CPPE: Nigeria Not Really Cash Dominant Economy

*Says cashless transactions in 2022 reached N400tn while cash to GDP ratio was 1.3%

Dike Onwuamaeze

Contrary to the insinuation that the Nigerian economy is heavily dominated by cash transactions, an economist and the Chief Executive Officer of the Centre for Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, has insisted that available data showed that “Nigeria is not a cash dominant economy.”
Yusuf, made this assertion at the weekend, while reacting to the Supreme Court’s judgment that extended the legal tender status of old N200, N500 and N1,000 currency notes till December 31, 2023.  

He pointed out that only five per cent of money in circulation is held in cash.
He said: “As at December 2022, the total money supply was N52 trillion, cash component of money supply was N2.6 trillion, which was just 5.0 per cent.
“Similarly, the country’s Gross Domestic Product (GDP) was N202 trillion, which gives a cash-to-GDP ratio of 1.3 per cent.  These ratios are some of the lowest around the world, which showed that the Nigerian economy is not really a cash-dominant economy.”

He further pointed out that, “It is also on record that about N15 trillion has been mopped up by the Central Bank of Nigeria (CBN) with its Cash Reserve Ratio (CRR),” adding that “cashless transactions were about N400 trillion in 2022, according to NIBSS,” to show that the crude mopping up of cash in the economy, which was witnessed in the country in January and February this year was unnecessary.

“The truth,” according to him, “is that nothing is broken. And we don’t fix what is not broken.  Of course, we can do better, but not by crudely mopping up cash in the economy.”
Yusuf also stated that the contention that arbitrary reduction of cash in circulation would curb inflation and enhance monetary policy effectiveness has no basis going by available data.

He stated that, “the bigger threat to monetary policy effectiveness and price stability is the N22 trillion ways and means finances of the CBN.
“Therefore, the claim by the CBN that the economy has too much cash outside the banking system has no basis in economic theory; neither can it be supported by empirical evidence.

“The entire exercise was unfortunately a needless disruption of economic activities, especially among the most vulnerable segments of the economy.”
Though Yusuf acknowledged that the CBN has the right to redesign currency, he, nevertheless, stated that the central bank did not have the right to dispossess the citizens of their cash.

He argued that the choice of the mode of store of value was a fundamental right of citizens.  
“The CBN has no right to impose that choice on citizens. It is a flagrant violation of the rights of citizens for the CBN to withhold the cash from citizens under the guise of currency redesign.

“The CBN act does not give the CBN that right. The CBN cannot request the citizens to bring their cash for a swap, only to deprive them access to it.
“A swap presupposes that whatever old notes that were received by the banks must be replaced with new ones instantly. Otherwise, the period of the swap should be extended until the CBN is in position to do so. In many other climes, such swaps are done over 12 to 20 months, or even more, to minimize disruption” of economic activities.  

“To date the CBN had mopped up about N2 trillion cash from the economy thereby paralysing the retail sector, crippling the informal economy, stifling the agricultural value chain, immobilising the transportation sector and disrupting the payment system in the economy.”
Yusuf, therefore, hailed the recent Supreme Court’s judgment that legitimised the use of the old currency notes of N200, N500 and N1,000 until December 31, 2023.

He said, “the CPPE commends the ruling of the Supreme Court on the use of the old currency naira notes as legal tender. Hopefully, the President Buhari, the governor of the CBN and the Attorney General of the Federation would comply with this court order in the interest of the rule of law, good order and public interest.

“We welcome the Supreme Court ruling as it protects the citizens from a policy which is, by all accounts, disruptive. Indeed, Nigerians deserve an apology from the promoters and proponents of the policy, especially the arbitrary and uninformed mopping up of cash in the economy.”