The Fiscal Policy Partner and Africa Tax Leader at PwC, Mr. Taiwo Oyedele, has said that Nigeria is one of the most cashless societies in the world going by cash in circulation relative to the country’s Gross Domestic Product.
Analyzing the Central Bank of Nigeria’s (CBN) policy vis-a-vis the naira redesign and the scarcity of cash, Oyedele said a comparison of cash in circulation in Nigeria to that of other countries shows that Nigeria does not have too much cash in circulation both in terms of currency to GDP or per capita.
According to him, the U.S has $2.3 trillion cash in circulation, which is 9.1% of the country’s GDP, while the UK has 82 billion pounds (3.2% of GDP) as cash in circulation, whereas, Nigeria has N3.2 trillion cash in circulation, which is 1.8% of the country’s GDP.
Soft cash vs hard cash: While explaining the difference between hard cash (cash at hand) and soft cash (cash in the bank or e-cash), Oyedele 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.
“From the analysis my analysis, 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.”
Why Nigeria is referred to as a cash economy: Oyedele said Nigeria can only be referred to as a cash economy because of its poor credit system not because of cash at hands of the people.
“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 economy (due to poor credit system) and Nigeria as a low cash economy in terms of physical cash or currency in circulation,” he said.
Oyedele noted that the ongoing Naira Redesign policy and the associated currency scarcity appeared to be tackling “hard cash” which based on data is not a problem. According to him, what is perhaps a problem is some of the “hard cash” being in the wrong hands including corrupt politicians.