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Naira redesign, cash withdrawal limit and implication on the Nigerian financial economy

Naira notes swap may leave unbanked Nigerians worse off – Report

The Central Bank of Nigeria (“CBN/ Regulators”) in its circular to all Deposit Money Banks and Other Financial Institutions, Payment Service Banks, Primary Mortgage Banks and Microfinance Banks (the “Banks”) BSD/DIR/PUB/LAB/015/073 dated December 21, 2022, and in line with its cashless policy are directed to comply with the following directives amongst

(1) The maximum cash withdrawal over the counter (OTC) by individuals and corporate organizations per week shall be limited to N500,000 and N5,000,000 respectively and withdrawals above these limits will now attract processing fees of 3% and 5%, respectively, and (2) Third party cheques above N100,000 will not be eligible for payment over the counter, while extant limits of N10,000,000 on clearing cheques will subsist (the “Directives/Circular”).

These Directives took effect nationwide from January 9, 2023 (“Withdrawal Deadline”) and was an amendment to a similar directive on withdrawal limit dated December 6, 2022, and introduced by the Regulators. The Regulators have argued that these Directives will augur well for the Nigeria Economy considering that more monies are not within the control of the CBN. Flowing from this, it is expedient to critically analyse the impact of the Circular on the Nigeria financial economy and possible solutions to ensure that the economy is secured whilst the Naira reforms are ongoing.

In the past, the CBN has consistently echoed that Nigeria is battling with crunching inflationary rates since post-COVID. The butchering inflation in Nigeria has made the CBN through the Monetary Policy Committee increase the Monetary Policy Ratio (MPR) from 15.5% to 16.5% on November 22, 2022, barely a few months after the initial change of the rate. This increase was surprisingly coming at the back of the announcement by the CBN on October 26, 2022, of their intent to redesign the Naira which had seen the 1000, 500, and 200 Naira notes redesigned and in circulation from December 15, 2022. The Regulators had also informed the general public that from January 31, 2023, (the “Deposit Deadline”) the old Naira notes will stop being a legal tender in Nigeria.
Accordingly, it is claimed that global best practice permits central banks to redesign, produce and circulate new local legal tender every five to eight years and the last time the Naira was redesigned was in 1984. The Regulator as the driving force for the redesign of the Naira cited concerns of “Illicit funds in circulation, which it said bandits and kidnappers had been exploiting in perpetrating their crimes as the major aim for the redesign”. The CBN Governor, Godwin Emefiele had also opined that “members of the public were hoarding banknotes, with statistics showing that over 85 per cent of the currency in circulation are outside the vaults of our commercial banks. To be more specific, as at the end of September 2022, available data at the CBN indicated that N2.73 trillion out of the N3.23 trillion currency in circulation was outside the vault of commercial banks across the country and supposedly held by members of the public”. Thus, this is a clear reason why the CBN set a withdrawal limit on the Naira. In practice, allowing a large chunk of the Naira to be hoarded does not augur well for the financial economy and is seen as economic sabotage and should scare every concerned Nigeria about the health of the currency being in circulation. Reiterating this argument, some analyst has opined that CBN was compelled to redesign the Naira because of the prevailing level of the security situation in the country, especially cases of terrorism and kidnapping with perpetrators holding a large volume of money outside the banking accumulated as a source of funds for ransom.” This is tenable considering that terrorism and ransom money are usually done by cash transfer, and any effort by the CBN to reduce this illegal outflow of cash will help further checkmate the security concerns and make the act unattractive as the wired transfer can easily be traceable.

Read also: Withdrawal limit: PoS operators task CBN, telecoms coys on uninterrupted service
Therefore, by giving the Naira a makeover within the timeframe stipulated by the CBN and given the existing laws around depositing cash in banks, it is believed that unscrupulous individuals keeping Naira notes will be forced to deposit these notes in the banks or forfeit their ill-gotten wealth. Muda Yusuf did not see the redesign proposal as positively impacting the monetary policy. He noted that “It’s a big distraction, it’s going to impose lots of costs on the economy, it’s not going to be cheap, we are talking about printing N3.3 trillion currency notes”. However, if the process of implementation is properly managed by the CBN, the practical application might become seamless and would have less implication on the population.
Since the Regulator’s intention is to encourage the growth of the digital economy in Nigeria by ensuring that there are fewer Naira notes in circulation, this will encourage more transactions to be done through other virtual payment platforms. Thus, if the CBN’s intention of checking financial insecurities and the deployment of the digital economy is a driving factor for the redesign and setting a withdrawal limit on the Naira, then the CBN’s willingness to carry on the Naira reforms is a welcoming and a very courageous call to checkmate excess funds in circulation. It will also thwart the circulation of counterfeit money, checkmate inflation, reduce crime, and hoarding of money by politicians and fraudulent individuals. However, if after the implementation of the Directives by the CBN and there is no reduction in financial crime, inflation and counterfeiting, it will mean that the Naira Regime will create more hardship for the populace and may further drive Nigeria to the challenges that lead to the roll-out of the Directive and other CBN Regulations.
Furthermore, Nigeria’s financial economy is highly heterogenous and at its nascent stage, it would appear that many people would lose money due to the Withdrawal Deadline where it would be impracticable to deposit at the banks on or by the Deposit Deadline. According to Yusuf, “There will be lots of long queues in the banking hall. It’s going to create lots of inconveniences for the people. The unbanked and the elderly may not be able to cope since we don’t have banks in most local government areas,” since the CBN has to set the withdrawal limit to kickstart from January 9, 2023, and at the same time stop the receipt of old Naira notes on January 31, 2023, I have the opinion that it will create more harm than good in the informal sector and rural dwellers. This is because there is the unavailability of financial education in Nigeria, most especially at the rural level and many commercial banks do not have branches in those rural areas and the services of microfinance banks and cash collection centres may not be readily available to serve their purposes. This will have an impact on the acceptability and adaptation to spending the new Naira as rural dwellers may not be able to swap the old Naira notes with the new Naira Notes before the Deposit Deadline. Consequently, non-accessibility to cash collection centres will push people to prefer to have unrestricted access to their funds as opposed to a restriction on the withdrawal limit which will affect their spending and purchasing power.

Nonetheless, the restriction of the withdrawal limit of the new Naira note will create opportunities in the Financial Technology (“Fintech”) space. However, illiteracy and lack of technology knowledge by some Nigerians will impact this. It was reported by Daily Post Newspaper on October 13, 2022, that Nigeria has about 30% rate of illiteracy rate. This is a frightening statistic considering that the attempt to place a withdrawal limit will trigger the boom of Fintech which is accessed through the web on a smart mobile phone or a computer device. The use of these devices will be helpful in pushing the implementation of the Directive; however, it will be antithetical to some users, going by the rate of illiteracy in Nigeria and it will be difficult for people to adopt the use of Fintech/ web or phone platforms to access their account details and service their financial obligation where the withdrawal limit runs out considering their limited knowledge of the use of same.

The inability to use any of the Fintech platforms will mean that monies belonging to vulnerable citizens might become useless after the deadline as they might be unable to deposit the same before the Deposit Deadline. This will adversely affect the masses and legitimate traders and will serve as a stumbling block to the rollout of the new Naira and in turn affect the intention of the Regulators. Thus, concerted efforts by the Regulators and the general public to ensure that the rural dwellers and informal bankers are enlightened on the rollout of the new Naira notes and withdrawal limit and possible ways of not ostracising them from the financial economy once the implementation kicks in. It is therefore suggested that a thorough and aggressive sensitization of the products should be embarked upon and mini banks or cash collection centres should be set up across the length and breadth of Nigeria to mop up funds. Again, the deadline for the withdrawal limit can be extended to the middle of the year 2023. This extension will give ample time for the setting up of mini banks, and cash collection centres and sensitization on the usage of the virtual payment systems.

Further, the sensitization by the Regulators on the new Naira notes should be thoroughly carried out and extended to the nooks and crannies of the country to ensure the acceptability and use of the new notes, most especially as most rural dwellers and financially disadvantaged users may see it as a foreign, fake and counterfeited notes dapped in new colour and this perception may affect the spending of the currency notes.

In conclusion, if well implemented and accepted, the CBN’s decision to issue new Naira notes will reduce counterfeits, bring the unbanked into the system, and address inflation and money supply. However, if not properly handled, the fate of the Naira and the Nigerian economy will be in a precarious state, especially for participants in the informal sector. There can be cash shortage and money supply and the CBN must identify with the concerns of all stakeholders particularly on issues of extension of time, sensitisation of the populace, and roll out of an effective alternative channel for unbanked Nigerians to seamlessly transit from using the old currency notes to the new currency ones.
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Noble Obasi is a Senior Public Trust Officer at Emerging Africa Group