Nigerian Central Bank’s “Drive to Entrench” a “Cashless Economy” Is Creating a World of Pain for Nigerian Citizens

“Nigeria must go cashless. It is a global policy, checking insecurity and fighting corruption”: Central Bank of Nigeria Governor Godwin Emefiele

Like India in 2016, Nigeria is undergoing the shock therapy of demonetisation. Its central bank is withdrawing high-denomination notes from circulation and replacing them (or at least supposed to be replacing them) with newly designed ones. As in India, the result has been unmitigated chaos and economic pain for citizens and businesses.

As in India, the government and central bank have provided a laundry list of reasons for taking such a drastic step, many of which seem, on paper, plausible and laudable. They include combating counterfeiting, bringing more cash into the formal economy (by forcing people to deposit their old notes at the bank), curbing money laundering and terrorism financing, increasing tax revenues and, crucially, preventing vote buying in the upcoming general elections (Feb 25).

But there is another objective at play which, I believe, supersedes all others: shrinking the amount of cash circulating in the country, with a view to accelerating Nigeria’s transition toward a cashless economy. Among its list of reasons for pursuing demonetisation, published in October, the Central Bank of Nigeria (CBN) itself said the redesign of the currency will “help deepen our drive to entrench a cashless economy as it will be complemented by increased minting of our eNaira,” Nigeria’s central bank digital currency (CBDC).

To help nudge transactions online, the central bank has limited cash withdrawals by an individual customer to 500,000 naira ($1090) a week, up from a 100,000 limit set on Dec. 6, and 5 million naira ($10,900) for a corporate customer, up from 500,000. It imposed a 3% processing fee on withdrawals above the limit by an individual customer and 5% for companies. But for many Nigerians, the challenge right now is getting hold of usable cash at all.

Amid the resulting chaos, central banks from around the world will presumably be watching on and taking notes. According to the Atlantic Council’s CBDC tracker, 114 countries, representing over 95 percent of global GDP, are exploring a CBDC.

“Nigeria Must Go Cashless”

Last week, the CBN Governor Godwin Emefiele said the central bank’s cashless policy was both necessary and part of a “global” policy (though it is unclear what he meant by the world “global,” whether relating to the whole world or encompassing the whole of something):

“Nigeria must go cashless. It is a global policy, checking insecurity and fighting corruption.”

The CBN’s “drive to entrench” a cashless economy, or at least a less-cash economy, dates back over a decade, and has so far been a dismal failure. Cash in circulation more than doubled between 2015 and 2022. As an op-ed in Premium Times notes, “there are no data to support the central bank’s claim that Nigeria is a cashless economy,” or even close to becoming one. “An economy in which 83% of your cash in circulation is not sitting in bank vaults cannot be cashless.”

That didn’t stop the CBN from becoming the world’s first central bank of a largish economy to begin issuing a central bank digital currency, or CBDC. In October 2021, it launched the eNaira, with the technical support of the International Monetary Fund. But the CBDC was a gargantuan flop. One year after its launch, just 0.5% of Nigerians had downloaded the eNaira app. Of those, only 8% are actually using the app, according to the IMF’s 2022 staff report. Despite the government’s and central bank’s marketing efforts, most people have preferred to continue using cash.

So what did the central bank do? It doubled down.

In October, it unveiled plans to replace all high-denomination cash bills in the economy. The CBN initially said the old notes would cease to be regarded as legal tender as of Jan 31, 2023. But as that date approached, the deadline was extended to February 10, with a grace period of seven days for old notes to be deposited in banks.

Then, on February 8, as the scale of the potential fallout was becoming clear, the Supreme Court issued an injunction ordering the Nigerian government to delay the cash swap and allow the continued use of old N200, N500 and N1,000 notes. But both President Muhammadu Buhari and the CBN have refused to comply. In a national broadcast last Thursday, Buhari admitted that the new currency policy is causing “difficulties”, but he only approved the continued use of the old N200 notes as legal tender.

Disappearing Half the Cash in Circulation

Nigeria’s central bank has so far done a stellar job of hoovering up the old high-denomination notes, with roughly 80% of the cash previously held in private now deposited with financial institutions, according to Emefiele. But it is not printing nearly enough cash to replenish the money supply. In other words, people are handing in their old money and getting no new money back.

On Monday (Feb 20), the Nigerian daily Punch reported, citing CBN documents, that the total amount of currency-in-circulation in the Nigerian economy had plunged 53% between October 31, 2022 (a few weeks before the CBN began implementing the naira redesign policy) and January 31, 2023, ten days before the final deadline, from N3.3 tillion to N1.54 trillion. This, in a country where physical cash accounted for 63% of point-of-sale (POS) transactions in 2022 — compared to an average of 44% across the Middle East and Africa.

As in India, the shock to the system has been brutal. While India’s demonetisation program was much more abrupt and unexpected, literally happening overnight, Nigeria’s macroeconomic health today is far weaker than India’s was in 2016.

Inflation is at a 16-year high while the naira is at its lowest point ever against the dollar. Public debt has more than doubled in the past five years. The crumbling naira, together with rising interest rates in the US and beyond, have also made it much harder for companies and the government to service their foreign-denominated debt. As if that were not enough, the country is also suffering nationwide fuel shortages despite being Africa’s largest oil producer.

The withdrawal of more than half of the country’s cash supply is sowing even more economic pain and hardship in a country where 63% of the population is poor and 33% unemployed. A piece published Saturday (Feb 18) in the Associated Press paints a vivid picture:

No one in Godgift Inemesit’s family of eight is sure when they will eat each day — except for her three kids, two of whom have malaria. She can’t pay for the drugs they need or feed the rest of her family regularly.

Like most Nigerians, the family’s savings are trapped in the bank. A changeover to redesigned currency has plunged Africa’s largest economy into crisis just ahead of a presidential election: There aren’t enough new banknotes in a country reliant on cash.

For Inemesit, 28, the shortage of cash means even basics like food and medicine are getting trimmed for her husband, mother, kids ages 4 to 8 and two other relatives. One recent afternoon, only the children had gotten bread and hot drinks.

“We usually eat three square meals, but now we eat once sometimes because there is no money to use,” Inemesit said in her house in Banana village, an overcrowded shanty town tucked in the southern corner of the Nigerian capital of Abuja.

“We were told to drop the old currency (notes) in the bank and that new one is coming,” she said. “But we don’t have the new currency and no old currency. Everything is just tough.”

A Small Price to Pay

Emefiele has hailed the cash swap as a success despite all the chaos and economic pain it has unleashed. For her part, Nigeria’s Finance Minister Zainab Ahmed said the “only sore point is the pain it has caused to citizens.”

That pain, of course, was all too predictable. In my December 9 article, “The Central Bank of Nigeria Just Gave a Whole New Meaning to the Term ‘Financial Repression,’” I noted that the CBN, like the Reserve Bank of India before it, was making a facile assumption that most people would transition quickly, smoothly and painlessly from cash to e-money, as if most people’s attachment to cash was little more than a lifestyle choice. All that’s needed, they think, is a little nudge in the right direction for people of all walks of lives and income levels to abandon cash and embrace digital payments.

The reality, as the piece in Premium Times notes, is that Nigeria is not nearly ready for such a transition, and “a more gradual approach is necessary. The country must first address the lack of access to digital payment methods, as well as the inadequate infrastructure and support systems necessary for a cashless economy.”

There is also a risk that the turmoil unleashed by the demonetisation program will spark a banking crisis, as Reuters reported last week:

Foreign exchange shortages faced by local Nigerian companies may threaten bank liquidity, while a devaluation of the naira precipitated by these shortages would weaken banks’ capital, ratings agency Moody’s said in a note on Thursday.

Banks have been providing trade finance to companies to cover the foreign exchange (FX) costs of imports, meaning they are on the hook if the companies fail to make the foreign currency payments, Moody’s said.

But there will, of course, be winners amid the wreckage. As I noted in December, for fintech companies, most of them foreign, opportunities will abound, as many in the middle classes begin using digital payment options more frequently, much as happened in India.* Lo and behold, on Feb 12 Bloomberg reported that Nigeria’s crisis was proving to be quite the boon for mobile-money “startups.” According to the Nigeria Interbank Settlement System, digital transactions increased by 55% in January alone, albeit from a very low base.

* Interestingly, six years after demonetisation India has seen huge growth in digital payments, particularly on its real-time, mobile-enabled system, the Unified Payments Interface (UPI). But at the same time cash in circulation has reached a record high. As Business Times reported in December, 2022, there is now 72% more cash in circulation than in early November, 2016, on the eve of India’s demonetisation.

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  1. flora

    This takes the old Nigerian bank scam — Dear Sir or Madame — to a whole new level. … (somebody had to say it. / ;)

    Thanks for this post.

  2. TomDority

    Quite tricky, indebt a country to foreign entities – making the country hostage(or bond servant) in order to extract wealth at low cost and then…. come up with this e based malarkey where citizens are forced to exchange their cash for cash but, just don’t print the new stuff …just wait until it becomes worthless.
    In my opinion these all digital cash policies encourage scams and enable totalitarianism and other forms of control government by would be Kings. Thought the USA flipped off some King by the name of George.

    “The crumbling naira, together with rising interest rates in the US and beyond, have also made it much harder for companies and the government to service their foreign-denominated debt. As if that were not enough, the country is also suffering nationwide fuel shortages despite being Africa’s largest oil producer.”

  3. The Rev Kev

    With the general election, as mentioned in this post, being scheduled for Saturday, 25 February 2023, you would have to think that the government would be annihilated. By the sounds of this post, there are a lot of hungry Nigerians who had to hand in old notes but have not yet been issued with new ones. I don’t know how that would play out unless a big chink of the economy is relying on personal IOUs. I wonder if there would be a demand for foreign currency as at least that would preserve the value of the money that they have. Can you imagine the chaos of it all when they try it bring it i to countries like the US or the UK? But certainly you will have the same absolute level of indifference to the suffering of the little people in such a transition.

    1. ambrit

      A friend of mine from High School spent two years studying at University in Poland back before the Wall Fell. He used to say that there was a vibrant ‘underground’ economy based on foreign bank notes. He said that there was a queue for everything at the market, but that dollars or westmarks got you sent to the head of the line, every time.
      So, I’ll wager that there will soon be a growing ‘underground’ economy based on foreign bank notes in Nigeria. This will have the knock on effect of increasing criminality and the socio-political power of the criminal class in that benighted country.

  4. ambrit

    There is a whole, vibrant, CT ‘Infosphere’ online concerning the CBDC phenomenon.
    Most such ETCs (Economic Conspiracy Theory) are demonized as “baseless” and “malicious,” but where there is smoke, there is fire.
    The poster child for the ‘Tinn Foyly Hatt Brigade’ here is the Government of Canada’s confiscation of the bank accounts of some of the Trucker Protest stalwarts. This effort was an attempt, somewhat successful, to stop the protests. In other words, an exercise in Power.
    The fact that the Government could do this at all is a function of the electronic nature of most ‘high level’ banking. The only feasible alternative to such power is cash. So, cash is a direct threat to the coercive power of the State. (We will not go into the perennial ‘Fiat’ versus ‘Specie’ debate for now.)
    One big positive argument for the Government having such granular control over the economic life of the citizenry is the theory that, since very much low and mid level crime is transacted in cash, control of that cash economy helps in combatting crime. Alas, this does not take into account (no pun intended) the degree to which the Elites who occupy and guide that Government are a Criminal Class themselves.
    It all comes down to whether or not you trust the Government to deal honestly with the citizenry.
    Stay safe. Remain vigilant. Keep masking, (your life might depend on it.)

    1. flora

      In the US there’s no legal bar preventing states from setting up their own state bank. See for example the Bank of North Dakota:

      It’s expensive and time consuming to do, and requires a will to do it that is above partisan politics.

      If Powell and the Fed insist on CBDC’s for all FDIC insured banks, well the Fed is a private consortium of 12 privately owned banks. Is it possible a state bank could avoid the private Big 12’s dictat? Go straight to Treasury for funds, etc? Inquiring minds want to know. / ;)

  5. spud

    and the do-gooder types are pushing for this fascism also, thinking it will cut down on corruption. as we see with today’s hi-jacking of almost anything digital, it will only increase corruption, and make fascism easier to enforce.

    we are entering the chanting phase now that every idiotology goes through. doubling down and making the same mistakes over and over again, till it works!

    1. Synoia

      It is a scam. A prerequisite is an Honest Government. Nigeria is not so blessed.

      On reflection, most governments are self serving.Perhaps the Swiss have the best governmental system, I believe Citizens have the voting power, the elected do not.

  6. Savita

    Ambrit. I love your posts. You number amongst a handful of regulars, whose name above a post makes my eyes brighten.

    Respectfully. I note your use of the phrase Conspiracy Theory, here shortened to CT.
    Isn’t it time we just removed our use of this useless phrase altogether.
    It is absolutely, what Wikipedia would describe as a ‘weasel word’.
    No disrespect to weasels. Those delightful furry pals.
    The popular application of the concept has the all encompassing effect of dulling down the frontal lobes of the brain. It’s a blanket thrown over anything contrary to what ‘sensible, appropriate, well intentioned, law abiding adults’ believe.
    Which is, whats acquired from their righteous study of the mainstream media.

    The lyrics to the song ‘Fitter, Happier’ by Radiohead come to mind.
    Although the song is not quite describing the caricature I point to above, in the lyrics you will recognise the resemblance. The song is rolling-on-floor hilarious to me. Listen to it!

    And in terms of aware and conscious use of language. We also know the term ‘conspiracy theory’ was invented in response to the Kennedy Assasination. Literally
    ‘Anything that the establishment doesn’t want you to believe’. As a non-American not alive at that time I may not be on point here but thats my interpretation.

    And, conspiracy theory, by definition, merely means two or more people in collusion to a specific aim. So even by that lowest threshold of the dictionary, the manner in which this term is thrown around in popular parlance is quite banal.

    1. semper loquitur

      Playing moderator is a violation of NC’s rules:

      Other violations include but are not limited to ad hominem attacks, hogging bandwidth, assignments/demands (asking/telling post authors or site admins to Do Something other than fix typos or broken HTML), sock-puppeting yourself, link-whoring, thread-jacking, concern-trolling, jailbreaking, acting as a self-appointed moderator and/or complaining about moderation policy, agnotology or other forms of making stuff up, tag teaming, and a high invective-to-content ratio.

      no matter how politely or obliquely. Stop it.

  7. Dave

    Building Back Better by Funding Financial Follies

    Another useless idea from a failing banking system, that is built on failing too big to fail banks (on welfare), ahem

    The Credit Suisse ‘Lehmann crisis’ : “FINMA, is investigating remarks made by Credit Suisse Group Chairman Axel Lehmann to the media in early December, which suggested that client asset outflows had stabilized”

    Deutsche Bank CEO calls on regulators to loosen rules that ‘structurally disadvantage’ European banks

    Dont’t forget to mind the derivatives: FX swap debt a $80 trillion ‘blind spot’ BIS says

    Access to electricity isn’t great in Nigeria according to ahem the World Bank

    Power outages in firms in a typical month (number) – Country Ranking

    6     Nigeria     32.80 2014

    (I suspect that things haven’t picked up significantly since 2014)

    Is the government going to fix the crappy electrical power ‘services’ that it provides?

    No prizes for guessing the correct answer.

  8. Negrodamus

    As a Nigerian I must say respectfully you have it wrong.

    Apart from the $$$s they bring and the austerity imposed indirectly because if those measures, Bretton wood institutions have very limited influence on government financial policy (hence the endless lectures on corruption, but I digress)

    The real reason for the currency swap is political. The current govt doesn’t want the frontrunner of the upcoming elections to win.

    It is widely believed that his base is primarily financial. They believed that by changing the currency they would be able to stymie him. Unfortunately they didn’t account for their own incompetency in their calculation and hence the blowback.

    Sorry this isn’t about the west- just old school ruthless and particularly reckless politics.

  9. Nick Corbishley Post author

    I respectfully beg to differ. The idea that this has nothing to do with the eNaira is just plain wrong. As I even document in the post above, the central bank itself has admitted that the withdrawal of cash will “help deepen our drive to entrench a cashless economy as it will be complemented by increased minting of our eNaira.” Its chairman even recently said that “Nigeria must go cashless,” as in permanently. And it is the central bank, not the government, that is driving this process.

    Even more mistaken is your claim that the two main Bretton Woods institutions have “limited influence on government financial policy” or, (and you don’t even mention this) central banking policy.

    For starters, the IMF helped the Central Bank of Nigeria roll out the eNaira in the first place, as the fund itself admitted in Nov 2021:

    The IMF’s Monetary and Capital Markets Department has been involved in the eNaira rollout process, including by providing reviews of the product design. The 2021 IMF Article IV mission emphasized the need for monitoring risks and macro-financial impacts associated with a central bank digital currency. [1] The IMF is ready to collaborate with the authorities on data analysis, cross-country studies, sharing the eNaira experience with other countries, and discussing further evolution of the eNaira including its design, regulatory framework, and other aspects.

    IMF President Kristalina Georgieva said last year at an event organized by the Atlantic Council, that “the IMF is deeply involved in this [CBDCs], including through providing technical assistance to many members. An important role for the Fund is to promote exchange of experience and support the interoperability of CBDCs.” That’s right, the IMF did not just help the Central Bank of Nigeria set up its CBDC infrastructure, it is also sharing the lessons gleaned from that experience with other central banks.

    But it’s not just the IMF. The World Bank, together with its ID4D partners, including the European Investment Bank and the French development Agency, has ploughed hundreds of millions of dollars into the Nigerian government’s national identity number (NIN) scheme. Without a robust digital ID scheme, it is all but impossible to launch a CBDC. The World Bank’s most recent payment instalment to Nigeria was in 2020, for a sum of $115 million, with the ostensible aim of “increas(ing) the number of persons with a national identification (ID) number.”

    That sort of money buys influence, especially if you are already one of the most influential global financial institutions on the planet.

    Of course, this is not to say that political considerations aren’t a major factor in Nigeria’s demonetisation project. But in my view (and I do make it clear that this is my opinion in the third paragraph of the article), they are secondary to the CBN’s ambitions for the eNaira.

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