For almost three decades now, Nigeria has thrilled the world with its voodoo monetary economics. The world’s 27th largest economy operates without coins. In fact, the generation of Nigerians now serving in the National Youth Service Corps (NYSC) know nothing about coins. Most of them have never seen one.
The Central Bank of Nigeria (CBN) had in the last 30 years been doing a losing battle for the circulation of coins in the economy. The crisis started in the mid-1980s when some evil geniuses in the jewelry industry discovered that the intrinsic value of the coins were higher than their purchasing powers.
They accumulated the coins and melted them into trinkets that gave them more than N500 from a 50 kobo coin. The conversion of the coins into trinkets became such a booming business that the coins pumped into circulation by the CBN could not resolve the acute scarcity of coins in circulation.
The apex bank responded to the challenge by minting coins that were too heavy for the pocket-size foundries of the evil geniuses to melt. The coins were so heavy that 10 of them could tear a pocket.
Consumers simply rejecting them. The apex bank capitulated and withdrew the coins from circulation.
The consequence on the economy was catastrophic, though no one could openly complain against the CBN for operating the economy without coins.
The absence of coins and eventually the scarcity of low denomination currencies is partially responsible for Nigeria’s surging inflationary trend today. Manufacturers of goods and service providers price their items in round figures as it dawns on them that retailers fixed prices in round figures due to the absence of coins and other low denomination currencies in circulation.
Sometime in the late 1990s the marketing manager of a leading soft drink manufacturing company lamented at a seminar that his company needed to increase the price of its products by N2 per bottle, but was compelled to inch up the hike to N5 because that was the only low denomination currency in circulation.
That is how the dearth of coins and other low denomination currencies fuel inflation in the economy.
The emergence of electronic cash transfers and use of point of sales (PoS) terminals for transactions has considerably reduced the inflationary factor of rounding off figures during transactions where consumers are compelled to forfeit low denomination currency sums to retailers.
However, the syndrome of rounding off figures during price increases by providers of goods and services still prevails because no one trusts all the retailers to do the needful. Besides, the PoS terminals are in very short supply.
They are mostly used by supermarkets and fuel retail outlets. Majority of the retailers still carry out transactions in physical cash with the tendency to round off transaction figures due to dearth of coins and low denomination currencies.
During the press briefing that followed the meeting of the CBN monetary policy committee (MPC) in May, Godwin Emefiele, the apex bank governor announced plans to float Nigeria’s digital currency.
The CBN digital currency is largely seen as capable of bringing back the coins and enough low denomination currencies into circulation and reducing the inflationary trend of rounding off prices of goods and services during price increase exercises.
It has the potential of foisting a number of gains on the economy. Since the transactions would be carried out electronically in mobile phones and computers, it has the potential of accomplishing the financial inclusion that Nigeria has failed to achieve since the emergence of banking.
Banking has been in Nigeria for 130 years but only managed to capture just about 40 million account holders, while mobile phone operators have mustered almost 200 million subscribers in less than 20 years. CBN has been battling financial inclusion for years with minimal success.
There are strong indications that the digital currency would enhance Nigeria’s abysmal financial inclusion and reduce its embarrassing poverty rate.
The electronic cash transfers and PoS have reduced the hauling of huge physical cash across long distances with the consequent exposure to armed robbers. However, the CBN proposed digital currency would complete the job by phasing out physical cash and saving the lives of hundreds of policemen cut down annually in the line of duty of escorting huge cash in bullion vans across long and short distances. The bullion vans would definitely not be missed.
Perhaps the greatest advantage of the proposed digital currency would be in public service. Unlike cryptocurrencies with their invincibility due to their being encrypted, the CBN digital currency would almost certainly not be encrypted. It would be controlled by the apex bank in a way that allows all transactions to be tracked.
It would therefore engender the transparent tracking of cash movements by top civil servants and politicians.
Those who divert public funds into their private accounts would be doing so openly in a public highway where they would be spotted.
The tax man would benefit immensely from the planned digital currency. Since every transaction would be carried out in an open public highway, the Federal Inland Revenue Service (FIRS) and its counterparts in states of the federation would be able to track transactions and tax them appropriately.
With an abysmal 6.5 per cent, Nigeria has one of the world’s lowest tax to gross domestic product (GDP) ratio, apparently because most transactions are carried out in cash hidden in unholy places at homes of individuals.
Digital currency would keep everyone’s money in an electronic device in the full glare of CBN. There would be no hiding place for tax evaders except the tax collectors opt to line their pockets and ignore the figures flashing in their full glare.
Digital currency would give the CBN near-total control of the liquidity in the economy. At the moment, about 60 per cent of the cash in circulation is outside the banking system.
The danger in 60 per cent of liquidity being outside the control of the apex bank is that the CBN lacks the leverage over inflation. When there is too much money in circulation and the CBN decides to clamp down on liquidity to tame inflation, the mammoth cash outside the banking system would be used by lawless people to thwart CBN goals. Digital currency would return that leverage to the apex bank.
Nigeria has the telecoms infrastructure to back up the apex bank’s legendary digital currency. However, the federal government must compel telecoms network operators to invest in infrastructure that would end the shameless network failures being experienced at the moment.
