CBN is losing the cash scarcity war: here’s how it can win

There’s been growing tension between the Central Bank of Nigeria (CBN) and commercial banks over the lingering cash scarcity, with accusations of mismanagement and even conspiracy flying around. Banks on the other hand, are dragging CBN for the shortage.

Things came to a head when the CBN threatened to penalize any bank caught mishandling the Naira a whopping ₦150 million. Enough cheddar to build a small estate in Iragbiji in Ondo State.

The cash crisis created long queues at banks and ATMs. Then if and when it’s your turn to get cash, you’re limited to just N5,000 – N10,000. I mean, what can you even do with such an amount?

Naturally, there’s a lot of frustration about the situation. Nigerians want the CBN to hang someone on the cross for this even though Jesus reportedly died for our sins 2000 years ago.

Now, while the issues are very real, I think the CBN is fighting a battle it simply can’t win and would only get its nose bloodied in the process. Why? Because it’s fighting a shadow!

But before I explain, let me tell you a little story.

Telecoms already taught us a little about scarcity 

Let’s take a quick trip down memory lane; back to Nigeria’s telecom sector about 25 years ago.

Back then, telephone lines were even scarcer than Naira notes today. There were only  400,000 phone lines for a country with over 100 million people.

Getting connected wasn’t just a matter of walking into a store or clicking a few buttons online like we do today. You needed personal connections and a bit of luck to be able to secure a NITEL line then. And even for those who were successful, the service was very expensive. The Minister of Communications at one time, Tajudeen Olanrewaju, once quipped that “the telephone wasn’t for the poor”.

But then GSM came along and completely changed the game. It revolutionized the market, made the old way of doing things obsolete, and made phone lines accessible to everyone, including my dog.

Scarcity isn’t a new or foreign phenomenon. But we have to do things differently to get out of the rut we’re in.

The real problem isn’t cash; it’s payments

Scarcity always creates arbitrage opportunities and people will naturally find ways to profit from limited resources, whether it’s forex, cash, or anything else in short supply. We see it happen all the time.

Take super-agents, for example. We can’t deny that they’ve played a pivotal role in taking financial services to the next level but they’re charging premiums to provide access to cash. Is it wrong? Definitely. But is it surprising? Absolutely not. They’re simply responding to the systemic gaps by filling a need the system itself hasn’t addressed. 

Meanwhile, according to the popular Yoruba proverb, the CBN is out here carrying an elephant on its head while trying to catch a cricket with its toes. It’s dangerous and they could trip on some Nigerian banana peel.

Instead of fixing the real issue by addressing the root cause of payment challenges, the CBN is focused on the wrong battle; cracking down on banks and super agents, threatening them with fines, and blaming inefficiencies at the branch level. It’s a futile effort and a big distraction.

And even if the CBN somehow “wins,” it’s a pyrrhic victory. The root problems would remain untouched, and the cash scarcity chaos would continue.

Why?

Because people aren’t hoarding cash for the fun of it!

They’re not chopping it up to cook jollof rice so they could drag Ghana on Twitter (AKA X)—they need it to buy food, pay for their commute, or settle small daily transactions. Cash is just a medium. 

The real question is why are people going through so much stress looking for cash just to make payments when there are alternative methods? That’s what needs to be addressed.

The truth is, electronic payments simply aren’t a viable alternative for many Nigerians right now. Transaction speeds are too slow to support real-time payments. Imagine waiting one to two minutes for a transfer to be complete while trying to pay the woman selling plantain in a busy market, where you still have 49 other customers lined up behind you. Trust me, someone is going to swear for your fada if you don’t get out of the way. Nigerians can be an angry lot!

It’s impractical, and for a system that needs to scale, this kind of delay is a dealbreaker.

Fraud protection is another major issue. Victims of fraudulent transactions often find themselves stranded, with little to no recourse. Even when banks report fraud cases to each other, it rarely yields the desired results. This lack of accountability has bred widespread distrust in the system and people are understandably hesitant to fully embrace electronic payments. While the CBN has commenced enforcements on some fintechs of recent; it’s late, too targeted, and not comprehensive enough to fight fraud.

Then there’s the cost. For low-value transactions, the fees just don’t match. Paying ₦10 in transfer charges for transactions as small as ₦50 – ₦100 to pay for pure water or a wrap of garri is neither sustainable nor reasonable. So, cash remains the cheaper and more practical option for many Nigerians, despite the challenges associated with accessing it.

Here’s how the CBN can resolve the cash crisis for good

Right now, the CBN seems to have enough energy to pull off what’s needed, especially with Cardi B at the helm.

First, they need to focus on transaction speed. Think about how speed changed the game in photography. Once we had fast-loading photos, it opened the door for videos. The same applies to payments. Faster transactions can unlock new opportunities and drive adoption. After all, faster transactions is how Opay became the largest digital bank in Nigeria.

The CBN should set national transaction speed standards, starting with a 15-second benchmark in the first year and then tightening it to 5 seconds within three years. They could even tie incentives to transaction speeds. Bankers love incentives. Or, if that doesn’t work, CBN could do what usually works in Nigeria and apply some  pressure and threaten banks to invest in the infrastructure needed to achieve this.

Next, CBN needs to seriously deal with the fraud issues for everyday Nigerians. It’s time to fix the system. They should implement a centralized fraud reporting platform—not the one NIBSS supposedly has that nobody uses—but something easily accessible to fintechs and Nigerians. Banks should also be mandated to refund fraud victims unless they can prove they followed proper KYC protocols. And to make things faster, they should create an effective inter-bank communication process to handle fraud cases swiftly. This is so critical because fraudsters are raping the digital payments space to death and only a few things are being done about it.

The CBN should also reduce costs for small transactions. Transactions below ₦10,000 should be free. The sector can afford it. It’s easy to propose this though; after all, it’s not my revenue that would fund it 🤣.

Here’s why it’s worth the effort  

This approach has significant long-term benefits. For starters, locked funds stay within the banking ecosystem, improving transparency. Banks would no longer need to ask people funny questions about money movements because they’d have a clearer view of the velocity of money.

Moving payments online also reduces the need for physical cash, cutting down costs related to printing, transporting, and securing money. That frees up funds for building better digital payment infrastructure.

Most importantly, it builds trust in the financial system. When transactions are fast, secure, and reliable, people are more likely to embrace banking and other financial services fully, instead of hoarding cash or relying on informal networks. 

And with better visibility into money flows, the CBN can make smarter policies instead of fighting shadows. 

The CBN needs to make big changes for big impact 

Super agents who are currently benefiting from cash scarcity and arbitrage might feel the pinch at first, but they won’t be left out of the game. As digital transfers gain traction, there’s a real opportunity for them to pivot and earn through legitimate transaction fees and expanded services.

In fact, the CBN has already laid some groundwork with its recent Circular on Cash-Out Limits for Agent Banking Transactions. It’s a step in the right direction but it’s not enough. To make this work, they’ll need to double down on reforms and strengthen the system.

First, they need to address the BVN gaps and protect people. The CBN should mandate periodic revalidation of BVNs, say, every 5 years, to keep records accurate and deactivate outdated or fraudulent accounts. It’s also a chance to show the bank tellers that I’m now a silver fox 🌚. To make this convenient, Nigerians should be allowed to revalidate their BVNs at any bank, not just their own bank/branch. This ensures broader compliance without adding unnecessary wahala.

Second, they need to collaborate better with banks. The CBN needs to set clear goals and timelines for infrastructure upgrades, ensuring banks prioritize transaction speed and security. Smaller banks, in particular, may require technical and financial support to meet these standards, and the CBN should be able to coordinate something for them. The Nigerian tech ecosystem is more than capable of helping banks scale with infrastructure.

Away from the banks, the public also needs to be adequately engaged. Awareness campaigns to emphasize the benefits of digital transactions, especially in comparison to the cost of withdrawing cash, will be critical. They also need to address fears about fraud via digital channels to build confidence in the system and drive adoption.

This is what the CBN needs to do to turn the current challenges into long-term gains and to create a payment system that’s faster, safer, and allows super agents to thrive without exploiting scarcity.

This is the version of the fight the CBN actually has a real chance of winning—and this time, without getting its nose bloodied.