N10,000 NOTE & CBN’S CASHLESS PROJECT- 27022023

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N10,000 NOTE & CBN’S CASHLESS PROJECT- 27022023

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N10,000 NOTE & CBN’S CASHLESS PROJECT- 27022023

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                                                                                                     N10,000 NOTE & CBN’S CASHLESS PROJECT
                                                                                       By: Sir Henry Olujimi Boyo (Les Leba) republished in March 2012


INTRO:
Last week, this column republished “Free-Floating the Naira is Disobeying the Law” Which addressed concerning views held by the CBN Governor. It provides clever rebuttals and necessary insight on monetary policy in Nigeria including the cashless programme. All republications can be found in the archives using the below link.

(See www.betternaijanow.com for this series and more articles by the Late Sir Henry Boyo)

Today’s republication continues in the theme of questionable monetary policy and governance in Nigeria. The author discusses cash withdrawal limits imposed in 2012, highlights some of CBN’s arguments, and provides a balanced view to emphasize the ineffectiveness of many of the CBN’s policies in regards to reviving the real sector and the Nigerian economy.
As you read through the below article taking note of previous events and rates, keep in mind its initial publication (2012), a clear indication that things remain stagnant even as we face the year 2023.

Nigerians have largely been agitated by CBN’s advance notice of daily cash withdrawal/deposits limits of N150,000 and N1 million for individuals and corporate bodies respectively, as from June 2012, in place of current limits of N1 million and N10 million respectively.   The reduced limits have generated a lot of criticism as being inappropriate for the peculiar nature of transactions in our heavily cash dependent economy.  Popular opinion is stridently against 10% penalty charge for violation for personal accounts and 20% for business accounts, especially when the punitive charge is compounded by a host of other traditional bank charges such as commission on turnover, VAT on COT and other charges.
CBN’s argument, of course, is that a customer will incur these oppressive charges only when they exceeded the specified limits.  Well, this may be true, but in a market context where traders’ daily turnover exceeds millions of naira consolidated from a host of unfamiliar/irregular customers’ purchases, such deposit/withdrawal limits would seem impractical.

Similarly, sellers’ risk additional 20%+ on cost of sales, if they receive amounts, which exceed CBN’s set limits from their customers.  Inevitably, traders with business accounts would increase sales prices by at least 20% to accommodate bank charges for depositing values above the prescribed limits in their bank accounts!  Of course, banks would become the main beneficiaries of this arrangement in a farcical market space where customers pay as much as 20% for their cash deposit (as against payment for borrowing money)!!
Well, the question is, why is CBN embarking on such a patently unpopular programme that could fuel inflation and destabilize trade volume/value with adverse repercussions on an already prostrate economy?  Curiously, the directive is not targeted primarily to curb the menace of money laundering or to facilitate location and movements of funds looted by our ‘public servants’ (read as oppressors)!  CBN has also not defended the directive as being necessary for improved management of money supply or inflation.  The categorical imperative as defined in several press releases is to reduce the cost of cash management, which is projected to hit N192bn by next year, as indicated by Muhammad Ndah, CBN’s Director of Currency Operations at a workshop organized by Chartered Institute of Bankers in June 2011.
Muhammad Ndah noted that, “the cost of cash in 2009 was N114.6bn and grew to N135bn and N166bn in 2010 and 2011 respectively.” and further noted that, “as the volume and value of currency in circulation grows, the cost of cash management to the financial system will continue to mount.  The total cash related costs, contribute 30% of costs to the financial system and on the average, 30% of branch physical space and employees are deployed to cash logistics, handling and storage”.

In other words, if CBN’s cashless programme succeeds, current bank infrastructure can be reduced by up to 30% with savings on rent and or infrastructural maintenance as the case may be; in addition, the banks can lay off up to 30% of their staff, and logistics companies, who were earlier encouraged to invest in armoured trucks for the safety of cash in transit, could similarly trim down their operations with significant loss in jobs and incomes!
In spite of the adverse impact on employment and the providers of corporate security services, ultimately, banks are the real beneficiaries of the cashless programme!  The question is, whether or not the banks appealed to CBN for this special favour.  Well, no one really knows, but CBN obviously believes that the reduction in cost would be translated into cheaper cost of borrowing (i.e., lower interest rates to the real sector).  So far, CBN’s convoluting reforms and policies have failed to bring succor to the real sector!  

Discerning observers will confidently maintain that CBN appears to be chasing its own shadow, because it is obvious that high cost of funds is in reality the failure of CBN’s inarticulate monetary policy framework rather than high cash handling costs.   However, in its attempt to reflect itself as a Central Banker with a social conscience, CBN maintains that its cashless programme would be equitable such that high volume cash users would bear a commensurate service cost as it lamented that “currently, 90% of Nigerians, who are poor people are subsidizing the 10% who impose the huge cost of cash in the system”.

How touching!!  Regrettably, CBN does not have any qualms about the N650bn it injected to support ailing banks or indeed, the over N2,000bn sovereign debt incurred via AMCOM’s liquidity infusion into the banks, or indeed, the fact that the banks will be paid interest charges in excess of N500bn from the same government agency that is providing the above listed financial support to them.  Where is the spirit of equity and altruism in these huge subventions to a corporate sector that is patronized by less than 30% of the Nigerian population while the rest 70% with no bank accounts are cash stressed?
On the surface, CBN would have Nigerians believe that the cashless project would reduce cost, but ultimately, the cost related to installation, operation, service and maintenance of each of the projected 350,000 Point of Sale (P.O.S.) terminals might actually exceed the current cash handling costs decried by CBN.  The additional monthly fees to the 16 so far approved mobile payment service providers for telecom backup service for this program would be further compounded by charges to every customer for each P.O.S. transaction, just like the N1,200 current charges for ATM transactions.  Thus, for example, banks could easily earn over N35m/day with just a minimum charge of N10/transaction if the 350,000 P.O.S. terminals record just 10 transactions in one day


The above costs will be borne by no other than bank customers including the 90% recognized by CBN as poor, who willy-nilly must also pay the current ATM annual charge of N1200!
What is certainly clear is that bank customers are in for a drubbing with the imposition of cashless economy and acquisition of hi-tech support apparatus.  Now, the question is, since the real instigator of this CBN programme is the perceived high cost of cash management and consequent inability of banks to reduce interest rate, according to CBN, is there any other plausible strategy for efficiently reducing the volume/cost of cash handling operations?  In response to this question, the Guardian Newspaper editorial of Monday, 13/6/2011 suggested the introduction of higher denomination notes of N2,000, N5,000 and N10,000!  Holy Smoke!  The idea is that less cash volume/handling cost would be required if these ‘higher value’ notes join our currency profile.  

Thus, a single N10,000 note will replace 10 x N1,000 notes, and N100,000 will be accommodated with 10 x N10,000 notes and so forth.  In this manner, you can carry N1 million in each breast pocket and carry over N50m in a small brief case!  Well, apart from the inherent obvious heightened security risk with this approach, there is the collateral requirement of enhanced security support services for interbank cash in transit, as a result of the multiplied values in cash handling.  The need for enhanced security marks and seals on the higher denomination notes will also leave a hole in CBN’s pockets with huge forex leakages for overseas printing costs. 
But equally important is the evidence of spiraling inflation in those African countries, which adopted this simplistic solution to the problem of volume/cost of cash handling.  The examples of the Ghana cedi and Zimbabwe dollars are well known!   Incidentally, inflation rate in these countries constantly exceeded 10% annually with high interest rates; yet high cash handling costs was never identified as the villain, but they recognized inflation as the result of too much money in the system.  Thus, introduction of the N10,000 note would support the ready availability of more and more cash in the hands of consumers, which would inevitably spur the general price level.  I recall that about thirty years ago, N20 was the highest value denomination in Nigeria, but abiding double digit inflation rate and unyielding money supply generated the introduction of 50, 100-, 200-, 500- and 1,000-naira notes; yet, the current N1,000 note cannot buy what the muri (N20 note) commanded in the beginning while our primary kobo coins have disappeared.

Nigerians, particularly CBN’s 90% poor citizens should shave their heads in readiness for the guillotine, if CBN is misguided to follow the route of failed currencies.  Ghana trod that path and eventually introduced 20,000 cedis notes, which exchanged for less than $2; that country has since retraced its step but misguidedly tried to resolve the issue of inflation and large volume cash handling with redenomination, but has since found that relief from such exercise can only be temporary so long as the underlying cause of inflation is not recognized and dealt with; the Ghana cedis has lost over 50% of its value against the dollar since the redenomination exercise!  Our naira value and high cash handling costs will continue to irritate so long as CBN refuses to admit that its capture of our dollar earnings and the substitution of naira is the suicidal factor at the root of increasing cash volumes and inflation, and the villain of high cost of funds.  As discussed above, cost savings from the imposition of projected cash limits will be replaced by the huge cost of equipment and facilities required to operate CBN’s cashless economy with attendant adverse impact on employment and trade contraction.

In spite of the high cost of cash handling, banks, including some of the presumed ailing ones continue to post impressive profits results and we wonder why CBN has suddenly become a senior advocate for the banks against the people.  In any case, it is baffling why CBN has chosen Lagos as its test market, against the standard practice of adopting smaller consumer groups for test runs before confronting larger markets.  But this is Nigeria, where rubbish can be packaged as precious jewels by the establishment.
The reality, of course, is that cost/punishment for ‘large’ cash deposits would discourage bank patronage and reduce the volume of cash in banks with adverse consequences for savings and liquidity and ultimately, availability of credit and investment.  Customers will be encouraged to convert their cash receipts and holdings to dollars, so as to avoid the costly penalty inherent with huge cash deposits.  This could instigate demand for the dollar, and weaken the value of the naira, which in turn would trigger spiralling fuel prices.  The consequent inflationary push would be further fuelled by the increased velocity of cash in circulation brought about by CBN’s mandatory adoption of a cashless economy.  In such a context, CBN would inadvertently have laboured against the achievement of its prime mandate of price stability and may have cut its nose to spite its face.

   
SAVE THE NAIRA, SAVE NIGERIANS!!

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