Merits, demerits of CBN’s N20,000 daily cash withdrawal limit, by experts

From Uche Usim, Abuja and Chinwendu Obienyi, Lagos

The dust raised by the Central Bank of Nigeria’s (CBN);s decision to peg the over-the-counter weekly cash withdrawal for individuals and corporate entities at N100, 000 and N500, 000, respectively, is yet to settle.

The policy, which took the public by storm, has continued to elicit varied reactions among the community of economic experts.

While some have hailed the new rule as it seeks to fortify the e-commerce ecosystem, others have lampooned the banking sector regulator for what they described as a ruinous move considering the peculiarities of the Nigerian clime.

The apex bank also directed that only N200 and lower denominations should be loaded into banks’ Automated Teller Machines (ATMs).

According to the memo, the maximum cash withdrawal per week via ATM should be N100,000 subject to a maximum of N20,000 cash withdrawal per day.

Weighing in on the matter, Nigeria’s first professor of capital markets, Prof Uche Uwaleke told Saturday Sun that 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, 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“If depositors of old currency notes are able to exchange them for new naira notes which get withdrawn from the banks, then the primary aim of currency redesign is defeated.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,” he said. For analysts at Nairametrics, the policy is part of a broader strategy for the CBN to control FX demand.

“Our thesis suggests this policy finds its root in the Central Bank’s fixation on the exchange rate. From the days of banning 41 items to banning cryptocurrency transactions and curbing forex outflows, the focus has been on solving the forex challenges,” they said. Okwuchukwu Anuforo, a dealer in building materials at Ajah, said the policy will make life difficult for many Nigerians given the poor state of connectivity in the country.