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By Amechi Ogbonna
In line with the Central Bank of Nigeria (CBN) directive on redesigning of three higher denomination currency notes, commercial banks on December 15, 2022, began dispensing the new N200, N500, and N1000 naira notes to their customers across the country.
The new notes were dispensed over-the-counter alongside the old ones in most commercial banks amid complaints of supply shortages in new notes in several locations.
There were reports of hesitance among some segments of the Nigerian business community in accepting the new notes as a means of exchange especially on the first of its flag off. But, while the reported incidence of rejection of the new notes were not widespread, it still raises questions about the public enlightenment mechanism of the apex bank in driving communication around the redesigned naira.
With logic as the science of formal principles of reasoning, it does appear that so far, many Nigerians especially at the grassroots are yet to buy into the apex bank’s rationale for implementing the policy initiative.
This is more so because over the last few weeks, effort at understanding the real intentions behind the Central Bank of Nigeria’s cashless policy as expressed in the redesigning of the national currency and the curbs on withdrawals for corporate and individual account holders have continued to generate a whole lot of arguments among various political and economic stakeholders.
The symbolism of such debates remains the fact that most of the dramatis personae have agendas that appear markedly at variance with the national objectives of allowing fewer wads of the naira in the hands of individuals to achieve certain broad macro economic objectives, seeing doing otherwise and allowing more money outside the banking vaults had always negatively impacted the nation’s monetary policy objectives.
Since informing Nigerians of the absurdity of leaving an estimated N2.7 trillion of N3. 3trillion of total money in circulation outside the banking system, several economists have seen everything wrong in such practice hence their support for the CBN’s redesign of the naira including the setting up of withdrawal limits for individual and corporate customers, amidst the multiplicity of market- facing alternative channels that often come cheaper and with more efficiency.
As explained in its policy statement, the dangers of carrying or transacting with huge amounts of cash in a highly insecure environment like ours are too grave to be contemplated.
A thorough analysis of traffic, household robberies and burglaries in cities and rural communities in recent times show that most of such nefarious activities are more prevalent in locations where victims carry large sums of cash in preference to use of alternative channels.
This was recently attested to by the Chairman of the Senate Committee on Banking Insurance and Other Financial Institutions, Senator Uba Sani, while presenting his committee’s report to the Red Chamber, who argued that the planned Cash Withdrawal Limits were well conceived by the CBN to transform the nation’s economy and falls within its mandate as provided for in section 2(d) and 47 of its extant Act.
According to him, implementation of the Cashless policy in six states alone resulted in reduction in the cost of currency management by 15.20 percent from N36 97 billion to N31.35 billion between 2013 and 2014.
Senator Sani, however noted that the trend of cost reduction reversed in 2014 following the suspension of cash deposit charges in the six states, as currency handing cost suddenly rose by 17.20 percent between 2014 and 2015.
According to the lawmaker, cost of currency management has been on the increase since then, hitting N47.25billion in 10 months to October 2022.
But a deeper contention among other lawmakers that the N100,000 and N500,000 limits are incongruent with the size of Nigeria’s burgeoning informal economy had compelled the Senate leadership to demand a further oversight of the apex bank by lawmakers.
Their key argument was that a large proportion of the nation’s informal sector especially those within the Nano-economy and SMEs who transact with more than N100,000 and N500,000 daily or weekly would be affected by the CBN limit, hence their call for further upward review of the limit.
But in his reactions to the issue at stake, Dr Muda Yusuf, Founder and CEO, Centre for the Promotion of Private Enterprise (CPPE) observed that currency in circulation as at October 2022 was N3.3 trillion, out of which N2.7trillion was outside the banking vaults, stressing there was nothing abnormal about that.
He said “Currency in circulation is meant for cash transactions and 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”.
According to him, 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 percent of money supply. Currency outside banks as a percentage of total money supply is even less- 5.5percent.
Yusuf also noted that currency as a percentage of GDP is a mere 1.8 percent, stressing that even in 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.” he said. He therefore contended that 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 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 Nigeria’s GDP. According to Dr Yusuf, 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.
He further warned that some of the informal sector operators may begin to avoid the banking system entirely, even as he said this could also be an infringement on the fundamental rights of the unbanked Nigerians.
He concluded “The CBN needs to think through this policy properly to avoid creating more problems than it sets out to solve.”
For his part, Chief Daniel Dickson-Okezie, Chairman, SMEs Group, Lagos Chamber of Commerce and Industry (LCCI)… said the policy aims at contributing to the economic growth and development of the economy.
It will stem the high cost of currency management, such that the amount of money being spent by the CBN in managing large cash from the point of production to movement of cash will be reduced.
The policy will also help the CBN have a better regulation and control of the amount of money in circulation and to some extent also deal with inflationary tendencies..
It will help to check the movement of cash for rigging elections considering the fact that we are some days away from the 2023 elections. Nigerian politicians are known to use large amount of money to perpetrate electoral violence. I will also like to add that with this policy, access to cash for ransome payment to kidnappers, bandits and all manner of criminals who find it more convenient to operate in cash will be a bit difficult.
Again, money launderers activity will become more difficult since it will not be easy to move the proceeds of curruption and drugs..
It will also help to reduce the rate of physical abuse of the naira, in terms of amount of cash people spray at parties who will be reduced going forward.
(Some people have however argued that Nigeria is not ripe or technically equipped to push the cashless policy further; but this is far from the truth. If we wait until Nigeria’s technology is perfect, we will never move as we have seen in the past 10 years. The way forward is to improve our technology along side our cashless system.) Qoute
“Some have also argued that the withdrawal limits are small; well there are other options provided by the CBN guidelines for those who need more cash. So, this policy is a welcome exercise that will go a long way to assist Nigeria’s economy.”
Also commenting, Dr. Nathan Owhor, a political economist admitted that the Nigerian economy is largely peasantry and cash driven as a higher population of very low income traders and artisans in both the rural and urban areas pleasantly supports a cash economy.
Consequently, the #100, 000 withdrawal limit for individuals per week will ultimately hurt the domestic economy. The volume of buying and selling will surely be slowed down because most people will not have enough cash to meet their needs. Clearly, most traders in the weekly and daily markets cannot sufficiently sell thereby increasing the rate of poverty and hunger in the society.
The local markets deal largely with fresh vegetables and other perishable food items. The low volume of sales will further increase the proportion of food waste in the economy and further put pressure on poor Nigerians. This is made worse by poor public power supply.
The policy will therefore bring untold hardship on many Nigerians. The government should first seek ways to enhance the capacity of Nigerians, reduce illiteracy and increase access to cash wallets before pursuing a cashless policy as is the case in other developed and developing societies.
In his reaction, Dr Frank Onyebu, Chairman, Manufacturers Association of Nigeria (MAN), Apapa branch argues that policy was not out of place, stressing it was in fact a welcome development based on the information provided by the CBN regarding massive hoarding of the Naira. “The fact that a very large percentage of our currency is outside the banking system is a cause for concern. No responsible government would allow that to continue. I therefore totally support the redesign of the Naira bills. I also believe that the time frame is adequate. It doesn’t take months for someone to deposit cash into the bank. I believe that anyone who has been stockpiling humongous amount of currency for whatever purpose deserves the consequences of their actions. Such actions shouldn’t be handled with kid gloves.
I’m also in support of putting a cap on cash withdrawal limits. We need to gradually move away from cash transactions. The keyword here is gradually. I think the government should have graduated the slash so that Nigerians would slowly adjust.
Looking at things from government perspective, the drastic changes could be said to be economic. The cost of printing new notes isn’t cheap. The government would definitely be overwhelmed if they attempt to print enough bills to the satisfaction of Nigerians. Besides, the limitations could be an attempt to limit political spending in this election season. Vote buying would definitely be reduced by the new policy.
Nigerians would ultimately need to adjust to CBN’s cashless policy because that’s where the whole world is moving to. The government would, however, need to ensure the ease and safety of transactions.
