Nigeria Cash Dilemma and How CBN Should Navigate a Perennial Cash Scarcity

At Octave Analytics Limited , one of our analytical methodologies involves evaluating a customer's expenditure with our client in comparison to the customer's overall potential expenditure on a similar product, a metric commonly referred to as the 'share of wallet'. This metric serves as an indicator of the customer's net worth. A notable observation from this analysis suggests that as the number of operators offering similar products to a subscriber increases, the subscriber's share of wallet with a specific operator decreases.

Applying this concept to the current proliferation of POS (cash-in cash-out) operators and the existing cash scarcity in the country, it becomes evident that the scarcity of cash in banks is a persistent challenge likely to endure, with the possibility of worsening as more POS operators join the market. This also implies that Banks' share of wallet of the total cash in circulation will continue to shrink.

Addressing this issue necessitates the Central Bank of Nigeria (CBN) to implement measures to accelerate the adoption of electronic channels and significantly boost the volume of cash in circulation. Failing to do so could substantially extend the turnaround time of cash for Nigerian Banks. This is called the Cash Turnover Ratio in corporate financing. In layman's terms, the time taken for the cash issued by a bank to return to that same bank would increase, and this could lead to a scarcity of cash in the banks.

In light of these considerations, I posit that the CBN and relevant stakeholders should expedite the adoption of electronic channels for transactions. Relying solely on printing more money is a temporary and unsustainable solution that may be overrun by the activities of POS CICO operators.