The Central Bank of Nigeria’s (CBN) cashless policy has ignited a firestorm of criticism from the Organized Private Sector (OPS), which argues that Nigeria’s economy is ill-equipped for a predominantly cashless system. The scarcity of physical currency has crippled businesses, particularly Micro, Small, and Medium Enterprises (MSMEs), raising fears of widespread collapse. The OPS contends that while the CBN’s intentions of modernizing the financial system are laudable, the abrupt implementation of the policy, without considering the ground realities of Nigeria’s economic landscape, has stifled business operations and livelihoods. They advocate for a more gradual transition, emphasizing the need for enhanced financial inclusion, improved infrastructure for electronic transactions, and policies that align with the practical needs of Nigeria’s diverse population. The OPS draws parallels with developed economies like the US and Canada, where cash remains a readily available option, supported by robust digital infrastructure and high financial literacy. They highlight the impracticality of Nigeria’s withdrawal limits, which pale in comparison to those in other countries, further exacerbating the challenges faced by businesses and individuals.
The impact of the cash crunch on MSMEs is particularly devastating. These businesses, often operating in the informal sector, are heavily reliant on cash transactions. The naira scarcity has disrupted their operations, forcing some to purchase cash at exorbitant rates from Point of Sale (POS) operators, eroding their already thin profit margins or necessitating price increases that lead to reduced sales. This has created a vicious cycle, pushing many MSMEs to the brink of extinction. The OPS warns that the continued cash scarcity could have profound negative consequences for the Nigerian economy if not addressed promptly. The reduction in banking activities further diminishes financial inclusion, a key objective the cashless policy ironically aims to promote. Instead, it inadvertently encourages the very cash-dependent practices it seeks to eliminate, while increasing the risks associated with carrying large sums of cash.
Experts and economists have weighed in on the crisis, highlighting the multi-faceted nature of the problem. The cash scarcity has significantly slowed business transactions, especially within the informal sector and in rural areas where cash remains the dominant mode of payment. This disruption in the payment system has a ripple effect on economic activity, hindering growth and development. The low level of financial inclusion, coupled with recent technological glitches in banking apps, has eroded public trust in digital transactions. Many Nigerians, scarred by these experiences, have reverted to cash, further exacerbating the scarcity. The lack of trust in the banking system has driven a preference for cash transactions, a significant obstacle to the CBN’s cashless agenda. This lack of confidence is further compounded by the volatility of the naira and a perceived lack of transparency from the CBN regarding its monetary policies.
Adding to the complexity of the situation is the issue of money laundering. Significant cash transactions, often associated with illicit activities, contribute to the high demand for physical currency. Coupled with a potentially limited supply, this further fuels the scarcity. Furthermore, the rapid proliferation of POS operators, now numbering over three million, has introduced a new dynamic to the cash management landscape. These operators, competing directly with banks for cash, often acquire currency from retail outlets rather than through formal banking channels, disrupting the traditional flow of cash within the financial system. This has created a parallel cash market, where POS operators hold a substantial portion of the currency in circulation, dispensing it at a premium.
The CBN has acknowledged the gravity of the situation and has implemented measures aimed at curbing the illicit flow of naira notes. Heavy fines have been imposed on banks found to be facilitating the sale of mint notes to currency hawkers. The apex bank has also intensified its monitoring efforts, deploying mystery shoppers and conducting spot checks to ensure compliance. While these actions demonstrate the CBN’s commitment to addressing the crisis, concerns remain regarding the underlying issues driving the cash scarcity. Stakeholders, including the OPS, have called for greater engagement with the CBN, urging the bank to consider the practical realities faced by businesses and individuals in its policy formulation and implementation.
The current cash scarcity in Nigeria presents a complex dilemma. While the push towards a cashless economy holds long-term benefits, the current approach has created significant challenges, particularly for MSMEs and the informal sector. The CBN’s efforts to curb illicit cash flows and improve distribution are commendable, but a more holistic approach is needed. This requires addressing the underlying issues of financial inclusion, strengthening public trust in digital transactions, managing the influence of POS operators on cash circulation, and fostering a more gradual and inclusive transition towards a cashless economy. The CBN must strike a delicate balance between its modernization goals and the practical needs of the Nigerian populace to ensure sustainable economic growth and stability.
