The man’s Stand was in an obscure part of the Shopping Centre, he sets it up only at night and is cautious about the people he deals with. Recognizing me though, he relaxed, and smiling he said ‘I have fresh organic fruits for sale, as usual, Sir, cash only, no change please’. Harmattan had come very early in November 2030 (Year Twenty Thirty) & I took my little ward out to the Shopping Centre in Garki to buy some stuff & to take in the cool dry air.
‘Big Chief, what is ‘Change’ that the man you bought fruits from said he doesn’t have or give? My ward asked me after we had done business with him. I was fondly called the Big Chief, her Dad was the Chief & she was the Small Chief.
The man represented a dying relic of the world I grew up in & who will not exist in his. I thought in my mind. He is one of the remaining ‘unbanked’ who has refused to adopt the digital currency and its multiple points of transaction. He is an adherent of the Cash Movement, people who believe in the conspiracy theory that digital money is evil and is a tool of the Government to control the world.
Not that Government did much to dispel this notion in the early days of the adoption of e-banking and digital currencies. In fact, Government Officials fanned this distrust through the abuse of the power available to them by freezing the accounts of people arbitrarily. Well, that was before the Financial Courts became operative. After the level 1 Court was automated, cases of wanton abuse of power ceased. The financial robot was a highly evolved AI that used data alone to monitor accounts, it then would query suspicious transactions and place a PND on them (Post No Debit) until the affected person provided evidence to clear himself. With it, political and economic witch hunts and influences were eliminated.
‘Small Chief’ I addressed the lad ‘The man does not have a bank account and so is unable to process his payments. He has to collect cash only & ‘change’ is the balance that he must give me if I don’t give him the exact sum he sells his goods.’
I explained to the Small Chief that in the past money was split into denominations. A concept she doesn’t quite understand so I broke it down further for her. There were N1,000, N500, and N200 notes as well as other denominations as low as N1 & 50k, and we carried most of it. So if a product is sold for N525, one must find that exact amount or pay with a denomination higher & the Seller must give the balance or ‘change’ to the person. But over time the digital system we have now evolved. 1st, Banks utilized online payment platforms under the direction of the CBN & later the Apex Bank issued its digital currency, the e-Naira. Within a few years, many payment systems were built around it until we transitioned to the system we have today with some little modifications.
It was as if the heavens opened in a storm of questions as the Small Chief regaled me with question after question about the things that happened from when the e-Naira was launched in 2021 to how we eventually went cashless in Nigeria. I’ll attempt to list her questions and the answers I gave which was basically a recollection of what happened in those days up to the present late in 2035 as I prepare to retire from active service.
How was the digital currency adopted so fast?
On October 25, 2021, the Nigerian Government launched the digital Naira. This was in addition to several other Government banking policies like cashless, and advances in Commercial Bank’s use of electronic banking. Then in October 2022, the Government announced its decision to redesign higher denominations of the currency with restrictions on the use of cash. A combination of all these factors led to the adoption of the e-Naira and the digital payment systems that we have today.
What is cashless and what led to it?
The Government soon found out that it was spending so very much on printing and management of cash. The CBN spent so very much, & for smaller denominations, it was a direct loss. Imagine that the Bank spent N200 to print a N50 note. It also costs so much to manage cash in terms of processing and logistics. Then there was a policy called ‘Cashless’ that sought to lessen the amount of cash that people used. A fine was imposed on exceeding certain limits for individuals and corporate bodies. People were encouraged to use alternative means, mostly electronic transfers.
I also think that like in many parts of our life we were caught up in the Internet of Things. Cash had to go digital. Remember the benefits of the E-Naira that we discussed previously? These were too good to overlook.
But the COVID-19 pandemic of 2020 accentuated and accelerated the adoption of digital money and cashlessness. It was alleged at some point that the virus could be transmitted through cash and so people started avoiding cash. With improved & better internet service and penetration as well as more secure transactions, adoption was seamless.
How did the Government make Banks adopt the use of the e-Naira & promote the system, recall that you told me that they complained of disintermediation, what is that anyway?
The Bank is the point where people who have excess funds bring their money to those who do not have enough money and need more money to borrow. The Lender earns interest & the borrower pays interest. The Bank makes a commission for arranging the deal. That in simple terms is what intermediation is all about.
Banks do many kinds of business but in Nigeria, at that time most Banks survived on this model of earning commissions. So, with the introduction of the E-Naira, it was initially very tough on them. By holding the digital currency people kept their money with the CBN, and not with the Banks to do their business. We have to be honest; money kept in the digital wallet, was in the financial system but not available to Banks to do anything with, and as there were no charges the Banks didn’t earn anything. Something had to happen to change the situation.
The Government used carrots and sticks as it usually does for almost everything.
- The CBN organized many Hackathons that helped developers to find ways of best using the e-Naira; the ideas generated led to great product developments that benefitted the Banks. The Banks were forced to begin thinking of real product development and ways of attracting and retaining customers & their deposits.
- The CBN began to charge very small fees on transactions on the e-Naira wallet. The purpose of this charge was to make the system self-sustaining. The charges covered all the costs associated with the system. Banks that the Customer’s wallet was domiciled in or connected to also got a share of the commission at some point, easing them into adoption.
- The CBN also devised a scheme where money in customers’ wallets was available to the Banks they were domiciled in for their business within guidelines. So if a customer had N1m in his wallet, the CBN allowed the Bank he was linked to utilize a proportion of that amount in their business in a way reminiscent of money kept in a savings account.
- The Banks found more ingenious ways to make money off the e-Naira wallet. They offered more interest rates for term investments on digital cash transferred to Bank wallets. So if they gave 1% on normal savings, they offered 1.5% on the e-Naira savings.
As a result of some of the sticks the Government used, the Banks all put on their thinking caps and innovated great products that made the e-Naira the choice way to hold the Naira. It was a wonderful time to behold!
What were the sticks, Big Chief?
With the redesign of the Naira, an increased fee for the processing of currency was introduced. It used to be N12, 000/box, but it rose to N50, 000/ box – there was a slang in those days that captured this increase ‘Mad o’!
Then there was an express limit on cash that can be paid over the Counter. ‘After which the person paid a fine? The little girl asked, linking it to the cashless policy discussed earlier. ‘No, no fine was allowed, nothing, you take it or leave it. That was the limit’. Any breach was considered economic sabotage & in those days it became a serious offense as many people were imprisoned for it.
You know how you can only have N10m in a cheque & an even smaller proportion can be paid as cash? That was it; beyond a certain sum, no cash payment. It must be electronic payment – mobile transfer or e-Naira. A Bank must receive CBN’s written approval to pay above a certain amount of cash & the cash was tracked until it is returned to the Banking system. 1st, the cash was tracked in the local area to be sure it was circulating. If after a while the cash was not used as indicated in the application for cash to the CBN, the cash receiver was blacklisted and the Banks severely warned. Before long, Banks dared not play pranks with the Cash allocated to them.
Oh, I remember now, it was a method the Government adopted on how it handled PTA payments when Dollar was scarce. PTA was $4000/trip, and then it was restricted to a payment/quarter. Initially, you could walk into the Bank and get paid this amount in cash. But eventually, one could only get $500, $3,500 was paid into cards. So it was game on. Governments and Corporate bodies could only get an amount in cash, the rest was e-Naira or other forms of electronic transfers.
Another method the CBN used was that an analysis was done of cash utilization by Banks, outliers were eliminated & it was clearly seen how much cash each Bank needed. That particular sum with a certain buffer above it was allocated to Banks. The amount they returned to the CBN was the same amount given back to them, so if N500m is the allocation to Bank Stallion; after they get an allocation, they won’t get any more cash. If their customers deposit N100m & the Bank returned this to the CBN, it is N100m they can get back, no more. If the Bank is unwise to give the N500m to a few customers then they will suffer the penalty of not having cash to service their customers – bad business for them. At this time the CBN had perfected the system, by the way, they allocated Dollars to Commercial Banks & so it was pretty easy.
How did so many people accept the use of digital currency?
The Government used both the pull and push method to deepen acceptance of the e-Naira.
1st, some public servants were paid some of their allowances in e-Naira, which allowed for conversion to Cash via Commercial Banks’ electronic apps. Later, the salaries of all staff in Federal Service were paid in e-Naira. Eventually, all payments by the Federal Government were in e-Naira. The States took the Federal Government to Court for paying Allocations in e-Naira but before the case was decided by the Supreme Court, it was withdrawn. Some politicking went in there, the States were heavily indebted to the CBN and some out-of-court agreements were done and the case was closed but from feelers from the Court, the matter would have been decided in favour of the Federal Government. What you have is what you pay with & so the States also conducted their business in e-Naira.
Merchants were forced to put up the system and infrastructure to receive e-Naira since that was what everyone had.
After a while, the Government stopped printing so much cash as there wasn’t much use for it anyway. You know this thing about cash is psychological. What we really need is what money can buy & not money per se. As soon as people knew having digital money didn’t prevent them from living the good life they sought, they forgot about cash & went on with their lives.
What about Rural People?
How badly rural people would cope was the excuse that most naysayers used against the adoption of digital currency. It was a great challenge but did the best we could. We adopted so much from previous epochs like the Post Office era for rural areas.
The Post Office & LGA HQs were the centre of all activities in Rural Areas, people went there to get their letters and run some business. So we focused on LGA HQs and Post Offices in such places to ensure they were equipped to service people in the hinterlands. At about this time there was a national policy & project on national internet penetration so that rural dwellers had internet service. There was also the Starlinks Satellites systems from SpaceX that the Government procured internet services from to service hard-to-reach areas. By the time of the redesign, the digital currency had been launched for a little over a year and so everything fell in place for the rollout of a mega cashless system.
Equipment manufacturers also took advantage of the huge market potential and flooded the market with portable electronic devices that paid & collected revenue just like the POS devices. You may have noticed some of these devices when I donated to that Beggar over there and paid the Newspaper Vendor. These devices needed to be charged just once in a week, sometimes they stayed on for a longer period.
There was also a National policy on solar adoption. Even in the remotest villages, there was electricity that powered the entire infrastructure that supported the use of digital currency. Eventually, the National Electricity grid was expanded and power was supplied to all the nooks and crannies of the country and a lot more for export.
The Big Chief, Uncle E say that the decision to redesign the Naira & to go digital was purely political. Is that true?
Yeah, there may be political undertones, but the economic benefits were there for any discerning person to see, such as the huge savings from the printing of cash; the CBN spent so very much as I stated earlier in the management of cash, & for the printing of smaller denominations it was a direct loss. We spent about N200 printing the N50 note. The improvements in the payment system and ease of transactions outweighed any such political considerations that may have been input into the decision.
You say that the Dollar rose up so much against the Naira in the run-up to roll out of the redesigned currency, why was that?
I cannot say how much it got to but it was very bad. People who could not openly deposit their ill-gotten stash of cash to the Banks for the new currencies began to pursue the Dollar. Their hope was that they would convert to Dollar & then soon thereafter convert back to Naira to be ready for vote buying in the General election. So the Dollar went uppppp!!! I have explained the thing about demand & supply laws to you, right?
Well, there were plenty of Naira chasing a few Dollars, so Dollar rose. But shortly after the redesign when there were fewer Naira, the Dollars started chasing the Naira & Naira became the King.
The Black market rate leveled down to the official rate. It was ‘mad o’, as people who had thought they would convert their Dollars back to Naira faced a serious shortage. The Security Agencies did a great job then as well, a lot of people were arrested and prosecuted for attempting to sabotage the system.
I read somewhere that the cause of the Naira falling against major currencies was because you guys weren’t producing & that you relied on imports, is that true?
Yeah, it came up in many discussions & many so-called experts stated this with so much confidence. But that was far from the truth about the real cause of the fall of the Naira. Our people in concert with corruption were killing the Naira. That was one great thing we found out when the redesign policy went into effect. We were producing enough to keep the Naira strong but there was a paradox, we were not producing anything at all.
The problem with the Naira’s falling rate was corruption all along but you won’t notice if you were not observant. Let me explain:
- The amount we spent on imports 10 years before the redesign was about the same amount we spent at the time we redesigned adjusting for inflation & population growth and removing the bloated amount we spent on the import of petroleum products. The amount of importation of petroleum products was also mired in plenty of corrupt practices but let’s leave that for another day. So why did the Naira keep falling? Even the CBN intervention never worked – the law of supply & demand had up to that point never worked regarding Forex in Nigeria because people were acquiring dollars, not for exchange, but for its own sake, and stockpiled these in their homes.
- It was not the amount we spent on imports that was killing us, It is the cash not in the Banking System & circulating that disabled the Country. Do you know that at the time of the redesign, the 1st batch of the Naira notes printed 20 years previously in mint condition were appearing in huge quantities? People had these stashed away in unimaginable places.
- Restricted Production Capacity due to corruption: At about the time of the redesign, I had gone to my Bank for a loan and I was told to interest of 27%. Do you know the implication of that? You would have the heart of a Lion to do business where the interest rate is that high. I do not know how our people survived in those days. You were practically working for the Bank that issued you the loan. The cause of this was linked to the cash problem in Nigeria. As at the time the decision to redesign the Naira was made, the CBN had about N3.5T ‘in circulation’ but only N1Trillion was in the Banking system. (So N1T was driving a 27% interest rate). How would we produce when there were not enough funds in the Banking system to fuel production? If that other N2.5T was in the Banking system, it would have been available to lend to agents of production at a reasonable interest rate. That means hypothetically that the other N2.5T would have reduced the interest rate by a factor of about 3 bringing the interest rate within single digits. So yes, we weren’t producing but it was because N2.5T was stashed in people’s homes, not in circulation either formally or (and doubtful) if informally which of course needed to change.
- On the other side of the production paradox, we were producing enough to keep our Naira very strong, but it was like fetching water with a basket. You see, we produced alright & we gained revenue which is shared to States and Institutions of Government as allocations but instead of using this cash to power the economy, it is withdrawn & kept at people’s homes, producing no interest to the holder, no amenities for the community and no productive capability whatsoever. Just a heap of paper. That was what we saw when the huge piles of Naira notes started showing up at the redesign.
- The huge amount people stacked in their homes were amounts less those they looted and flittered abroad into foreign accounts. There were many instances where Politicians also stored Dollars and other foreign currencies in their homes abroad. Then, many people couldn’t provide any source for the hundreds of millions they had in local Banks. Nigeria was bleeding from many holes in the body at the same time. How we weren’t declared a failed state and survived, especially as cases of wanton looting were made public still baffles me.
- So from this perspective, lack of production was the problem. Consider this, where did all that money that rot in people’s homes come from? The Nation’s productive efforts, of course. It means that for a certain period, we produced crude oil and other things & then all the revenue we got was piled in someone’s bedroom. All the work in that period was lost; it was as if it never happened!!! So in that respect, we weren’t producing. If only what we produced went back to power more production, we would not have had any crisis in the 1st place.
- Someone kept our Bridges, Hospitals, Schools, etc in his bedroom. The worst part of the story is that a lot of the billions of Naira notes found in peoples’ homes were decomposed. (The only positive thing about this was that when the Security Agencies traced the origin of the looted funds, the CBN was mandated to return the value to such Agencies and States and the Government monitored utilization to ensure that the value was not totally erased).
How did the people react to such wanton greed and economic sabotage?
Unfortunately, there was no national outrage initially, until the Government used its National Orientation Agency to alert people to what had happened. The Government exposed criminal-minded people who insisted on cash & asked people to report anyone making large cash transactions. The prize for whistle-blowing was increased. You needed to see the craze in those days as people ‘snitched on themselves. Instead of losing everything they took the 20% prize money as whistle-blowers and forfeit the 80% to the Government.
Then the national consciousness was this: Whatever it took, we must find a way of stopping Nigerians from stacking money at home! And we succeeded greatly! By implementing the adoption of the e-Naira and redesign of the Currency together with so many other cashless policies mentioned, the Naira stabilized against major currencies in the world. Corruption was beaten to the barest minimum and we have rightfully taken our place among the economic tigers of the world.
Were there no downsides to the adoption of the digital currency, none at all?
There were some, alright. People complained about the loss of privacy, the ease of Government monitoring, and what I mentioned earlier, the freezing of accounts. Nigerians detested taxation, but now there was no way out & so there were complaints. But that was a small price to pay for the great benefits we enjoy today. It made an honest man out of many Nigerians and our reputation as a people also improved as the culture of openness and honesty was entrenched.
When there is no more cash what will your friend do?
I do not know whether there will ever be a time when there will be no cash at all. As you know cash is what a group of people say it is. Recall our discussions about cryptocurrencies. But with Government issued cash going extinct, he’d decide to comply or he & his friends will begin some form of ‘trade by barter’ you know what that is, don’t you? Worse of all they will use precious metals and household items as a means of exchange. But never again have we had a situation where corrupt people kept over 3 quarters of the Nations resources in their private hands, stacked at home out of the banking system.
Our interaction went on into the night we talked about so many things that happened from 2021 to 2030. Many more things have happened in the payment system since I had that stimulating discussion with the Small Chief. When I have time, I will share them with you.