Dearth of lower currency notes in circulation: Confronting the conundrum

Nigeria, like every other developing country has its fair share of economic problems. The impact of inflation, high unemployment rate, softening oil prices, high interest rate, delayed budget implementation, high cost of debt servicing etc have all been well documented.

A very unique feature of our economy is the fact that some of its most challenging economic issues do not amen themselves to basic economic analysis. We cudgel textbook theories while issues that should be addressed continued to be atrophied; either deliberately or inadvertently.

Perhaps, one of the most unheralded socio-economic challenges confronting our economy today has to do with the dearth of lower denomination notes in circulation. The poor and those engaged in petty trading and businesses have lately groaned as the inflationary effect of the dearth of lower denomination bites harder. So telling has been the impact on the socio-economic lives of Nigerians that the senate intervened recently by mandating its Committee on Banking, Insurance and Other Financial Institutions as well as the Finance Committee to investigate the cause of the scarcity. The Committee was given two weeks to submit its report.

Recently also, the CBN noted that despite the huge spike in the quantity of lower denomination currency notes churned out yearly, the issue has remained intractable. Speaking at a public sensitization and enlightenment programme titled Direct Intervention on Lower Denominations Banknotes in Kano, the Director of Currency Operations Department, Central Bank of Nigeria, Mrs Priscilla Eleje decried the obstinate nature of this very strange phenomenon. Her words: “In the recent times, the CBN has observed the inadequate circulation of the lower denomination banknotes and the difficulty encountered by economic agents such as marketers, merchants, shopping malls, supermarkets etc, despite the huge volume of bank notes injected into circulation on annual basis.”

She stated that the CBN has decided to intervene through direct disbursement to economic agents, supermarkets, market associations etc. She further stated that the exercise will be conducted in major towns across the country. It will be recalled that as part of this initiative, the CBN embarked on direct disbursement of lower denomination currency notes at Tejuosho Market in Lagos on the 14th of September, 2018.

Naturally, economic analysts have continued to wonder how the issue assumed conundrum status to the extent that the CBN had to embark on an unconventional exercise of direct distribution of lower denomination bills.

Let us look at some developments.

Firstly, the advent of Automated Teller Machines (ATM) brought in its wake, a lot of benefits to both the banks and the banking public. To put in succinctly, a unique advantage to depository institutions was that the technology greatly reduced long queues at banking halls. As the technology evolved, it began to offer customers much more than just withdrawing cash. Transfers and other transactions could be effected at the touch of buttons. However, in a bid to take further advantage of the development, some banks came up with regulations which implementation have only served to reduce the volume and circulation of lower denomination notes in the economy.

Between 2015 and 2016, there was a hiatus in the printing of the naira by the CBN. The apex institution cited high cost of printing the bills as reason for suspending the printing. In fact, according to the NSPM Plc in its website in 2016, “The cost of printing N50 is almost the same as N1,000. Printing small denominations costs more than the value and with the present economic situation, it makes sense to print higher notes which can be done locally by NSPM”. This fact will be taken with a pinch of salt. Before the CBN suspended the printing, the issue of the scarcity had persisted. There was really no noticeable impact between when the printing was stopped in 2015-2016 and now that the apex bank had resumed its printing. It is common sight these days to see commercial motor cycle riders and taxi drivers standing on the road flinging a N500 or N1000 note in search of the ever elusive change. Petty traders are the worst hit. Some eateries have stopped selling bottled water by reason of lack of change. The average price of a mid-size bottled water is N100.   They claim that when a prospective buyer requests for a bottle of water and is holding a N500 or N1000 bill, that transaction will most likely not be consummated by reason of lack of change.

The apex bank once flirted with the idea of redefining its involvement in the cash value chain. A cardinal feature of the model would see the CBN withdrawing from the Retail cash value chain. A key feature of this chain is currency processing. While still giving a serious thought to the workability of the entire idea, it was decided that DMBs be encouraged to process their own currency notes to enable the CBN refocus ON its core mandate. Accordingly, currency sorting fees/box was hiked. The hike affected all denominations including lower denomination. The hike did little to deter the banks from moving their money to CBN for sorting. However, almost all the banks stopped taking lower denomination notes to CBN for processing thus further compounding the issue.

All the facts enumerated above are certainly not exhaustive. It is however imperative (as is usual with tackling intractable issues in our clime) that there is need to adopt some unconventional measures to address the problem. The apex institution’s decision to undertake direct disbursement must be applauded; and not condemned as some analysts were wont to.

It can go further. Let the CBN and the Bankers’ Committee meet to fashion out ways by which deposit money banks can site ATM galleries in some of the most patronised markets across the country. The machines will be dedicated to the disbursement of only lower bills. Market women and traders will be adequately sensitized. They will be encouraged to open accounts and withdraw lower bills for their everyday business. Account opening formalities should be made less cumbersome. The novelty will not only put the issue behind us, it will aid the attainment of the goals of financial inclusion. It is very possible. In fact that singular act may just be the tonic that will reduce financial exclusion to 20% by the year 2020, which is the target for the CBN’s Financial Inclusion Steering Committee.

Nzete writes from Ajegunle, Lagos via [email protected]

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