After days in the fog, Nigeria has seemingly awoken to the reality that it stands on the victim’s side of a most terrible deception. Told the CBN was implementing a cash redesign, people paid inadequate attention to the details of what was always intended as an all-out assault against their financial person. When a mean and stingy man starts repainting your house and moving in new furniture you should not celebrate. You should quickly realize you have not won some unexpected prize. You are being tossed from your home by the man who sees himself as its new owner.
With his address of 16 February, the President gave us his economy legacy. Much of what was stated was unfortunate. Those who wrote that script have done disservice to the nation and the man who hired them. It is a sad moment when a national government brews an economic depression out of thin air. It is more of a tragedy when that government takes pride in awful thing done.
First of all, let’s be clear. We are not talking about a naira redesign. If this had been simply a redesign, the CBN would have replaced the old notes with the same amount of new ones. No, people are not experiencing this misery because of the color of the notes in hand. They face grinding hardship because of the brutal fact there are no notes in hand. The change of color was merely a subterfuge to initiate the cashless policy. Yet, any policy initiated by a lie will also lie in its implementation as well as in its objectives.
The CBN governor’s policy defense that cash outside the banking system is unproductive gives illogic corporeal form. The primary purpose of cash is as a means of exchange. Its chief function is the buying of goods and services. When buyer and seller meet on a cash basis, there is no need for a bank. Three becomes more than a crowd. It is an imposition with hidden costs, fees and surcharges, all unnecessary to the transaction taking place.
By definition, physical cash has to exist outside the banking system. The very pain people now experience shows the devilment of such an odd theory as the CBN’s. Today, great amounts of cash have been sequestered inside the banking system as the CBH espouses. The economy is heading toward depression as a result. Physical cash remaining in a bank vault is no different than hiding it under the bed or burying in the back yard.
Also, the claim that this policy tames inflation shows a dangerous gap in understanding. Much of Nigeria’s inflation is imported due to the nation’s dependence on other economies for finished products of all variety. To slash inflation as the CBN claims really means to excise a large chunk of domestic economic activity since their policy actions have no effect on the external forces that gave rise to the inflation. In other words, because the patient is too skinny, the doctor has placed him on a drastic diet.
Equally disconcerting is that the CBN man does not seem to be aware of the difference between real and nominal prices. He also does not appear to have working knowledge of the concept of deflation.
Assume for a moment, the CBN man is right that prices are falling. That is not the full picture. It cannot be the only measure of success. If the size of the economy is shrinking because commerce, trade and production are collapsing then the price decline is coming at too dear a cost. In real terms, actual prices are increasing although the nominal or numeric price is declining.
Imagine an economy when an object cost 50 naira and the overall money supply is 1000 naira. Then the economy adjusts to where the cost of the item is now 48. However, the money supply has dropped to 800 naira. Nominally, the item is cheaper. However, in real terms, the item has become more expensive because it commands a greater percentage of the money supply than in the first instance (6% to 5%).
Inflation is not reducing in Nigeria. It just moved to this different playing field. Even worse, the reduction in nominal prices will kill businesses that borrowed under the old price structure. Although prices of goods may adjust, the nominal amount of business loans never shift downward. Using the above example again, every naira the business owner pays to the lender is worth 6/5 more than the naira he borrowed. This will shatter profit margins and the sustainability of many businesses, leading to additional closure, ruin and joblessness in the economy.
Perhaps the greatest irony in all of this is that no one ever apprised President Buhari of the national security implications of a cashless system. This president, more than any other, was elected to keep the nation safe. Sadly, his tenure has made it more vulnerable.
Our transactions systems are unreliable and easily compromised. The systems will frequently breakdown, bringing all economic activity to a halt. In a world of mean and resourceful potential adversaries, placing all of our money into this network turns the economy into an easy target, a fatted calf tied to a post. Any terrorist network or unfriendly nation will be able to hack our financial system, bringing the entire economy to a standstill. We will not have the cash to use as a safety valve to mitigate the blow if and when that moment occurs.
Coming closer to home, is it wise for the freedom that democracy requires, to make everyone place all of their financial holdings in a system where one man, the CBN governor, can completely block the financial operations and access of perceived enemies? This yields much too much real and actual power to an unelected person.
It has already caused tremendous hardship. The nation’s monetary course should be reversed before it crashes against the dictum that absolute power corrupts absolutely. Don’t give the CBN control over what should be the people’s right to financial freedom and security.