Nigeria is a Cashless Economy but that’s No Good News- Taiwo Oyedele

Mr Taiwo Oyedele, the Fiscal Policy Partner and Africa Tax Leader at PwC said recently that Nigeria is one of the most cashless economies in the world due to the cash in circulation compared to the country’s Gross Domestic Product.

Taiwo looked into the Central Bank of Nigeria’s policy regarding the scarcity of cash and the naira redesign. According to him, the cash circulation in Nigeria  shows that Nigeria does not have too much cash in circulation in terms of currency to GDP to per capita  compared to other countries.

The author further explained that the cash circulation in the U.S is about $2.3 cash, which is 91.1% of the country’s GDP while the UK has 82 billion pounds of the 3.2% GDP cash in circulation, whereas Nigeria has about $3.2 trillion in cash which is just 1.8% of the country’s population.

He also explained the difference between soft cash (cash at bank)  and hard  cash (cash at hand). He said

 ”In a broader sense, cash is synonymous with money which includes currency and cash equivalents such as deposits in your bank account, money market instruments, etc. Let’s call this broader cash excluding currency, “Soft Cash” or “e-Cash”.

“For example, if you go to a restaurant to have a meal and you pay your bill using bank notes then you’ve paid in cash (hard cash). On the other hand, if you use a bank card to deliver then you’ve paid in Soft Cash (e Cash).”

“Hard cash is created only by the Central Bank. This is currently about N3tn in Nigeria. Soft cash, known as money supply, other than physical cash, is created by economic activities. When an economy grows, the money supply grows, and the need for cash (hard & soft). This broad amount of cash is currently about N52tn in Nigeria.”

“It is important to correctly distinguish between Nigeria as a cash economy (due to poor credit system) and Nigeria as a low cash economy in terms of physical cash or currency in circulation,” he said.

He also went further to state that “Nigeria does not have too much cash in circulation both in terms of currency to GDP or per capita compared to many other countries. In fact. Nigeria is one of the most “cashless” economies in the world”.

The current naira scarcity and the recent naira design policy is basically attacking “hard cash” which according to him is not the problem but the “hard cash which is probably in the wrong hands including corrupt politicians.

Nigeria Referred to as a Cash Economy: 

Taiwo said Nigeria’s poor credit system is the only reason Nigeria can be regarded as a cash economy and not because of cash at hands of the people. He further stated that “If you wish to buy a car worth N10m in Nigeria, chances are that you would need to save the money and pay upfront for the car. This is due to the lack of a functioning credit system.

“In many countries, you would have access to a vehicle financing scheme enabling you to walk away with the car by paying as low as 5% while the balance may be spread over a few years. The same applies to mortgages for natural properties.

”In this regard, Nigeria is a cash economy due to the lack of credit. On the other hand, even though you paid for the car in cash, it is not “hard cash”, the vast majority of Nigerians will pay for such high-value transactions in e-cash such as a cheque or bank transfer. It is important to correctly distinguish between Nigeria as a cash.”