Automated Teller Machine and Inf

Automated Teller Machine and Inflation in Nigeria

Eleanya K. Nduka

When economists solve an economic problem, other problems arise. One example is the policy of cashless economy which is intended to reduce the level of risks involved in carrying cash. As a result, the ATM is one invention meant to accelerate the above mentioned policy. However, a closer examination of the policy via the ATM in Nigeria reveals that it gives birth to hyper-inflation. According to the Oxford dictionary of economics, inflation is a persistent tendency for prices and money wages to increase. In other words, I should say that it is the persistent increase in the general price level of necessary goods and services over a period of time.

How does the ATM create inflation in Nigeria? As we know, the machine can only contain a limited amount of notes. As such, Deposit Money Banks (DMBs) load mostly N1,000 notes into the machine which is the highest denomination of the Naira. This makes it possible for the machine to contain higher amount of money than when lower denominations are loaded. Consequently, this practice has further increased the woes of Nigerians precipitated by inflation. This is in addition to the worrisome fact that coins are rarely accepted.

Before I explain further the relationship between ATM and inflation permit me to digress a little, but not completely out of context. Due to the fact that coins are no longer in use in Nigeria, the prices of necessary products such as seasoning (“Maggi”), pepper, salt, sugar, etc have increased. For instance, three cubes of “Maggi” and Sugar are sold for N10 respectively, while one cube is sold for N5. In some places, three gallons (20 litres) of water are sold for N20, while one gallon is sold for N10. The list goes on and on. This is the problem of disaggregation.

Let’s now give attention to the issue of ATM and inflation. As we have seen from the second definition of inflation above, it involves the prices of necessary goods and services. Not until recently, transportation has been added to the three basic necessities of man (food, shelter and clothing) in development economics. In Nigeria, cost of transportation has been influenced by insufficient supply of lower currency denomination via ATM (ATMs in Nigeria dispense only N1,000 notes). Transporters (mainly those that engage in town service) including Cyclists (“Okada”) take undue advantage of this scenario.

For example, some distances where N20 or N30 can comfortably take one to are being rated at N50 by the drivers due to the scarcity of lower Naira denominations (or “change”). Sometimes passengers are forced to leave their “change” with them. This fact of figure might seem insignificant, but careful calculation shows how economically irrational it is. For instance, multiply N20 or N10 (i.e. additional cost as a result of scarcity of “change”) by 2 in a day, and further, by 365 days in a year. This amounts to N21,900 (that is, N40 in a day times 365 days in a year ) or N7,300 (N20 in a day times 365 days in a year). If we multiply N21,900 by the population of Nigerians who are below poverty line and who use public transport, then the impact can be known. According to the National Bureau of Statistics (NBS), the population below poverty line in 2010 was 112.47 million persons. If we multiply N21,900 by 112.47 million, then it gives N2,463,093,000,000. This means that the poor in Nigeria spend more than N2 trillion in excess for transportation alone caused by Automated Teller Machine (ATM). This amount represents the impact of inflation in the seemingly insignificant transportation sub-sector of the economy.

This small analysis gives insight into what happens in the aggregate economy as a result of inflation caused by the absence of lower denominations of the Naira. Lack of knowledge of how the economy works led to the rejection of coins. However, it seems it would be generally acceptable if the coins denominations are made into notes. Furthermore, if the ATM is made in a way that it gives one the option of selecting a particular denomination of interest, then the above explained problem would be curtailed.

Eleanya K. Nduka is an economist and policy analyst based in Nigeria.