The Central Bank of Nigeria, like every other Central Bank around the world, is concerned about the amount of cash in circulation. Central Bankers and Economists in general, say that too much money in circulation drives up the cost of goods. Some of us (even though I am an economist too), have always wondered how the Central Banks determine with any degree of accuracy, how much money is in circulation, especially in unstructured economies like we have in Africa, where the informal sector is far larger than the formal, easily measurable, sector. Most Nigerians also wonder where all the ‘excess’ monies are, each time the Central Bank complains of ‘too much money in circulation’. Because most Nigerians are broke!
The bigger issues, which nobody is willing (or able) to address, go to the very basis of African societies, and calls to question the models and theories that have been used thus far, in explaining the problems that plague African economies. I have been an advocate of a fundamental rethinking of African economies and societies, and it seems that some of my concerns are coming to pass right before my eyes.
Nigeria is the only country I have been to on earth where coins are not accepted, or acceptable, or available, as a means of exchange. Coins have simply ‘refused’ to take root as legal tender. The Central Bank here has spent untold amounts in the past, designing and redesigning the coins, in the hope that they will become desirable to the people, but no. In fact, Nigerians think the word ‘coins’ is denigrating. So there goes the coin – out the window. The ones launched recently with so much fanfare, are absolutely nowhere to be found! But from an economist’s perspective, coins are very desirable, at least because they allow the Central Bank to reduce the cost of printing and managing currency. A coin can stay in circulation for 20 years, while the Central Bank would have had to withdraw and reprint a note currency at least 5 times over! This currency management expenses, which is a major nightmare for the CBN, has prompted this controversial policy.
But our cultures may be major issue here. By right we should not cavalierly jettison our cultures in a bid to become more ‘modern’ than the europeans. But in not dumping our cultures in their entirety, we should at least know the effects of those cultures on our economic performance and reality. The average Nigerian is a family-minded person, with extensive ties on the sides of his mother and father, wife or husband. Each weekend, there are parties and ceremonies to attend. Clothes need to be bought specially for occasions, oftentimes never to be worn again. Monies will be spent in good measure, oftentimes unbudgeted for. Impressions need to be made, traditions need to be respected, oftentimes at great, unsustainable cost. That is where the Nigerian is from the south. In the north, it isn’t so different. In fact, the culture there dictates that almost every person on the street is your family, and the religion compels you to give and keep giving. Now these factors are not present in the ‘modern’ economies that we hope to copy. I have not said whether the cultures are good or bad, and it is left to policy-makers to determine whether some of the cultural factors should be expunged from society, or consolidated.
I remember my sojourn at Harvard Business School in 2009. When a classmate asked us all to go for a drink at Harvard Square, I naturally expected him to pay for the drinks, he being a director at one of the largest broadcasting organizations in the world. Imagine my shock then, when Andy-the-director, started moving around the drinking crowd, asking for 10 dollars apiece, in order to pay for the drinks. I couldn’t even offer to pay for everyone’s drinks even though I could afford to on that day, because such a gesture would have been alien to their culture. Yes that is the word; CULTURE!
So whereas this cash limit policy is meted out in reaction to a growing cash management disaster in Nigeria, whereas the policy is spot on in terms of reducing money laundering, insecurity and corruption the real implications of the policy goes to the root of our culture. Can the CBN hope to change these age-long cultures on the grounds of achieving economic stability? Already some communities in Delta State of Nigeria have sued the CBN because according to them, they do not have banking facilities anywhere near their abodes. Some people have also asked what becomes of the cattle-rearer in the north of Nigeria. Should he now be afraid of having a great day in the market? Two cows sold in the market brings in more than the set cash limit. Should the nomad then open a company in order to take up to a million naira to the bank? Will this not serve as further disincentive to banking, because more people will rather keep their cash than take same to the bank and be charged exorbitantly for paying them in? I believe we should look towards the east (China) at this time. That economy is cash-based and FLYING! And the Chinese have a savings rate of 40! Enviable! So African economies needn’t be emphasizing their ‘cashless-ness’ as yet, but be worried about their ‘joblessness’.
Empirically, in the UK, many bank customers have a maximum limit on ATM withdrawals, of 300 pounds (about 80 thousand naira), but they are free to go to the bank with their ATM cards and withdraw as much as they want on any day, subject to availability of cash at the bank. At worst, they are required to call the bank and give prior notice of large cash withdrawals. In the UAE, they are much more liberal, giving customers an option of withdrawing between 20,000 dirhams (800 Thousand naira) or 50,000 dirhams (2 million naira), daily from ATMs! I would propose that we should not crash-land our economy by kowtowing to those breathing down our necks about corruption and money laundering. Whereas I am not saying that we should run a corruption and money-laundering economy, I am of the view that many legitimate businesses may be scared away with this new policy, and Nigeria as well as other African countries need to attract, not lose money. It should not matter how much cash someone takes to the bank daily if he has a legitimate business doing. If not, well-managed, this policy will just allow banks to take the citizenry further to the cleaners… We have suffered enough, right?
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