A Country that Trades its Currency
Even after 62 years of independence, Nigeria lacks the capacity to print all of its currency domestically. Local production of the naira is sometimes supplemented by importing the currency from companies in the UK, France or Germany. Just like other African countries, Nigeria spends scarce forex dollars paying minting companies in Europe to print and mint their local currencies.
The embarrassment doesn’t end with buying its local currency from foreign companies; a more interesting thing is done domestically in Nigeria. This imported currency is then pumped into one of the largest local industries in Nigeria — the cash industry. Given the government’s cashless policy, the use of physical currency has become unfashionable. A trend fuelling the growing popularity of online transaction platforms like Interswitch, Stripe’s Paystack, Flutterwave and other fintech companies.
Nonetheless, the physical naira hasn’t gone to complete disuse, there is still a large informal business sector in Nigeria that lacks access to financial technology and requires physical cash to be dispensed to it. As would be expected, at the forefront of the sale of the naira are commercial banks that usually gain unfettered access to the naira through the Central Bank of the country. These commercial banks sell this acquired naira at a commission to consumers through the Automatic Teller Machines (ATM) which according to Statista recorded 12 trillion-naira worth of transactions in 2020.
As an alternative to these bank run ATMs which are commonly plagued with long queues and unavailability issues, the Point of Sale (POS) system has been adopted by entrepreneurs to sell cash to consumers at an agreed rate. Logically, the convenience offered by the POS system increased the demand for POS services which according to Statista accounted for about 574.37-billion-naira worth of transactions in 2020. The POS system that was formerly developed for transactions involving the sale of goods and services is now used to sell the naira on request in Nigeria.
One may argue that what is being sold is the access to money and not the money itself; nevertheless, one cannot impeach the argument that this reality of selling cash increases the transactional cost of doing business in a country struggling with the blemishes of hyper-inflation and other economic afflictions.
To address the first issue of importing money, I see no reason why a country like Nigeria is incapable of printing and minting all of its currency domestically. At its base, any worthless piece of paper issued by the government and thought by the people to have value qualifies as money. It is an issue of national disgrace for Nigeria and other African countries to spend scarce resources printing money in Europe while simultaneously paying for its transportation back to where it is to be spent.
On the second issue of trading the naira within Nigeria, the government should put into place avenues that will aid those who need the naira to acquire them without cumbersome costs and stress. This will drastically reduce transactional costs of doing business, especially for the informal sector of the economy.
