Sequel to the pronouncement on December 6, 2022, the Central Bank of Nigeria’s cash withdrawals policy has taken effect today.
In apparent compliance notices to customers, yesterday, banks stepped up sensitization, urging customers to comply with the apex bank’s directive.
Meanwhile, economists have cautioned that the move may slow trade transactions and by extension, the economy.
What the experts are saying: Reacting to the takeoff of the policy, Peter Ezeibe, an economist at Capital Trust, said the new policy will slow the flow of transactions in the economy, which will in turn slow economic growth.
According to him, Nigeria is a cash-based economy, and the growth of the economy has been based on that in all of its modern histories. He added that the switch to a cashless economy is relatively sudden, and would disrupt the free flow of trade.
The CEO of the Center for the Promotion of Private Enterprise, Dr Muda Yusuf, also raised concerns with the policy. According to him, the aim of the CBN for implementing the policy does not quite suffice because the cash in the system is just about six per cent of the money supply in the system.
“So, if you have just six per cent of cash outside the system, it means 94 per cent of the money in circulation is still within the banking system,” he said.
He added that there is another measure of the adequacy of cash in an economy, which is called cash dominance in an economy, where you compare your cash to your GDP because you need cash to support the economy. He said:
“Cash to GDP in Nigeria is 1.8 per cent, while cash to GDP in many advanced countries is between 5 and 10 per cent. Hence, when you relate the cash in the Nigerian economy to GDP, it is nothing to worry about.”
He then stressed that as of today much of the transactions carried out in Nigeria are done by transfer.
He also queried that people say 80 per cent of cash is outside the banking system, noting, where is it supposed to be? He also noted that it is the money supply that influences monetary policy and inflation.
Yusuf said as of October money supply in Nigeria was about N50 trillion, and the cash component of the money supply is about N3.3 trillion. He stated that in terms of cashless transactions Nigeria has made more progress than many countries, stressing that the policy is the least of Nigeria’s problems.
Yusuf said it’s a non-issue, a distraction, and a waste of the country’s resources and time. He said the vast majority of Nigerians are already doing cashless transactions; it’s a small minority of Nigerians using cash, especially in rural Nigeria, who should be left alone. He said it will disrupt the economy of rural Nigeria, as it seems there is a gross underestimation of the rural economy.
He said the cashless policy is not going to improve, but instead, slow down the economy, stressing that it is completely unnecessary because it will affect the velocity of transactions as the informal economy constitutes a large part of the economy. He said the distribution space of the economy is about 16 per cent of GDP, which is more than N20 trillion, and may be disrupted as a consequence of the cashless policy.
He cited that occasionally there are issues with the transfer of cash due to poor network, stemming from poor infrastructure. He said there is very little value the limited withdrawal and naira redesign will add to the economy.
“If anything, it’s going to impede the growth of the economy,” he said.
More concerns from experts: Also reacting, Professor Murtala Sabo Sagagi of Dangote Business School, Bayero University, Kano, said the cashless policy is a welcome development. However, the following are worth considering:
Bank charges on every transfer: The elites will not feel it but it’s a big concern to low-income earners.
Account maintenance and alert charges apply in most banks and these reduce people’s balances.
Security of accounts: Because the Yahoo Boys are ahead of the banks, not many people will put all their accounts on the cloud; in many remote locations, it’ll take time to be covered by e-services.
Therefore, CBN needs to reflect these realities in its approach. Otherwise, people will be forced to keep cash even if they don’t need it.
Meanwhile, the CEO of Anthill Concepts, Dr Emeka Okengwu, said Nigeria is a transactional economy, not a productive one, as many of the goods traded in the country are imported, not produced. He noted that the rural economy is not adequately captured in the banking loop, which may pass to some extent as an underground economy.
He, however, noted that the CBN did not say they are adopting a 100 per cent cashless policy; and by the mere fact that the apex bank has bulged by increasing the weekly withdrawals to N500,000 per week, it cannot be said that such a system is cashless, which means the purpose of cashless policy has been defeated. He considered the exercise work in progress.
Under the policy, individuals can only withdraw a maximum of N500, 000 while corporate organizations can draw N5 million cash per week.
Also third-party cheques above N100, 000 are no longer eligible for payment over the counter. They would henceforth be paid into bank accounts.
However, the policy states that if there is a compelling reason to withdraw cash above the stipulated limits, such requests shall be subject to a processing fee of three per cent and five per cent for individuals and corporate organizations, respectively.
The cash withdrawal limits represent a 400% adjustment from the N100, 000 and N1 million initial limit announced by the CBN in its December 6, 2022 circular.
Under the policy, before making withdrawals above the stated limits customers are required to submit: Valid means of identification of the payee (National ID, International Passport, or Driver’s License); Bank Verification Number (BVN) of the payee; Tax Identification Number (TIN) of both the payee and the payer; Approval in writing by the MD/CEO of the financial institution authorizing the withdrawal.
