The currency in circulation in Africa’s biggest economy has dropped to the lowest level in 14 years and five months on the back of the currency redesign policy of the Central Bank of Nigeria (CBN), a BusinessDay analysis has shown.
According to the data from the CBN, the currency in circulation declined by 29.2 percent to N982.1 billion in February, the lowest since October 2008, from N1.39 trillion in the previous month. It declined by 69.9 percent on a year-on-year from February 2022.
A further analysis of the CBN data also showed that the currency in circulation dropped for the second consecutive month in February.
Currency in circulation can be defined as currency outside the vaults of the central bank — that is, all legal tender currency in the hands of the general public and in the vaults of the deposit money banks.
“The decline is as a result of the CBN’s efforts towards mopping up the currency in circulation through its naira redesign policy,” Abiodun Keripe, managing director at Afrinvest Consulting Limited, said.
He said the decline in currency in circulation further strengthens CBN’s drive towards financial inclusion in the country.
On October 2022, the CBN announced its plans to redesign N200, N500 and N1,000 notes. The new naira notes were introduced into the economy on December 15.
The apex bank also directed commercial banks to return existing denominations, saying the deadline for the collection of the old naira notes was January 31, 2023. But it was later extended to February 10.
But since February, Nigerians have struggled to get cash due to the scarcity of the new and old naira notes. The scarcity of the naira notes has disrupted economic activities and the livelihoods of many people.
The unavailability of the new notes created untold hardship for Nigerians, with citizens unable to get cash which hindered their day-to-day activities, analysts at CSL Stockbrokers Limited said on Monday.
“Also, the inability of banks’ e-payment infrastructure to cater to the increase in electronic payment usage resulted in an increase in failed online transactions,” they said.
The Centre for the Promotion of Private Enterprise said recently that since the onset of the cash crisis, the economy had lost an estimated N20 trillion.
“These losses arose from the deceleration of economic activities, the crippling of trading activities, the stifling of the informal economy, contraction in the agricultural sector and the paralysis of the rural economy,” it said.
Amidst the cash crisis, many Nigerians switched to using electronic payment channels to carry out transactions.
Data from Nigeria Inter-Bank Settlement System (NIBSS) show that the total volume of NIBSS Instant Payment platform (NIP) transactions rose by 45.6 percent to 787.9 million in February from 541.7 million in the previous month.
Babatunde Akin Moses, chief executive officer and co-founder at Sycamore, said people had no choice but to use electronic means of payment since cash wasn’t available. “More people have account numbers than Point of Sale machines; so payment via bank transfers surged.”
Last month, President Muhammadu Buhari approved the continued use of the old N200 note as legal tender till April 10 in a bid to reduce the hardships of the people.
However, some state governments sued the Federal Government over the naira redesign policy, and the Supreme Court, in its ruling on March 3, extended the legal tender status of the old N200, N500, and N1,000 notes to December 31, 2023.
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Last week, the CBN officially ordered commercial banks to comply with the court verdict.
“Now that banks have started dispensing old naira notes, we may likely see a gradual increase in currency outside the banking system,” Keripe of Afrinvest said.
Africa’s most populous nation can take lessons from Europe, which is using contactless technology as cash alternatives to meet the basic needs of its citizens.
Contactless technology is the ability to pay with cards or electronic devices by holding the card or device a few centimetres away from a retailer’s payment terminal.
A recent survey, titled ‘The payment attitudes of consumers in the Euro area SPACE 2022’, said 55 percent of respondents said they preferred cashless means of payments (up from 49 percent in 2019), while 22 percent preferred cash and 23 percent had no clear preference.
“Contactless card payments at the PoS increased considerably in three years, from 41 percent of all card payments in 2019 to 62 percent in 2022,” it said.
It said cashless means of payment, particularly mobile phone apps, increased person-to-person payments.
“Between 2019 and 2022, the share of mobile payments more than tripled in terms of number from three percent to 10 percent, and rose from four percent to 11 percent in terms of value.”
