“Always beware of unintended consequences.” Anonymous
We learnt in primary schools in the 1940s to 60s several English proverbs. One says “a rolling stone gathers no moss.” Mosses are those tiny green plants which cling to stone standing still for a long time. People like me, who have moved through different business sectors, have however profited from moving often. Seeing the world through new lenses and acquiring new language is one of the benefits.
My first full time job, as a salesman was in Boston, USA for a leading pharmaceutical company, which was also a subsidiary of a Fortune 500 company. It was mandatory for each new salesman to undertake a month-long training on drugs – prescription or Over-the-Counter, OTC. Among the lasting lessons you receive about all approved drugs, no matter how good they are, is that they all have undesirable side effects.
I was in pharmaceuticals from 1968 until 1980; before moving to brewery sector and began mastering another set of language. Very quickly, it dawned on me that some of the ideas governing drugs are also applicable to the brewery industry.
Overdose in pharmaceuticals is cousin to drunkenness in alcoholic beverages. I have since learnt that a lot of economic ideas also result in undesirable side effects – if taken too far. Anything carried to excess eventually creates a serious problem.
The Nigerian economy is now virtually shut down because of excess.
UNWANTED CONSEQUENCES OF CARRYING A GOOD IDEA TOO FAR
“You can get in more trouble with good ideas than with bad ones. It is much easier to push a good idea to excess.” Ben Graham, VANGUARD BOOK OF QUOTATIONS, VBQ p 97.
Naira change and the drive towards a cashless society are both admirable ideas – which any deep thinking Nigerian should endorse. This is the third time in Nigerian history that new currency notes would be issued. The first occurred in the late 1960s when pounds, shillings and pence gave way for the introduction of naira and kobo.
The second took place during the Buhari regime in 1985. I was not in Nigeria when the first change took place. But, those around informed me that nobody suffered hardships like we are now experiencing with this third exercise. Right now, Nigerians having millions on deposit with banks have been turned into active beggars for cash.
Managers, who hitherto greeted some of their well-known customers with smiles and respect, hide their faces or get the bank gate slammed in the faces of all depositors. The social and financial contracts binding bankers and clients have been shredded by the Central Bank of Nigeria, CBN. The picture on the front page of one of the national papers told the story of how the relationship had deteriorated. A security guard in a bank was shown whipping people on queue in front of his bank. All they wanted was their money which the bank promised to return on demand when deposited.
President Buhari, Mr Godwin Emefiele and Nigerian bankers might not realise it, but a boomerang impact is already underway. And, it will undermine some of the objectives of the programme. But, first, let me summarise the new policy and its objectives as best as possible.
Unlike previous exercises which aimed to bring a lot of money in circulation, being hoarded, into the banking system, and in theory reduce interest rates, the current currency change also aimed to punish bandits, kidnappers and corrupt individuals sitting on their filthy lucre. It also had preventing vote buying during the elections as one of its aims.
Finally, the CBN was determined to deepen its cashless policy as much as possible. Obviously, the CBN has mixed purely monetary policy objectives with political goals. That explains why the period for the deposit of old notes and the introduction of new notes was so short. Failure to notify the intended changes to the Council of States as well as other bodies stipulated by law was a deliberate ploy. The President and the CBN colluded to spring a surprise on a lot of officials who should have had prior notice.
Nearly N2trn was deposited into banks by January 31, 2023; in addition to the currencies on hand before the beginning of the exercise. The CBN had printed N600bn in new notes—mostly N1000 bills. And, that was the beginning of the chaos we now experience nation-wide. Those who deposited their funds had expected business as usual; they expected the existing social and financial contract to be maintained.
They were shocked to discover that they could no loner enter their banks or approach the ATM machine and obtain money. The CBN and the banks had destroyed TRUST – which is fundamental to banking. Every customer now feels betrayed by people they once considered reliable. Some, they even helped. The experience of one of my friends should serve as a case study for the damage that has been done to bank-customer relations and the likely consequences of this new initiative.
Mr A, in addition to being comfortable himself, was the Chairman of a large family – owners of 37 buildings in Lagos. Until about five years ago, he placed very little money in banks. I persuaded him to deposit more funds, after one young Marketing Officer disclosed to me that retrenchment was imminent – unless a target was reached.
In addition to A, I was able to get other depositors to come to the rescue of the endangered officer. We all received excellent service from the bank until now. Since the scarcity started, A has collected less than N50,000 in total.
The Marketing Officer, usually the first to meet him at the bank, has vanished, does not answer phone calls; and when answered, the reply is the same. “Sorry sir, we have not received money. I will call you when we have money.” No call was received in the first nine days in March. A, who does not beg or borrow has made up his mind about what to do as soon as situation returns to normal. He is through with banks.
Unfortunately, he is not alone. Millions of Nigerians have lost confidence in banks as a result of this unexpected cash crunch. Emefiele will no longer be Governor of CBN; because, irrespective of who becomes President, he will certainly be replaced.
But, the repercussions of the messed-up currency change will hit the CBN like a boomerang. Millions of people, who were reluctantly persuaded to bank all their money will henceforth hold a lot more back. I was on one of the first generation banks recently, and the experience was humiliating. From the way customers were treated, a foreigner would think we were there to beg for money instead of asking for what honestly belonged to us.
We are all faced with this serious disaster primarily because the CBN went, and is still going, too far in the drive to cashless society. There is no such thing anywhere in the world as a cashless society. The percentage of cash transactions compared with other payment forms varies from one country to the next.
But, a visit to even the most advanced countries will reveal that ATM machines are still dispensing cash 24/7. Their mints are still printing bills for use. The reason is simple. There are some transactions so small in value that can only be settled by cash.
For example Nigeria has more of those sorts of exchanges than Japan. In most of our rural areas, one can still purchase vegetables for as low as 20 kobo. How on earth do you charge 20 kobo? Nail cutting still costs no more than 50 kobo. The CBN underestimated how far we are from the level of e-commerce that it would consider desirable.
They printed only N600bn new notes; hoping that PoS machines would take care of the rest. The result is what we are seeing now. But, there is another undesirable repercussion waiting to savage the economy. For many years to come, Nigerians will return to hoarding the new notes. CBN will find itself perpetually struggling to keep up with cash demands.