Nigeria’s banking sector is currently embroiled in a standoff with the Central Bank of Nigeria (CBN) over the persistent cash scarcity plaguing the nation. Commercial banks and the CBN have been trading accusations, with each party blaming the other for the shortage of cash available to customers. This deadlock has triggered widespread frustration among Nigerians, many of whom are unable to access funds.
Commercial banks, also known as Deposit Money Banks (DMBs), have pointed fingers at the CBN, accusing the apex bank of failing to supply sufficient cash for distribution. A banker, who spoke anonymously, said, It is the CBN that is responsible for this cash scarcity. We are not getting enough from them. They are just causing unnecessary suffering for the masses.
On the other hand, the CBN insists that banks are hoarding funds and not adhering to its directives to circulate more cash. CBN's acting Director of Corporate Communications, Hakama Sidi Ali, said, There is cash out there. The CBN is giving to banks except that most of this cash is in the hands of individuals. All these panic withdrawals and hoarding are ongoing.
CBN sources claim that the cash cycle is being disrupted by a lack of deposits from the public and possible hoarding of funds by individuals. This disruption has caused a breakdown in the flow of cash, with banks struggling to maintain liquidity and meet customer demands.
Some financial analysts point out that part of the problem may stem from the recent withdrawal of old N200, N500, and N1,000 notes during the naira redesign policy. These analysts argue that there has been no adequate replacement for the notes that were burned, leading to a lower volume of physical cash in circulation. Additionally, inflation, fueled by the removal of fuel subsidies and foreign exchange instability, has made more cash necessary to purchase the same amount of goods.
CBN Governor, Olayemi Cardoso, has issued a stern warning to banks, emphasizing that all financial institutions must ensure sufficient cash is available for withdrawals. He highlighted that the CBN has set up a monitoring and spot-checking system to ensure compliance, warning that sanctions would be imposed on any bank found hoarding cash or failing to dispense it properly.
Governor Cardoso also announced the CBN’s plan to inject an additional N1.4 trillion into the banking system over the next three months to ease the cash flow problems. He said, Another N1.4 trillion is likely to be delivered in another three months to aid the whole process of cash within the system and cash velocity. From our perspective, we are doing everything possible to ensure that there is sufficient cash in the system.
Cardoso emphasized that there would be no excuse for any bank to fail in providing sufficient cash, reiterating that all banks must keep their ATMs stocked and operational at all times. He said, At all points in time, there should be sufficient cash in their system that nobody should go there without being able to withdraw.
Interestingly, despite the cash scarcity, the amount of currency outside the banking system in Nigeria has been on the decline. In July 2024, the amount of money outside banks decreased to N3.66 trillion, marking the second reduction this year. This is a 3.32 percent drop from the previous month’s figure of N3.79 trillion, suggesting the CBN’s efforts to tighten liquidity and encourage deposits are starting to take effect.
However, the currency in circulation saw only a marginal increase from N4.05 trillion in June to N4.05 trillion in July, growing by just 0.12 percent. This minimal increase may indicate a stabilization in cash usage, likely due to increased adoption of digital transactions and regulatory measures to control cash flow.
As the blame game between the CBN and commercial banks continues, Nigerians are left to bear the brunt of the cash scarcity. The CBN’s threat of sanctions may push banks to increase the availability of cash, but the broader issue of a broken cash cycle and public hoarding will require more than punitive measures to resolve.
With the CBN planning to inject additional cash into the system, it remains to be seen whether these efforts will be enough to stabilize the situation and restore public confidence in the banking sector. For now, the monitoring systems put in place and the increased cash injections are steps in the right direction, but long term solutions will need to address the root causes of the scarcity, including inflation and the hoarding of funds.