Naira scarcity: No big relief for Nigerians after CBN meeting

The Central Bank of Nigeria signalled Tuesday its decision to take cash out of the economy will not change much just yet, insisting its cashless policy will stay and Nigerians should learn to apply alternative payment methods.

Ahead of the bank’s key interest rate meeting today, citizens distressed for months by acute scarcity of naira notes hoped with the elections over the bank may be releasing more money and would be forthcoming with details.

The CBN governor, Godwin Emefiele, addressed the subject but indicated the shortage was more about a deliberate cashless policy than it was about the polls.

He said citizens should use more digital payment tools, and apologised for the hitches noticed sometimes. He said banks were working to make electronic payment processing easier and praised fintech companies for stepping in.

Mr Emefiele said the amount of cash in circulation now stands at nearly a trillion naira.

“Before the naira redesign, we said there was about N3.28 trillion naira in circulation out of which only N5oo billion was being held in the banking system and N2.72 trillion was held outside of the banking system,” he told journalists after announcing a hike in interest rate to 18%.

“With the naira redesign, currency in circulation is roughly close to a trillion naira and CBN continues to pump the newly designed currency into the market.”

While he said the central bank will inject more money into the economy, he said it will be careful not to allow the hoarding of cash, which informed the policy in the first place.

“The truth is that at some point we’ll need to reassess again to know that the currency in circulation has attained an optimal level so as to be able to put in place measures that will ensure that we don’t go back to what we had before, where people would be keeping a lot of money outside the banking system for their own personal benefit and the rest of them,” he said.

– Not achieving inflation goals

Nigerians have endured a debilitating cash crunch for months, finding it difficult to pay for basic needs like food and water. The policy has badly affected businesses, with many small businesses closed.

Despite a Supreme Court ruling for the continued use of old notes, commercial banks still struggle to pay citing scarcity of notes. On Monday, Pluboard learned banks had still not received notes from the central bank.

The accounting firm, KPMG Nigeria, in a note on Tuesday said the expectation that the cash crunch will help reduce inflation – which was one of the stated aims of the CBN – has not materialised.

“Following the CBN currency redesign policy, currency in circulation has dropped from N3.28 trillion in December 2022 to N1.38 trillion in January and estimated N982.09 billion in February 2023, representing a 235% decline,” said its chief economist Yemi Kale.

“It was expected that the scarcity of redesigned notes, which caused a cash crunch in the economy since January 2023, would stimulate a slowdown in demand pull inflation, especially given the series of interest rates hikes from the central bank (500 basis points since May 2022). That has however, not happened yet.”