The commitment by the Central Bank of Nigeria to develop the country’s electronic payment system and digitisation of financial products and services could enhance macroeconomic stability in the long run, writes James Emejo.
The development of electronic payment system by the Central Bank of Nigeria (CBN) portends that the country could achieve microeconomic stability over time, as the efforts the bank has made has started yielding dividends.
For example, the apex bank said it slashed its expenditure on currency printing to N58.61 billion in 2020 from N75.52 billion in 2019, representing a decrease of N16.91 billion or 28.84 per cent compared to the preceding year.
This was a welcome development given that the country had spent N64.04 billion to print the local currency in 2018.
No doubt, the administration of paper money is fraught with diverse challenges, which made the use of electronic payment system an effective and efficient alternative to cash handling.
Challenges
In the past few decades, huge monies had also been lost to bank robberies among other vulnerabilities of the physical cash.
From available statistics, it is crystal clear that the benefits of electronic and digital transactions outweigh the traditional methods of financial dealings.
Compared to the amount spent in printing money and other expenses in its management, central bank said it generated only N6.50 billion as total income from currency management activities in 2020, compared with N13.24 billion in the preceding year, representing a decrease of N6.74 billion or 50.92 per cent.
The bank incurred a total of N67.21 billion as expenses on currency operations in 2020, representing a decrease of N17.96 billion or 21.08 per cent, less than N 85.18 billion in 2019.
Apart from printing and design, it costs the CBN a whole lot to also destroy old and worn out currencies as well as commit enormous resources to check counterfeiting and other forms of abuses.
According to the Currency Operations Department (COD) of the CBN, the cost of printing banknotes increased by 17.93 per cent in 2019.
The total cost incurred on printing of banknotes amounted to N75.52 billion in 2019, compared with N64.04 billion in 2018, indicating an increase of N11.48 billion.
Also, the sum of N5.91 billion was incurred on currency distribution in the period under review, compared to N5.73 billion in 2018.
According to the COD, the 3.13 per cent increase in cost was attributed to the upward review of transportation cost per kilometer and nautical miles in the period.
The CBN also spent N814.60 billion on currency disposal in 2019 compared to N915.08 billion in 2018 while currency indent approved for 2019 was valued at about N1.34 trillion compared to N1.45 trillion in the preceding year.
Also noteworthy is the fact that N647.82 million was incurred on currency disposal and processing activities in 2019, compared with N662.21 million incurred in 2018.
The CBN had identified high level of human intervention in currency handling processes at the branches, sale of new naira banknotes and increasing incidences of counterfeiting, poor handling habits of banknotes by the public and high cost of currency management ad the challenges facing currency management in this country.
Financial experts have continued to harp on the need to de-emphasise on use of paper money to electronic payment systems to among others reduce the attendant social ills associated with the legal tender.
Milestones
The CBN Governor, Mr. Godwin Emefiele, has made a commitment to further develop the country’s payment infrastructure and make it the best in Africa- an aspiration he has so far achieved considering the state of payment infrastructure in other regional economies in continent
No doubt, the reduction in currency management costs is in line with the policy objective of Emefiele to reduce the cost of printing bank notes and cash management, in the country.
The Central Bank Digital Currency (CBDC) also known as the eNaira, which was unveiled recently by President Muhammadu Buhari, is in line with the policy to further reduce the cost of printing the Naira.
The CBN’s financial inclusion strategy, has been instrumental in the development of the payment system.
According to the National Bureau of Statistics (NBS) a total volume of 3,464,811,083 transactions worth N356.47 trillion was recorded on electronic payment channels in the fourth quarter of 2020 (Q4 2020).
Online transfers dominated the volume of transactions with over 2.23 billion deals valued at N120.27 trillion in the review period.
Payment transactions through the use of cheques stood at N4.20 trillion, indicating 10.28 per cent increase over Q3 while transactions, while using Automated Teller Machine (ATM) amounted to N4.54 trillion.
Point of Sale (PoS) transactions amounted to N1.52 trillion or a 25.49 per cent increase over the preceding quarter.
Also, National Electronic Funds Transfer (NEFT) transfers stood at N96.08 trillion while Real Time Gross Settlement (RTGS) transfer was valued at N112.99 trillion as well as the Unstructured Supplementary Service Data (USSD) transfers of N1.63 trillion in the review period.
According to the NBS, mobile apps transfers (not mobile money), amounted to N9.91 trillion while direct debits stood at N500 billion as well as transactions by Mobile Money Operators (MMOs), which stood at N4.82 trillion.
Observations
Analysts have however, welcomed the gradual reduction of currency management expenses by the central bank, hoping that this would translate to more gains for the financial consumers and the economy in general.
Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, believed that whenever cost is reduced in an institution, more money is made available for other projects.
In an interview with THISDAY he said, “The reason for this cost reduction is that more and more people are embracing digital technology and fintech in their banking transactions.
“The next reason is that last year was bedeviled by COVID-19 and lock down. The benefits are that CBN can deploy more of the saved funds in other sectors.”
Also, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said the introduction of the eNaira should further influence costs reduction in the management of the paper money.
He said, “I believe the implementation of digital banking and the Treasury Single Account (TSA) could be largely attributed to the reduction in the cost of currency management.”
Also speaking to THISDAY, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, described the reduction in the cost of currency production as good news for the country compared to the expenses incurred in preceding years.
He said, “This shows prudence on the part of CBN also stating clearly that it was in – country production. This is very beneficial to financial consumers because the reduced cost will affect them as well and it also give the Nigeria Printing and Minting Company more capacity and credibility as it will make other countries to rely on them for currency production.
“This measure will also ensure that cash management will be more effective than previous years.”
Recommendations
According to the currency operations department of the apex bank, automation of currency operations in banks’ branches remained critical to enhancing efficiency and reduction of manual intervention in cash handling among other measures.
