CBN: Cash Scarcity Is Here To Stay For A While

 By Dele Sobowale

“Cash Scarcity: People are hoarding bank notes – CBN.” VANGUARD, December 14, 2023.

Governor Cardoso and his new team at the top of the Central Bank of Nigeria, CBN, can be forgiven if the current cash scarcity being experienced has caught them by surprise.

They were not in office in March, when it was predicted on these pages that another round of cash scarcity was inevitable; after the one induced by the CBN then. Before going into the reasons why we are not free of this problem yet, permit me to make one observation; which will be helpful to the current CBN Management.  Statements such as “people are hoarding cash” are more emotional than technical or professional; and they seldom solve the problem.

 Without finding out why people are withholding (my own term for what is happening) cash instead of taking them to banks, the CBN will become like the young cat chasing its own tail and running around in a circle. The announcement that more cash had been sent to banks to ease the current cash scarcity will also not solve the problem. 

More cash will simply disappear from the banks into private hands. The victims and survivors of the cash crunch of February and March this year will not soon forget that banks cannot be trusted to return the cash surrendered to them – as and when needed. Two examples will help to illustrate how bank-client relationships have deteriorated.

 Mr Y, a personal friend, over 80, and in poor health, stopped keeping a lot of cash at home to pay for recurrent expenses requiring cash payments. He relied on two sources — ATM machines and POS operators. There was no problem until currency exchange when cash from both sources became extremely scarce. Too old to struggle at ATM machines and not receiving enough from his trusted POS operators, he almost died until he made a deal with POS operators N75 for N100 withdrawn from his account. It was a steep price to pay to collect one’s money deposited at banks.

 Mr X, now dead, was a successful cash-and-carry trader. Illiterate, he had no bank account until the currency change forced him to open one. Despite that, he waited until the last three days to deposit over N7 million into the account. He waited for two weeks before going to the bank for the money. A major shock awaited him. The bank, which collected his money without asking for his BVN, now insisted that he must produce one to receive a kobo back. 

Even then, the most he could expect, at once, was N200,000. It was, literally, a death sentence. He did not die in the bank; he staggered home before collapsing in a heap; and had to be rushed to a hospital. He lived just long enough to get the BVN and to collect about 25 per cent of the money deposited in cash. He vowed never again to take cash to a bank. His colleagues in the business, still alive, have learnt a painful lesson – never again take all your excess cash to a bank.

 For Y and X, the CBN can multiply by millions — people who no longer trust banks with their money. The period of cash scarcity, and the empty streets in Lagos Island Business District, provided the opportunity for me to interview hundreds of individual traders and other business men and women. One question I asked everybody was: “What will you do after the cash scarcity is over?” 

The answer was unanimous. “I will never again take all my excess cash to bank.” Obviously, the emotional position taken by CBN – people hoarding – has failed to reckon with the fact that people are keeping what is their money. They are under no legal obligation to take them to bank — until banks can be trusted.

“Habit is stronger than reason”. That was the declaration of a Nobel Prize Winning Economics Professor,  Robert Dorfman, 1937-2022. Despite the gains made with the introduction of e-commerce, Nigeria is still a cash-based economy. I was an eyewitness to the cash payment of N3.5 million for the renting of a two-bedroom self-contained apartment recently.

Mountains of cash change hands in all sorts of illegal business activities – drugs, rice, vehicles and arms smuggling, human trafficking, prostitution, crude oil theft, public, private and NGO sectors’ corruption, illegal mining etc. At any rate, our rural economies and the lives of the urban poor are still driven by cash transactions. Transporters – buses, tri-cycles and motor bikes, as well as boat operators collect cash all the time; and spend cash most of the time. The small scale business people making deposits are never too far from returning to withdraw.

 Until 2023, the depositors trusted the banks. We habitually expect to collect cash when we reach the bank. Banking itself is basically based on trust. The CBN demolished that trust in February 2023; and taught all of us that banks can be unreliable. Most of us, businesses and individuals — have retraced our steps. Few now continue to deposit all the cash they receive in banks. 

In the middle of 2022, I was in the office of a businessman – when the contractors were removing the heavy safe deposit box in his office. “We don’t need this anymore with the way banks operate”; he said. In March this year, his business almost closed down on account of cash scarcity. The safe deposit box is now back in his office. His latest pronouncement? “Nobody can ever persuade me to keep 100 per cent of my money in Nigerian banks again – given the way CBN is operating.”

WAY FORWARD FOR CBN

 I am not conversant with the organisation structure of the CBN. I am not sure they have a Marketing section in the place. That might explain the reason why most of their interventions sound like military commands or decrees to be obeyed or else. That is not how to treat customers. Seldom do they consult the people, through research, to find out what would be the reaction to any proposed initiative. And, when they fail, the reaction is to search for those to punish.

Take for instance the NAIRA4DOLLAR initiative; which was supposed to bring more dollars into the Domiciliary Account pool launched about three years ago. CBN was told on this page why it would fail – unless amended. Based on a survey of people who discuss their forex problems with me, it was clear to me that NAIRA4DOLLAR was dead on arrival. Having failed to receive the dollar bonanza, the CBN pounced on Abokis and BDCs; trying as usual to bully reality.

 Right now the new CBN Governor is committing the same error as the last one which created the problems – blaming the victims of its monumental blunder this year. Nigeria was not the first country to change its currency; and it won’t be the last. Almost invariably, the outgoing and incoming currencies are allowed as legal tender for several years. Some nations even have no expiry date for conversion. 

But, because Buhari, as Military Head of State in 1984-5 had bullied Nigerians to change currencies in a short time, he had assumed that the same folly would work out in 2023 as an elected President. What followed was not sound banking; neither was it good economics. It was outright chaos. A responsible CBN should have apologised to all stakeholders, not just Nigerians, because foreigners and visitors were caught in the same mess. 

Then the CBN should have endeavoured to ensure that public trust is restored after normal services resumed. Instead, they are behaving as if returning our money to us was a favour and not a right.  CBN, while accusing Nigerians of hoarding cash, also announced that more cash had been released to the banks to ease scarcity. So, who was hoarding? What was released will also vanish. Believe me.

*Dr. Sobowale is a commentator on public issues