Nigeria not ripe for cashless economy? – Afe Babalola, SAN

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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visited a Nigerian bank to make a cash withdrawal was informed that the bank did not have the cash amount sought to be withdrawn.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.

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



Call Bridget Edokwe Esq on 08060798767 or send your email to ngbarrister@gmail.com


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