When the deposit money banks kept circulating old naira notes throughout the 90-day window between October and February, with just a sprinkling of the new naira notes, it became clear that the new notes were grossly inadequate. Yet, against all wise counsel and common sense, Emefiele’s CBN insisted on phasing out the old naira notes by February 10, 2023.
This insistence of CBN, coupled with gross inadequacy of the redesigned naira notes, has plunged Nigeria into an economic crisis that might take the country into a prolonged economic depression, if nothing is done urgently. The currency scarcity in Nigeria has not only reduced economic productivity by nearly 40 per cent, according the Nigeria Employers Consultative Association, a currency black market has also emerged where naira is now traded against the naira at an average price of N10,000 virtual naira to N12,000 cash. And this situation has compounded the woes of Nigerians that were already grappling with acute energy crisis. That Nigerians are not only queuing for petrol at gas stations but are now also queuing up at ATMs to retrieve their own monies is a combustible recipe for social unrest that may derail the 2023 transition programme and sink the ship of the Nigerian state.
The unfolding economic tragedy in Nigeria has once again called to question the competence and capacity of Nigeria’s monetary authorities and the quality of the thought process of the political masters at the highest office in the land.
Nigeria’s inflation is not caused by excess liquidity in the system, which may have resulted in a demand pull kind of inflation, where too much money is chasing too few goods. Nigeria’s double-digit inflationary rate is cost push in nature, arising from higher cost of energy and other production inputs, which continue to push up the cost of goods and services in Nigeria. While it is true that the current physical money in circulation is in excess of N3 trillion, that only accounts for about 6 per cent of the total money supply in Nigeria, which stood at N52 trillion at the end of 2022. This is so because Nigeria has gradually embraced the cashless economy model due to digital penetration in the country’s financial services sector in the last decade since the idea was first introduced.
Nigeria’s milestone in cashless economy has made it one of the most cashless countries in the world, more cashless than the United Kingdom, the United States and China. Whereas Nigeria’s cash-to-GDP ratio stands at 1.7 per cent, the UK’s is 3.5 per cent, US, 7 per cent, and China, 9 per cent, according to IMF sources. This is why the attempt by CBN to withdraw over N2 trillion worth of old naira notes from circulation and replace it with less N500 billion in an economy that is already “cashless” enough has created a rare kind of currency scarcity that has resulted in a parallel money market in Nigeria, where naira is bought and sold at a profit.
Compared to Nigeria with a cash circulation of about N3 trillion, the cash circulation in the UK is about £85 billion and $2.4 trillion in the US (thousands of trillions of naira). The UK, US and China do not have an official cashless policy but only a growing cashless economy, where willing sellers and buyers of goods and services mutually agree to transact without cash. In deposit money banks in the UK, US and China, there is no limit on deposit and withdrawal on physical cash, with British and American bank ATMs dispensing between £300 and £1,000, and $300 and as high as $20,000 dollars (millions of naira), respectively, to individual customers on a daily basis.
Clearly, Emefiele’s policy of criminalizing cash is without parallel anywhere in the prosperous world. As matter of fact, governments of the US and China have used legislative and regulatory frameworks to protect their millions of unbanked citizens who rely on cash for their transactions from being economically marginalized by the growing cashless economy by mandating businesses to accept cash for transactions whenever the need arises.
What Emefiele’s CBN has succeeded in doing is cash “seizure,” which has left millions of Nigerians miserable as they struggle to obtain their own money from deposit money banks, and not cash swap as it is pretending to do. But Emefiele is not to blame. He was hired by someone and the CBN he heads is an agency of the federal government that is headed by the same someone. And that someone is President Buhari.
It was President Buhari who approved Emefiele’s disastrous currency swap programme and “cashless policy” as an instrument to tackle vote-buying, which is now posing a national economic and security challenge. Vote-buying cannot and should never be combatted with an ill thought, needless and puerile monetary policy, as it is economic taboo to do so. Vote-buying is best tackled by enforcing electoral law and order, which prohibits vote-buying and other related offences on Election Day by security agencies before, during and after elections. Sadly, it could be said of President Buhari that, after eight years in power, he left behind a Nigeria of 100 million poor people that are queuing to buy petrol and naira and other essential commodities.