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Nigerian commercial banks are currently in a standoff with the Central Bank of Nigeria (CBN) over the ongoing cash scarcity, as each party shifts blame for the situation. While Deposit Money Banks (DMBs) allege that the CBN has failed to supply sufficient cash, the CBN claims that banks are hoarding available funds, worsening the situation.
The cash shortage has left millions of Nigerians unable to access funds, sparking public frustration. Some banks have stopped dispensing cash, leading to growing concerns over the economic impact. The CBN has responded with warnings of sanctions for banks found guilty of withholding cash or failing to comply with its directives.
A banker, speaking anonymously, expressed frustration, saying, “It is the CBN that is responsible for this cash scarcity. We are not getting enough from them, causing unnecessary suffering for the masses.” However, the CBN continues to maintain that banks and individuals are holding onto cash rather than circulating it. Hakama Sidi Ali, CBN’s Acting Director of Corporate Communications, stated, “There is cash out there. The CBN is supplying banks, but most of this cash remains in the hands of individuals, driven by panic withdrawals and hoarding.”
This blame game comes at a time when the lack of replacement for the old N200, N500, and N1,000 notes, which were withdrawn during the naira redesign policy, has reduced the volume of physical cash in circulation, often referred to as M1. Analysts believe this reduction, combined with the impact of inflation from the removal of fuel subsidies and foreign exchange challenges, has amplified the demand for physical cash as Nigerians struggle to purchase everyday goods and services.
CBN Governor Olayemi Cardoso addressed these concerns at a recent press briefing following the 297th Monetary Policy Committee (MPC) meeting in Abuja. He reiterated the CBN’s directive that all deposit money banks must ensure there is enough cash available for withdrawals, warning that any bank not complying would face penalties.
“We have set up a monitoring and spot-checking system to ensure compliance. Any bank not adhering to these directives will be sanctioned,” Cardoso stated. The CBN is also planning to inject an additional N1.4 trillion into the banking system over the next three months to improve cash flow. Cardoso noted that this measure is aimed at ensuring sufficient cash availability in ATMs and bank branches.
Cardoso further emphasized that the CBN is working closely with banks to ensure they effectively distribute cash. “We are engaging with all deposit money banks to ensure they are putting cash through their ATMs, and nobody should be unable to withdraw funds.”
Despite these efforts, data from July 2024 shows a decrease in currency outside the banking system, which fell to N3.66 trillion, marking the second drop this year. This represents a 3.32 percent decline (N130 billion) from the previous month’s figure of N3.79 trillion, reflecting the CBN’s ongoing liquidity tightening measures and efforts to encourage deposits. However, the overall currency in circulation saw a marginal increase from N4.05 trillion in June to N4.05 trillion in July, suggesting that while the cash scarcity continues, there may be a shift towards digital transactions or improved regulatory control over cash flow.
As the standoff between the banks and CBN persists, all eyes are on whether the additional cash injection and enforcement measures will ease the ongoing crisis or if further sanctions will be necessary to restore confidence in the financial system.
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