"Currency outside banks hits N4.02tn -- CBN." Report.
The story in the PUNCH went on to state that "Currency outside banks surged by 66.2 per cent in September 2024, reaching N4.02tn compared to N2.42tn in September 2023, a notable rise of N1.60tn in just one year." It was speculated that some of the reasons for this development included limited trust in banking services, inflationary pressures. Those are indeed some of the reasons; not all.
In January this year, in an article titled CASH SCARCITY LINGERS; FOOD SCARCITY FOLLOWS, I wrote as follows:
"Why is cash scarce again?" Lekan Sote, PUNCH, January 10, 2024.
Lekan, one of the most perceptive columnists in Nigeria today astonished me when he asked that question. VANGUARD readers knew as far back as March 2023 that another round of cash scarcity was coming. It occurred in December. It will linger for a while - as long as the Federal Government and the Central Bank of Nigeria, CBN, continue to miss the point. Nigerians should actually be asking two questions regarding cash scarcity: will it end? How? The answer to the first is "Yes"; but not next month or perhaps even March. It will certainly not end before a great deal of damage would have been done to the economy. The answer to "How?" will be left untouched for now. The FG and CBN will be shocked to know the major cause of the lingering scarcity. The stranglehold on cash supply is now assuming the characteristics of a plot."
Cash scarcity in banks has not only lingered; it has gotten increasingly worse. Three institutions of the Federal Government, deliberately or inadvertently, have contributed to the development - the CBN, the Security agencies (DSS, EFCC especially) and the judiciary. The commercial banks have added another layer to the breakdown of trust - which is the bedrock of banking.
Why trust matters
"Trust, in a time of change is based on two things: predictability and capability. That's why in the middle of change, trust is eroded when the ground rules change." David Duck, Harvard Business Review. Nov-Dec, 1993.
Vanguard book of quotations, VBQ p 252. available online
Economic and financial experts have been warning Fellow Nigerians since 2016 that the Nigerian economy was being steadily and surely wrecked by the policies adopted by the government of Buhari/Osinbajo. Very few people believed us. Deluded by Buhari's hypocritical fight against corruption, the impression was created that once the rogues of the previous administrations were rounded up, the economy would automatically recover. History would record that corruption got worse under Buhari - with the President himself carting away N30 trillion from the Central Bank without approval from the National Assembly, NASS, and no record of how the funds were spent. On several occasions, the CBN, which was an accomplice in the N30tn raid on its own vaults, was called upon to "mop up excess liquidity" in order to hold back inflation; which was akin to the Fire Services starting fires which it then rushes to extinguish. Nigerians in the future must wonder if the nation had psychiatrists during this period.
Having flooded the economy with Naira without the productivity to justify it, the Presidency and the CBN panicked. Faced with impending rapid inflation, they agreed on currency change as a plausible solution. It was voodoo economics; made worse by the method adopted for implementation. A definite date was set for the return of all N1000, N500 and N200 old notes. It was the worst possible way to go about changing a national currency. For example, the United Kingdom has started to release currencies with King Charles replacing late Queen Elizabeth without placing a deadline on the return of the old notes. If Charles dies tomorrow and a new King is enthroned; the Bank of England will stop printing currencies with King Charles without stopping the use of currencies with Elizabeth and Charles from being legal tender. That is the global approach to currency change. Buhari and the CBN allowed a political agenda to intrude into a purely banking process; and to ruin the economy; perhaps irretrievably.
In the process, the CBN and the FG violated the acid tests of financial trust - predictability and accountability -- several ways in 2023 when an arbitrary date was set for the return of old notes in exchange for the new notes. There is probably no country in the world where all the currency in circulation is in the bank. The percentage varies from one country to another. For one thing, there is no nation on Earth where there is no informal and criminal sector economy; smuggling, illicit drugs, cyber-crime, arms, prostitution, human and illegal artefacts trafficking constitute parts of every nation's Gross Domestic Product, GDP. As much as possible, the syndicates prefer to trade in cash at the lowest levels of the distribution channels; and later deliver to banks what has been carefully laundered. At any rate, no well-managed central bank wants all the currency in circulation back at any point in time. What Buhari and the CBN inflicted on the Nigerian economy in February 2023 was the Monetary Equivalent of War, MEW. Without realising it, they waged a long-lasting war on the banking system. They collected depositors' money; and for months refused to return the cash - as and when needed.
The FG and CBN demolished the fundamental basis of banking -TRUST - in the most brutal manner imaginable. It was bad enough that they took the money; banks and security officers actually beat up people who wanted their money back. One thing was clear to me, when all this unprecedented history was unfolding - was the ultimate consequences of this policy lunacy. Everywhere I went to interview people, irrespective of age, ethnic group, religion or gender, one statement was repeatedly made. "Never again will I put my cash in a bank." Granted, there was an element of exaggeration in the vows. But, there was never any doubt that all the efforts made by the CBN in more than fifty years to increase bank deposits had been nullified in just five weeks in 2023. Sabotage!!!
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The present situation
"Are you going to hang him anyhow and try him afterward?"
Mark Twain, 1835-1910, VBQ p 85. available online.
Since 2023, other institutions of government, particularly the DSS, EFCC and the judiciary have added to the problem. In my opinion reckless abuse of ex-parte court orders, to freeze the accounts of individuals who have not even been charged to court, amounts to punishment before trial. Many individuals accused of participating in protests had their accounts frozen by justices serving injustice. Does anybody in his right senses expect those victimised to keep their funds in Nigerian banks much longer than necessary? The protesters suddenly had their accounts blocked through ex-parte court orders - even before they were arrested and charged. Unjust Justices, "exercising their discretion", have repeatedly imposed financial punishment by being partisan in granting ex-parte requests for "post no debit" orders. Because neither the DSS, Police and the courts understand economic behaviour and its paradoxes, it has never occurred to them that leaving the accounts untouched will bring more deposits when the person is eventually charged. They steadily withdraw the funds once the ex-parte order is vacated. Others, learning from their experience, will surely follow.
The situation will get worse; mark my words.
Follow me on Facebook @ J Israel Biola.
