The trouble with CBN cash withdrawal limits
Six weeks after announcing its plan to redesign the naira notes of N200, N500 and N1000 (October 26, 2022), the Central Bank of Nigeria (CBN) has further entrenched itself in controversy by its move to introduce new cash withdrawal limits for the banking public. Among others, the apex bank restricted the maximum cash withdrawals over the counter (OTC) by individuals and corporate organisations per week to N100,000 and N500,000 respectively as well as pegging the maximum cash withdrawal per week through the Automated Teller Machines (ATM) at N100,000 subject to a maximum of N20,000 cash withdrawal per day. Though the policy is scheduled to come into operation early in January 2023, for the ordinary business person in Nigeria who has to transact business largely with cash, this is scary.
The controversies surrounding these past two CBN policy moves are still in the public domain and many have wondered whether the apex bank took time to do its homework before embarking on these projects. This line of thought is not surprising since in recent times, the CBN has been in the news for the wrong reasons. It is not surprising given that under the watch of Godwin Emefiele as CBN governor and with the tacit approval of President Muhammadu Buhari, the policy framework on the management of the naira has been by and large, a gross failure. This is so since, under the watch of these two, the value of the naira has plummeted from N197 to which it exchanged to a United States Dollar in 2015 to over N700 in the foreign exchange parallel market. In addition, under their watch, the CBN failed woefully in its primary function of price stability since the single digit inflation rate they met in 2015 is now over 20 per cent and still worsening. Real incomes have fallen drastically for all economic agents especially for the fixed income earners. The worst of the controversies coming from the CBN was the very frightening moves of Mr. Godwin Emefiele to vie for the Office of the President under a political party whilst still holding unto his position as CBN governor. This is a taboo for Central Bank governors globally. These series of controversies from the Emefiele-led CBN has cast doubt on the genuineness of these latest policies emanating from the apex bank to the extent that many have called for a revisit of the two policies, particularly, if the development of the banking system and the growth of the Nigerian economy is anything to go by.
In addressing the merits and demerits of the latest CBN policy on cash withdrawal limits it would be opportune to identify the key tenets of the policy itself. As indicated in the letter dated December 6, 2022 addressed to all Deposit Money Banks and Other Financial Institutions, Payment Service Banks (PSBs), Primary Mortgage Banks (PMBs) and Microfinance Banks (MFBs) and signed by Mr. Haruna Mustafa, its Director of Banking Supervision, the CBN clearly indicates that these cash withdrawal limits are real. The policy states that withdrawals above the thresholds would attract processing fees of five per cent for individuals and 10 per cent for corporate organisations and that third party cheques above N50,000 shall not be eligible for OTC payments. The CBN policy also hits an area very dear to the heart of virtually every Nigerian particularly those in the urban areas, namely the use of the ATM.
In this regard, it pegged the maximum cash withdrawal per week through the ATM at N100,000 subject to a maximum of N20,000 cash withdrawal per day and that only N200 denomination and below will be loaded into the ATMs. Why the choice of N200 for dispensing at the ATM? Would that not make transactions at ATM points bulking in cash handling? The policy also specified that at the Point of Sale (POS) terminals, the limits of N20,000 cash withdrawals per day would be set. It stated that it is only under compelling circumstances that the prescribed limits can be exceeded but not above N5 million for individuals and N10 million for corporate organisations maximum of once a month. Aside from advising bank customers to use alternative channels such as internet banking, mobile banking apps, USSD and eNaira among others for their banking transactions, the apex bank also warned that financial institutions that aid and abet the circumvention of the new policy would be severely sanctioned. All these would need to be re-evaluated.
In all these, the basic question that comes up is what could have been the motive of the CBN in embarking on this policy at this time? Is it because of the usual infractions and vote buying practices that could manifest in the forthcoming General Elections in February 2023? Indeed vote buying has been an emerging negative development in Nigeria’s electoral process. If that is the benefit that could emanate from the policy, it could be worth it in the short term. In that case, it could be sustained up to the period after the elections. Otherwise, the negative consequences are overwhelming in the medium term and thus need a further interrogation in its implementation. Or could it be the need to further facilitate the implementation of the cashless policy which was vigorously pursued by the CBN prior to 2014, under the watch of Sanusi Lamido Sanusi as Governor? These puzzles have led to the assertion in some quarters that the CBN might not have done a thorough job in evaluating the possible implications of the policy on the Nigerian society.
Currency as a component of money supply in developing countries is generally huge and money supply as narrowly defined is still significant in Nigeria. Most of the transactions in the economy, especially in the large informal sector of the economy are usually consummated in cash. With the low level of financial inclusion such that so many persons are not operating within the banking system particularly in the rural areas, embarking on a forced cashless mode of making payments may have devastating effects on the lower rung of society where the incidence of poverty is gravely overwhelming.
How does the CBN expect the akara or bean cake seller to operate without dealing in cash, at least in the immediate and short term? Same goes for the tyre vulcanizer, groundnut seller or those dealing in tomatoes, garri, beans and so many other basic food items who largely transact in cash. If cash withdrawals are limited to N100,000 per week, how would payment for these basic commodities be facilitated? In as much there has been improvements in the enhancement of financial inclusion among the lower rungs of society, the plan to enhance a cashless economy should be pursued gradually. Even in advanced economies, like the United States of America, cash transactions are still predominant at the lower echelons of their society.
The new CBN policy on cash withdrawal limits would most likely create unemployment among the POS money agents given that on many occasions, the POS does not work always, primarily due to the poor state of the enabling technical infrastructure of internet connectivity, among others in the completion of payments for transactions. This poor state of technical infrastructure to support the policy of enhancing cashless transactions could be one of its setbacks.
Given the way the CBN has configured the policy, especially in present day Nigeria, the rural and even the urban areas may experience low level of transactions, at least in the short term. The negative fallouts of the policy are thus enormous which may override the little enhancement of cashless transactions among those already operating cashless in their payment transactions. What it appears to be presently is that the CBN is embarking on a forced cashless transaction policy which is counterproductive.
The promotion of cashless policy should be gradual. Even though the recent currency redesign may force money back to the banking system and new cash withdrawal limit policy presumably shutting the door against cash outflow from the banking system, the outcomes may not turn out as intended. It is advised that the Central Bank of Nigeria should revaluate this policy and possibly reverse it with some modifications for a re-introduction for a gradual promotion of its cashless policy project. If the discouragement of vote-buying in the 2023 General Election is its focus, then it could be sustained till after the elections and reintroduce with substantial modifications as outlined above.