Banks, CBN, naira commoditisation and other matters

Gradually but steadily, the buying and selling of the naira (banknotes), also known as commoditisation, is fast becoming a ‘major’ business, but constituting an affront to the effectiveness of the monetary policies of the Central Bank of Nigeria (CBN). Adjunct to the practice is the hoarding of the banknotes, which has also become a counterpoise to the cash distribution and management initiatives of the apex bank.

One of the upshots of all this has been the literal abandonment of Automated Teller Machines (ATMs) by their owners—the Deposit Money Banks (DMBs); leaving the machines as ‘empty boxes’ wherever they are located. In point of fact, early this year, the CBN had to pose a fine of N1.35 billion on about nine of the DMBs for failure to dispense cash via their ATMs.

Specifically, the CBN sanctioned those banks for failing to make naira notes available through their ATMs during the (2024) Yuletide. Each of the nine banks was fined N150 million for non-compliance with the CBN’s cash distribution guidelines, following spot checks on their branches. The enforcement action followed repeated warning by the apex bank to financial institutions to guarantee seamless cash availability, particularly during periods of high demand.

The defaulting banks include First Bank Plc, Keystone Bank Plc, Fidelity Bank Plc, Union Bank Plc, Globus Bank Plc, Providus Bank Plc, Zenith Bank Plc, United Bank for Africa Plc, and Sterling Bank Plc.

Incidentally, as the naira keeps drying up in the ATMs, the banknotes are readily available from the almost ubiquitous Point-of-Sale (PoS) machine operators. They sell the notes to members of the public, realising huge sums daily from the commissions. Frustrated by this rip-off by the PoS operators, most bank customers had to troop back to banking halls, to get cash across the counters (especially during the 2024 Yuletide).

Unfortunately, most of the DMBs could only ration a fixed amount of cash (as low as five to ten thousand naira only) per customer in a day, insisting that they (DMBs), too, were experiencing cash supply shortage from the CBN. Yet, the PoS operators and other vendors have volumes of cash to sell, especially around social event centers in towns and cities across the country.

This practice of commoditising the local currency has not only gained grounds in the country but has come to pose a distortion in monetary policy implementation. No wonder, at the recent inaugural stakeholders’ conference of the Committee of Heads of Banks Operations (CHBO) in Lagos, the CBN Governor, Yemi Cardoso, vowed to tackle the naira commoditisation menace.

Speaking on the theme of the confab: ‘Commoditisation of naira: The way forward,’ Cardoso said the commoditisation of the Naira poses a significant threat, not only to the banking sector but also to the daily lives of Nigerians who rely on the currency for transactions.

He said: “the commoditisation of the Naira, our national legal tender, has become a critical challenge for Nigeria’s financial ecosystem. It is a problem that affects not only the operations of the banking industry but also the lives of every Nigerian that relies on the currency for his day to day transactions.”

Currency commoditisation refers to the process where a country’s currency becomes widely accepted and traded as a commodity, similar to gold or oil, rather than just serving as a medium of exchange for goods and services. In other words, currency commoditisation occurs when a currency’s value is treated as a separate asset class, and investors buy and hold it as a speculative investment.

Cardoso said the apex bank’s strategies to tackle the naira commoditisation menace would include enhancing public engagement awareness on the responsible use of the naira; strengthening the cash management system to ensure fair distribution across the country; collaborating with law enforcement agencies to enforce existing regulations and bring perpetrators to book.

Other measures to deal with the menace, according to the CBN boss, would include promoting digital payment channels to reduce the use of cash transactions, and the need to escalate digital errors to the banks and the CBN.

Howbeit, the thriving of naira commoditisation remains a direct indictment on both the regulators and operators in Nigeria’s banking system. Indeed, to the ultimate brunt-bearer—bank customers—it is apparent that there is a collusion among the apex bank, the DMBs and their vendors who sell cash to the public.

Had the CBN not operated like a toothless bulldog in recent years, the ugly phenomenon (naira commoditisation) would not have gained ground. Incidentally, it was to a large extent, the failed naira redesign policy of the apex bank (introduced in October 2022) that brought about the local currency scarcity in its wake.

Although the currency redesign initiative was to combat counterfeiting, and improve the overall security and quality of the naira notes, the exercise was marred by the resultant acute cash shortage, among others. Rather than abate, however, the cash scarcity has worsened over time, creating a wide room for making money through the buying and selling of the notes.

The coincidence of the failure of the naira redesign initiative and the numerous hitches in the digital architecture/infrastructure of the DMBs now remain the key drivers of the thriving naira commoditisation.

More often than not, bank customers who opt to utilie digital channels in their banking transactions, encounter frustrating hitches. Intermittent systems’ ‘down time’ in practically all the DMBs have become an ever present discouragement to virtual/internet banking.

It is indeed apt to posit that it is, in part, the failure of the DMBs’ digital banking channels that has compelled bank customers to resort to cash transactions. Ironically, this is at a time that Nigeria is supposed to be running a ‘cashless economy.’ For over a decade, the CBN has adopted the cashless economy policy, deploying financial inclusion/literacy awareness and campaigns across the country.

Apparently, now the DMBs, in collusion with the PoS operators, have turned naira notes’ selling into a ‘lucrative’ business. To the banks, the practice has become a major ‘non-interest’ income in their books. In various insidious or discreet ways, the DMBs route cash to the PoS operators to sustain the odious naira commoditisation.

At this point, what can the paltry fine of the CBN achieve, in the fight against the buying and selling of the naira? Is the local currency commoditisation still stoppable; or, it has come to stay?

Okeke is a practicing Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, lives in Lekki, Lagos. He can be reached via: [email protected] (08033075697) SMS only.