The Central Bank of Nigeria from time to time formulates policies in order to promote stability, continuity in economic management, and ensure that the CBN smoothly carries out its primary functions. It is to this end that the CBN has introduced various financial policies, such as the redesigning of the Naira and more recently, the policy to limit cash withdrawal at N100,000 and N500,000 per week and for individuals and corporate bodies respectively.
The CBN through a memo issued on December 6, 2022, and signed by its Director of Banking Supervision, Haruna Mustafa, directed banks and other financial institutions to uphold the cash withdrawal limit. This places the withdrawal limit for individuals at 20,000 Naira per day and for corporate entities at 100,000. This policy follows the launch of the redesigned ‘200’, ‘500’ and ‘1000’naira notes aimed at checking inflation, counterfeiting and corruption. Furthermore, the CBN states that it was propelled to redesign the Naira because of the high volume of cash outside the banking system.
Through its cash withdrawal limit policy, to be implemented from January 9, 2023, the CBN aims to discourage the hoarding of local currency. Other reasons which the CBN cites for the limit on withdrawals are enhancing digitization, improving the awareness and use of the e-naira and preventing vote buying during the coming 2023 elections. According to the CBN, redesigning the Naira was a forerunner in its grand plan for a cashless economy and the imposed cash withdrawal limit is the next step to Nigeria’s future cashless economy.
This policy has met with a lot of critiques and there are divergent views on the effect of the policy and its efficacy in achieving the CBN’s goals.
For one, Ayodele Akinwunmi, Relationship Manager, Corporate banking at FSDH Merchant Bank, concurs that “it is another step to drive the cashless economy agenda of the CBN”.
However, Abiola Rasaq, Head of Investor Relations at the United Bank for Africa Plc, says that the policy will further constrain commerce and inadvertently undermine activities in the informal sector. For him, it is important that the CBN considers the low literacy and poverty levels in the country and adopt a holistic cashless policy.
Furthermore, Taiwo Oyedele, Head of Tax and Corporate Advisory Services at PriceWater House Coopers, said “it is clear that the CBN is trying to drive a cashless economy by placing stiffer restrictions on cash withdrawals. However, a more effective strategy could have been [used] to enhance the cashless economy infrastructure [in a way that] removes or significantly reduces the challenges and irritations that people experience when transacting using electronic payments”.
Following the cash withdrawal limit policy announcement, the CBN governor, Godwin Emefiele, was summoned by the House of Representatives with a view to making the CBN suspend the policy. The decision to summon Emefiele followed a motion of a matter of urgent public importance moved by Aliyu Magaji, a member of the House, on Thursday, December 8, 2022, during plenary. In the motion, Magaji said small businesses, which are the major drivers of the economy, depend on cash for transactions. He added that the owners of these businesses are going to be negatively impacted by this policy.
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The Speaker, Femi Gbajabiamila, said he will interface with the President of the Senate, Ahmad Lawan, on a possible joint session. According to him, “if you want to comply with the Act, ordinarily he should be appearing before the whole National Assembly. I think you will allow me to speak to the Senate President and see whether, in compliance with the Act, we can have a joint session”.
However, the Senate Committee on Banking, Insurance and other Financial Institutions, during the screening of the CBN Deputy Governor on Financial System Stability, Aishat Ahmad and Deputy Governor on Corporate Services, Edward Lametek Adamu, backed the policy when they were overwhelmingly convinced by the duo. Both Ahmad and Adamu, were recently reappointed by President Muhammadu Buhari who requested the Senate’s screening and confirmation for their second and final tenure at the apex bank.
This policy has met with a lot of critique and there are divergent views on the effect of the policy and its efficacy in achieving the CBN’s goals.
Seriake Dickson, a member of the Senate committee and the only member who seems to be against the policy stated that the policy is coming at a time when Nigeria has other issues to grapple with such as insecurity and high cost of living and the focus of all government agencies should be to alleviate these issues and not compound them.
As it stands, then, the effort by the House of Representatives to summon the CBN governor at a joint session with both houses may not yield results, as the CBN Governor may only be summoned by the National Assembly.
The arms of government follow a strict separation of power as detailed in the Constitution. However, the National Assembly, that is, both the Senate and the House of Representatives may summon the CBN Governor. Such summons is in line with section 88 (1) (b) of the Constitution which is to the effect that the National Assembly shall have the power by resolution published in its journal or in the official gazette of the Government of the Federation to cause an investigation into the conduct of affairs of any person, authority or ministry or government department charged or intended to be charged with the responsibility for executing and administering laws enacted by the National Assembly and can summon any person in Nigeria, including the CBN Governor for this purpose.
However, it is unclear what this summons, if successful, would achieve given that such powers are only exercised to make laws or to correct any defects in existing laws and to further expose corruption, inefficiency or waste in the execution or administration of laws within its legislative competence. Section 88 (2) of the Constitution states that the powers to conduct an investigation are specifically granted for the purposes of enabling the National Assembly to make laws with respect to any matter within its legislative competence, to correct any defects in existing laws and to further expose corruption, inefficiency or waste in the execution or administration of laws within its legislative competence. So, outside of these reasons, there are no legal grounds for summoning the CBN Governor. This means that the National Assembly, by law, cannot compel the appearance of the CBN governor to push for the suspension of a CBN policy.
The CBN Act 2007 clearly provides that the CBN is a fully autonomous body in the discharge of its functions under the Act and the Banks and Other Financial Institutions Act with the objective of promoting stability and continuity in economic management, thus, it is independent of all organs of the government in the discharge of its duties
Furthermore, under the CBN Act, there are three issues for which the CBN can seek external authorization, and only from the President of Nigeria: any alterations to the legal tender (the Naira); any investment of the Bank’s funds outside Nigeria; and the Bank’s annual report. For example, when the policy to redesign the Naira was introduced, the Presidency confirmed that the CBN Governor obtained approval before altering the Naira.
Outside of these, the only approving authorities for CBN operations are its Committee of Governors consisting of the CBN Governor and the four Deputy Governors and the CBN Board of Directors which includes the Governor, the four Deputy Governors, and 7 external members including the Permanent Secretary of the Federal Ministry of Finance and the Accountant-General of the Federation.
Section 1(3) of the CBN Act provides for the independence of the CBN. In order to facilitate the achievement of its mandate, under the CBN Act and Banks and Other Financial Institutions Act, and in line with the objective of promoting stability and continuity in economic management, “the Bank shall be an independent body in the discharge of its functions”.
The CBN has the primary mandate to: ensure monetary and price stability; issue legal tender currency in Nigeria; maintain external reserves to safeguard the international value of the legal tender currency; promote a sound financial system in Nigeria; and act as Banker and provide economic and financial advice to the Federal Government. Consequently, the Bank is charged with the responsibility of administering the Banks and Other Financial Institutions Act 2020 with the sole aim of ensuring high standards of banking practice and financial stability through its surveillance activities, as well as the promotion of an efficient payment system.
The law also gives power to the CBN, through its Board of directors, the power to make rules and regulations for itself. The Board is established under section 6(1) and is responsible for the policy and general administration of the affairs and business of the CBN. Section 51 states that the Board shall have the power to make and alter rules and regulations for the good order and management of the CBN. This means that the CBN makes its own rules. More so, neither the Federal Government nor the bank nor any officer of the Federal Government or Bank shall be subject to any action, claim or liability to any person in respect of anything done or omitted to be done in good faith in pursuance or in the execution of a power conferred upon the Bank by the Act.
Nevertheless, the National Assembly may stop the policy by passing an Act specifically removing withdrawal limits or other similar effects. The National Assembly may introduce mandatory frameworks, steps or requirements that must be met before such policies may be introduced in Nigeria. Failure to follow such frameworks, steps or requirements may lead to such policies being invalidated by a court order.
However, we note that this is unlikely to be effective in this instance, as the legislative process for passing an Act is quite lengthy and ordinarily requires the assent of the President, and it is almost a certainty that the President will refuse to grant his assent to such a proposed Act since the CBN’s policies have been backed by the President.
The CBN has not been ultra vires in its policies, however, its timelines for announcing and implementing its policies have been regarded as arbitrary. For instance, the Naira redesign policy was announced only three months before its implementation date when global best practices indicate a minimum of 5-10 years for successful implementation.
Again, critics of the cash withdrawal limit policy say that its mode of implementation will exclude certain categories of persons, thereby whittling down the CBN’s efforts at financial inclusion. They argue that Nigeria is still a largely informal economy with a lot of people relying on cash for daily transactions. According to a 2021 report by BusinessDay, 38.1 million Nigerians out of the country’s 106 million adults (36% of the population) remain completely financially excluded. This means that these persons do not have access to basic services like a savings account, credit or insurance and will be unable to carry out basic cash transactions due to the current policy because there isn’t sufficient cash in the system.
It is important that the CBN gives enough time for sensitization, awareness and proper implementation of its policies and the knowledgeable participation by stakeholders.
