Afe for Vanguard

January 5, 2022

Nigeria not ripe for cashless economy?


Nigerian Flag

By Afe Babalola

THE usual hustle and bustle of the recently-concluded Yuletide season came with the harsh reality of the shortage of cash in Nigerian banks.

This was evidenced by the unusually long queues at the ATMs with many of them not being functional, as well as the inundation of banks by customers who require cash to meet their needs. It would, however, seem that the impact of the cash shortage was more felt by individuals and corporations who required large sums of money in cash to either fulfil personal needs or for corporate social responsibility.

Though the Central Bank of Nigeria had earlier noted, in November 2021, that N3.15 trillion cash was in circulation as against the N2.7 trillion reported in November 2020, the reverse would seem the case as a majority of customers with fairly large transactions have been reported as unable to successfully carry out their transactions. Reportedly, a customer who recently visited a Nigerian bank to make a cash withdrawal was informed that the bank did not have the cash amount sought to be withdrawn. I personally experienced a similar situation when my request for withdrawal of a certain amount of money could not be granted.

One of the most defining characteristics of a cash-dominated economy such as Nigeria is an upsurge in the velocity of money particularly in festive seasons. According to Investopedia, velocity of money is a measurement of the rate at which money is exchanged in an economy.

 It is the number of times that money moves from one entity to another. It also refers to how much a unit of currency is used in a given period of time. It refers generally to the rate at which consumers and businesses in an economy collectively spend money. Put differently, the velocity of money is the frequency at which one unit of currency is used to purchase domestically-produced goods and services within a given time period.

If the velocity of money is increasing, then more transactions are occurring between individuals in an economy. The frequency of currency exchange can be used to determine the velocity of a given component of the money supply.

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Put in proper perspective, if a client pays a lawyer the sum of N50,000 for legal services rendered, the lawyer may, on his way home, develop a flat tyre or two, and, therefore, seek to replace them. If he buys both (tokunbo) tyres for N20,000, the tyre seller may decide to buy vegetables, pepper and fish worth N5,000 from a nearby seller for his wife to prepare soup at home. On her part, the fish and vegetable seller may decide to change the school uniform of her son and then calls a tailor to buy and sow the material, and the narrative goes on. From this scenario, it is clear that there is a high velocity of money exchange from the client who paid his lawyer down to the tailor who sowed the uniform of the fish seller’s son. One thing is clear, the above scenario which demonstrates the velocity of money would not have been feasible if there was no flow of cash.

Nigeria is not ready for a cashless economy

For nearly a decade, the Central Bank of Nigeria has formulated policies and engaged in series of reforms aimed at bringing the Nigerian banking system and economic system in tune with global trends. One of such is the development of a cashless payment system. Developed countries such as the United States, having earlier adopted a cashless policy, have enjoyed its inherent benefits thereby prompting the Central Bank of Nigeria to adopt the policy. The adoption of the cashless policy is in line with Nigeria’s vision to be among the largest economies by 2020 and to move from a cash-driven economy to a cashless economy.

According to the CBN, the cashless policy was aimed at curbing some of the negative consequences associated with the usage of physical cash in the economy, including high cost of cash, high risk of using cash, high subsidy, armed robbery, inefficiency as well as corruption.

Consequently, economists have noted that the introduction of mobile banking, electronic banking and online transactions (cashless policy) in Nigeria has paved way for a new era of development where the use and demand for physical cash is gradually declining. In a CBN report, it was stated that the increase in emerging Information Technology, IT, has made banking services become more and more automated and less paper work than in the past.

Soon enough, banks in Nigeria realised their corporate existence would be in grave jeopardy unless they were able to keep up with the pace at which Information Technology, IT, has remodelled the entire banking system for the creation of value and worth for their customers. Consequently, banks began to get national and international ratings based on the level of their adoption of information technology vis-à-vis value creation.

However, it is to be noted that internet facilities and the entire concept of electronic banking is yet to penetrate through the crannies of the Nigerian commercial ecosphere. According to a report, internet penetration in Nigeria is still less than 50 per cent of the population of over two hundred million while just about 15.8 per cent of the total population are social media users. The relatively-low acceptability of the e-commerce/e-banking system ranges from a low or nil usage of internet, outright distrust of the system, or the inability to comprehend its modalities. Therefore, a greater percentage of Nigerians still favour the old standard of banking.

Besides the relatively low acceptability of the cashless policy by Nigerians, it has been noted that the poor implementation of the policy across the country has, in itself, contributed to the high cost of cash movement and cash management by banks over the years thereby impacting negatively on banks’ profitability in particular and economic growth in general.


While the concept of the implementation and maintenance of a cashless system is laudable, there yet remains the need to strike a balance between the need to reduce the incidence of shortage of cash and the adoption of an IT-driven economy.

Besides factoring the peculiarities of the Nigerian economic ecosphere and the low rate of internet usage and exposure, particularly among the low-income market men and women who constitute the greater percentage of the workforce, there must be a workable system that ensures the constant circulation of cash in the economy.

While it has been identified that the ultimate ideals of the cashless policy system is the modernisation of the Nigerian payment system, reduction in the cost of banking services as well as reduction in high security and safety risks, as well as corruption, yet, there must not be a reduction in the circulation of cash in the economy, at least until the average market woman is enlightened enough to carry out internet banking.