Impact of digitization in currency management
The commitment of the Central Bank of Nigeria to develop the country’s electronic payment system and the digitization of financial products and services could improve long-term macroeconomic stability, writes James Emejo.
The development of the electronic payment system by the Central Bank of Nigeria (CBN) suggests that the country could achieve microeconomic stability over time as the efforts of the bank began to bear fruit.
For example, apex bank said it reduced its currency printing expenses to 58.61 billion naira in 2020 from 75.52 billion naira in 2019, down from 16.91 billion naira or 28.84 billion. % compared to the previous year.
This was a welcome development given that the country spent 64.04 billion naira printing the local currency in 2018.
Undoubtedly, the administration of paper money faces various challenges, which have made the use of the electronic payment system an effective and efficient alternative to handling cash.
In recent decades, huge sums of money have also been lost to bank robberies, among other vulnerabilities in physical money.
From the statistics available, it is clear that the benefits of electronic and digital transactions outweigh traditional methods of financial transactions.
Compared to the amount spent to print money and other expenses in its management, the central bank said it only generated 6.50 billion naira as total income from currency management activities. in 2020, up from 13.24 billion naira the previous year, which represents a decrease of 6.74 billion naira or 50.92 percent.
The bank committed a total of 67.21 billion naira in expenses on foreign exchange operations in 2020, which represents a decrease of 17.96 billion naira or 21.08%, less than 85.18 billion naira. naira in 2019.
Besides printing and designing, it costs the CBN a great deal of money to destroy old and used coins as well as to commit enormous resources to controlling counterfeiting and other forms of abuse.
According to the CBN’s Monetary Operations Department (COD), the cost of printing banknotes increased by 17.93% in 2019.
The total cost incurred for printing banknotes amounted to N75.52 billion in 2019, compared to N64.04 billion in 2018, indicating an increase of N11.48 billion.
In addition, the sum of 5.91 billion naira was committed to the distribution of foreign exchange during the period under review, compared to 5.73 billion naira in 2018.
According to the COD, the 3.13% increase in costs was attributed to the upward revision of transport costs per kilometer and nautical miles during the period.
The CBN also spent 814.60 billion naira on foreign currency transfers in 2019, up from 915.08 billion naira in 2018, while the approved withdrawal of foreign currency for 2019 was estimated at around 1.34 trillion naira against 1. 45 trillion naira the previous year.
It should also be noted that 647.82 million Naira was committed for the currency disposal and processing activities in 2019, compared to 662.21 million Naira in 2018.
The CBN had identified a high level of human intervention in the currency handling processes at branches, the sale of new naira banknotes and the increasing incidences of counterfeiting, poor banknote handling habits by the public and the high cost. currency management and the challenges facing currency management in this country.
Financial experts continued to insist on the need to put less emphasis on the use of paper money in electronic payment systems in order, among other things, to reduce the social ills associated with legal tender.
CBN Governor Godwin Emefiele has pledged to further develop the country’s payment infrastructure and make it the best in Africa – an aspiration he has achieved so far given the state of payment infrastructure in other regional economies on the continent.
Undoubtedly, the reduction in currency management costs is in line with Emefiele’s policy objective of reducing the cost of printing banknotes and managing cash in the country.
The central bank’s digital currency (CBDC), also known as eNaira, which was recently unveiled by President Muhammadu Buhari, is part of the policy to further reduce the cost of printing the naira.
The CBN’s financial inclusion strategy played a decisive role 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 356.47 billion naira was recorded on electronic payment channels in the fourth quarter of 2020 (Q4 2020).
Online transfers dominated the transaction volume with over 2.23 billion transactions valued at 120,270 billion naira during the review period.
Payment transactions through the use of checks amounted to N4.2 trillion, indicating an increase of 10.28% from the third quarter, while transactions using automated teller machines (ATM) s’ amounted to 4.54 billion naira.
Point of sale (PoS) transactions amounted to N1.52 trillion, an increase of 25.49% from the previous quarter.
In addition, domestic electronic funds transfer (NEFT) transfers amounted to N96.08 trillion, while real-time gross settlement transfer (RTGS) was valued at N112.99 trillion as well as naira 1.63 trillion unstructured supplementary service (USSD) data transfers during the review period.
According to the NBS, mobile app transfers (not mobile money) amounted to 9.91 billion naira, while direct debits amounted to 500 billion naira as well as transactions by money operators. mobile (MMO), which amounted to 4.82 billion naira.
Analysts, however, welcomed the gradual reduction in spending on currency management by the central bank, hoping it would translate into more gains for financial consumers and the economy in general.
The Managing Director / Managing Director of Dignity Finance and Investment Limited, Dr Chijioke Ekechukwu, estimated that every time costs are reduced in an institution, more money is available for other projects.
In an interview with THISDAY, he said, âThe reason for this cost reduction is that more and more people are embracing digital technology and fintech in their banking transactions.
âThe next reason is that the past year has been plagued by COVID-19 and locked down. The advantages are that the CBN can deploy more of the funds saved in other areas. “
In addition, the Managing Director / Managing Director of Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said that the introduction of eNaira is expected to further influence the reduction of paper money management costs.
He said: “I think the implementation of digital banking and the single treasury account (CUT) could be largely attributed to the reduction in the cost of currency management.”
Also speaking to THISDAY, the Managing Director / Managing Director of SD&D Capital Management Limited, Mr. Idakolo Gbolade, described the reduction in the cost of producing the currency as good news for the country compared to the expenses incurred in previous years. .
He said: âThis shows caution on the part of CBN, also making it clear that this is in-country production. This is very beneficial for financial consumers as the cost reduction will affect them as well and it will also give Nigeria Printing and Minting Company more capacity and credibility as it will force other countries to rely on them for the production of foreign exchange.
âThis measure will also ensure that cash management will be more efficient than in previous years. “
According to the umbrella bank’s currency operations department, automating currency operations at bank branches has remained key to improving efficiency and reducing manual intervention in cash processing, among other measures.