From Uche Usim(Abuja), Adewale Sanyaolu, Merit Ibe and Chinwendu Obienyi
In a move towards deepening electronic banking, the Central Bank of Nigeria (CBN), on Tuesday, announced a new policy that mandates deposit money banks and other financial institutions to ensure that over-the-counter cash withdrawals by individuals and corporate entities do not exceed N100,000 and N500,000, respectively, per week. It translates to N20,000 per withdrawal. The policy is expected to take effect nationwide on January 9, 2023.
The revised cash withdrawal limits, contained in a circular issued by the CBN, added that cash withdrawals in excess of the stated limits will attract processing fees of 5percent and 10 percent, respectively.
The new policy comes barely weeks after President Muhammadu Buhari, launched the newly redesigned N200, N500, and N1000 banknotes.
The CBN said it wants to promote financial inclusion via electronic banking.
But reacting to the CBN policy pronouncement, Dr Muda Yusuf, Founder and CEO, Centre for the Promotion of Private Enterprise (CPPE) said currency in circulation as at October 2022 was N3.3 trillion, out of which N2.8 trillion was outside the banking vaults, stressing there was nothing abnormal about that.
According to him, currency in circulation is meant for cash transactions and it’s a mode of payment. It is a contradiction to expect currency to be largely kept in the vault of banks, rather than outside the banks. Currency notes are printed primarily to facilitate payments in the economy by segments of the population that need them.
“There is a difference between money supply and currency in circulation. Total money supply as at October 2022 was N50.6 trillion. Total currency in the economy was just N3.3 trillion, which is a mere 6.5 perccent of money supply. Currency outside banks as a percentage of total money supply is even less- 5.5percent.
Currency as a percentage of GDP is a mere 1.8 percent. Even in the advanced economies, the percentages are much higher. The implication is that the Nigeria economy is already substantially cash-less. It is therefore quite curious that so much energy and resources are being dissipated in this direction. The claim by CBN that there is too much cash outside the banking system is therefore erroneous. Currency as a percentage of GDP in Nigeria is 1.8 percent, whereas in the United States it is about 10 percent. We are more cash-less than many advanced economies.
Implication of the directive on cash withdrawal
It will negatively impact on the informal sector of the economy. The informal sector is a significant part of the economy accounting for over 80 percent of trade and commerce in the Nigeria economy and substantial components of jobs in the economy. Many of them are in very remote locations where there are no bank branches. And they transact business largely in cash. The distributive trade accounted for N23.3 trillion of the country’s GDP in 2021. This was about 15 percent of GDP. This restrictive policy will pose a major risk to this very critical sector of the economy. There is also the risk that this policy would negate the financial inclusion objective of the CBN. Some of the informal sector operators may begin to avoid the banking system entirely.
This could also be an infringement on the fundamental rights of the unbanked nigerians. The CBN needs to think through this policy properly to avoid creating more problems than it sets out to solve.
Also reacting, Head of Department, Economics, University of Ibadan, Prof Adeola Adenikinju, said the development is consistent with the CBN cashless policy and was in the right direction.
He added that it was time Nigeria moved away from a cash based economy to cashless, saying in most part of the world, no one moves about with cash.
Adenikinju said the cost of printing and maintaining the Naira was enormous, hence the need to go cashless.
The economist explained the policy will be a major disincentive to kidnappers who demand cash as ransom.