From Uche Usim, Abuja
In 2012, the Central Bank of Nigeria (CBN) embarked on the journey to operating a cashless economy and it kindled hopes that the country was willing to play in the global financial ecosystem where digitisation is the unifying word.
But the momentum was retarded due to a plethora of factors, including poor information and communication technology (ICT) infrastructure and low awareness.
So, stakeholders in the finance bloc had to tackle the underlying challenges considerably before going full blast on digital banking.
While the infrastructure gap was being closed, systemic lapses and breaches caused an upset as the cash in the banking system continued to diminish while the bank notes outside the system swelled.
It got to a frightening level recently as the governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, disclosed that out of N3.2 trillion currency in circulation, N2.7 trillion was outside the banking system.
This development, according to experts, was very dangerous for a nation battling deep-rooted corruption, kidnapping, insurgency and the likes, because criminals can carry out their nefarious businesses without appearing on the banks and security agencies’ dashboards.
While aggressively mopping up over N1 trillion old naira notes after new ones were launched, the CBN said it has equally developed and fortified the electronic payment system infrastructure to the extent that successful transactions can be facilitated in any part of Nigeria.
To reset the financial sector, the CBN said the redesigned naira notes would be rationed to encourage the public to use digital platforms for transactions.
These are internet banking, mobile banking, USSD, PSBS, eNaira app and 1.4 million mobile banking agents spread across the country to attend to the informal sector and those in far-flung settlements.
The new naira, according to the apex bank, would be insulated from the risk of counterfeiting by financial vampires due to the production sophistication. Other concerns that motivated the decision to ditch the old naira is the high cost of currency management.
The CBN governor listed the benefits of the redesigned naira notes to include enhanced security, greater durability, attractiveness and promotion of rich cultural heritage. This effort is expected to yield numerous benefits including the adoption of electronic channels, which is in tandem with global best practices.
To support the new naira achieve the aforementioned objectives, the CBN released fresh directives. From February 9, 2023, over-the-counter weekly cash withdrawal for individuals and corporate entities have been pegged at N100,000 and N500, 000, respectively.
The apex bank also directed that only N200 and lower denominations should be loaded into banks’ Automated Teller MachinesATMs, while the maximum cash withdrawal per week via ATM should be N100,000 subject to a maximum of N20,000 cash withdrawal per day.
On insinuations that the new naira and the accompanying rules were designed to hurt politicians who have stacked up the old notes for politicking, Emefiele said there was no such motive as CBN interventions are woven around economic exigencies and not the interest of politicians, since the regulatory body remains fully non-partisan.
On plans to deepen financial inclusion, the Director, Development Finance Department of CBN, Mr Yusuf Yila, said Nigeria targets to get 95% of the over 200 million population financially included by 2024.
“We continue to build the case for the use of movable assets as collateral for individuals and small businesses to unfreeze and unlock finances to enable Nigerians to make a decent living. To ensure that financial institutions lend to the real sector, we implemented the Differentiated Cash Reserve Requirement programme to enable liquidity for financing targeted projects for economic expansion and these are yielding fruits”, he explained.
Weighing in on the new policy plans of the CBN, Nigeria’s first professor of capital markets, Prof Uche Uwaleke, said that the cash withdrawal limit is an integral part of currency redesign meant to reduce the amount of currency circulating outside the banking system.
“If the experience of India’s demonetization exercise is anything to go by, then it’s evident that imposition of cash withdrawal limits by monetary authorities, following a demonetisation exercise, is a norm. So, the cash withdrawal limit is part of the currency redesign package. The two are mutually dependent.
“If depositors of old currency notes are able to exchange them for new naira notes which get withdrawn from the banks, then the primary aim of currency redesign is defeated.
“That said, I expect it to give impetus to financial Inclusion as Nigerians become compelled to embrace alternative payments platforms. It now behoves the CBN to ensure that bank charges on money transfers and other related charges are reduced to the barest minimum.”
In his view, the Director General, Centre for Promotion of Private Enterprises (CPPE), Dr. Muda Yusuf, said the new move of the CBN will negatively impact the informal sector of the economy. “The informal sector is a significant part of the economy accounting for over 80 per cent 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% 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,” the statement added.
Former managing director/regional executive, Ecobank Nigeria, Patrick Akinwuntan, expressed confidence that this would improve financial security and transparency.
“If you look at the level of theft when people go to buy things in the market, when they finish their shop, most robbery, cash robbery happens when people are coming from the shops, when they are coming from their farms on a Sunday, they believe that there is money with you. But with this policy, the average Nigerian will know well, maybe this person will not be holding up to N100,000”, Akinwuntan said.
He, however, urged regulators to monitor and walk with Nigerians: “If Nigerians see the support from the regulators, they will fall in line. For instance, we can see that most banks want to be available on Saturday and I actually think some will be available on Sundays also. That process needs to take a lot of feedback. Once the people understand that the regulators are focused on this policy and are supportive in its implementation, I think it has a good opportunity of taking Nigeria to a better monetary environment.”
For analysts, the policy is part of a broader strategy for the CBN to control FX demand.
