Cash Withdrawal Limits and CBN’s Drive to Enforce Cashless Policy
James Emejo writes that the Central Bank of Nigeria’s cap on cash withdrawal is a well-thought-out initiative that would unlock numerous benefits for individuals and the economy in general.
There had been mixed reactions following the CBN’s introduction of the revised cash withdrawal limits on December 6, 2022, following its recent currency redesign project.
While some regard the initiative as a political witch-hunt, others have applauded it as a strategic move towards addressing the endemic issues of corruption in the system, and a step in the right direction in responding to the security challenges bedevilling the country as well as a commendable initiative towards helping the country to achieve its cashless policy targets and formalising the huge informal sector, among other benefits.
If anything, the CBN’s cashless policy is geared towards safeguarding the interest of Nigerians as represented in the bank’s Five-Year Policy Thrust (2019 – 2024) which was launched by the CBN Governor, Mr. Godwin Emefiele at the inception of his second term in office.
Emefiele had assured Nigerians repeatedly that the central bank under his leadership will be people-oriented by ensuring that its policies are in their general interest.
New withdrawal regime
Under the new dispensation, the central bank restricted the maximum cash withdrawal over the counter (OTC) by individuals and corporate organisations per week to N100,000 and N500,000 respectively.
The apex bank had in a letter dated December 6, 2022, and addressed to all Deposit Money Banks, and Other Financial Institutions, Payment Service Bank (PSBs), Primary Mortgage Banks (PMBs), and Microfinance Banks (MFBs) and signed by CBN Director, Banking Supervision Department, Mr. Haruna Mustafa, stated that withdrawals above these thresholds will attract processing fees of 5 per cent and 10 respectively for individuals and corporate entities going forward.
In addition, third-party cheques above N50,000 shall not be eligible for OTC payment while extant limits of N10 million on clearing cheques still remain. The new withdrawal regime further pegged the maximum cash withdrawal per week via Automated teller Machine (ATM) at N100,000 subject to a maximum of N20,000 cash withdrawal per day.
Also, only denominations of N200 and below shall be loaded into ATMs while the maximum amount that can be withdrawn via Point of Sale (POS) terminal was limited to N20,000 daily.
The central bank, however, provided that in compelling circumstances not exceedingly once a month, where cash withdrawals above the prescribed limits is required for legitimate purposes, such withdrawals shall not exceed N5 million and N10 million for individuals and corporate organisations respectively, and shall be subject to the referenced processing fees.
This will be in addition to enhanced due diligence and further information requirements, the apex bank stressed.
The CBN further noted that monthly reruns on cash withdrawal transactions above the specified limits should be rendered to the Banking Supervision Department while compliance with extant Anti-Money Laundering/CFT regulations relating to KYC, ongoing customer due diligence, and suspicious transaction reporting among others is required in all circumstances. The bank also encouraged bank customers to use alternative channels including internet banking, mobile banking apps, USSD, cards/POS, eNaira among others to conduct their banking transactions. The CBN also warned the banks and other financial institutions that aiding and abetting the circumvention of the new policy would attract severe sanctions.
Cash withdrawal limits as fallout of currency redesign
On October 26, Emefiele, announced moves to redesign the Naira in the variation of N200, N500 and N1,000.
Emefiele, who pointed out that the change was a sequel to the approval of President Muhammadu Buhari, said circulation of the new banknotes would commence on December 15, 2022.
He said the development was also aimed at checking the increasing ease and risk of currency counterfeiting evidenced by several security reports, and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.
The CBN governor said there was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks.
He said as of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks, describing the development as unacceptable.
Coherent, systematic drive to a cashless society
It is essential to point out that the CBN’s cashless policy initiatives and its drive to reform the country’s payment system were not arrived overnight. In fact, it is an ambition that the apex bank had been nursing for years – and not just because of the 2023 general elections which some uninformed persons had alluded to as reasons why the bank was introducing measures to witch-hunt politicians.
Secondly, foster the development of a robust payments system infrastructure that will increase access to finance for all Nigerians thereby raising the financial inclusion rate in the country; Third, continue to work with the Deposit Money Banks to improve access to credit for not only smallholder farmers and MSMEs but also Consumer credit and mortgage facilities for bank customers.
Emefiele, in his famous five-year blueprint, had promised to build a robust payment system infrastructure that is efficient and vital to the effectiveness of monetary policy interventions.
Specifically, Emefiele said, “We will reinvigorate our efforts at driving the cashless initiative across the country, due to the immense efficiency gains that will be derived from it, and the impact it could have on our financial inclusion drive.
“Given Nigeria’s large size, and the cost involved in building bank branches across the country, the payment system department would support the spread and utilization of digital modes of transactions so that every Nigerian will have access to financial services.”
He said, “A strong emphasis will also be placed on improving the speed and efficiency of payments channels while working to ensure that digital channels are safe and secure. This will help to build confidence in our nation’s payment system.
“In order to improve utilization rate, we will continue to ensure that payment channels are interoperable, which will enable individuals with digital devices to transact across different banks or payment modes.
“Through measures such as the cashless initiative, USSD, Mobile Banking, agent networks and Payments Service Banks, Nigerians can expect to see significant improvements in the payment systems infrastructure over the next five years.”
Emefiele further said, “We will also work with NIBSS, Banks and Fintechs in developing a regulatory sandbox. This sandbox will enable us to test financial innovations by Fintechs and Banks in a controlled environment, in order to assess their impact on the growth and safety of our financial system.
“Through initiatives such as the Shared Agent Network Facility (SANEF) and the launch of our policy on Payment Service Banks, which enables non-banks to provide limited financial services, we sought to encourage the use of technological tools in improving access to finance for people who live in underserved parts of the country.”
Policy in general interest of Nigerians
The CBN has so far been able to assuage the concerns of Nigerians over the cashless policy drive by reassuring them that it is not politically motivated.
“At CBN, we are bankers and not politicians and don’t take decisions based on elections,” the apex bank noted.
As pointed out by various supporters of the policy, it will also impact monetary policy positively by enhancing its efficacy as well as making future interventions more Impactful on Nigerians.
It is also worthy of note that Nigeria is presently playing catch-up with countries like Kenya, which is years ahead in cashless innovation.
Rural Empowerment
The apex bank had also developed the payment system infrastructure to extent that today electronic payments system is so robust and can facilitate any transaction in any part of the country especially in rural areas.
There had been concerns that the common Nigerian living in the remote parts of the country may be left behind by the CBN’s cashless policy.
But as attested to by President Muhammadu Buhari recently at the Financial Inclusion conference in Abuja, the digital innovation, spearheaded by the central bank had also facilitated access to credit and payment for rural dwellers and enabled them to conduct their businesses without the need to travel far in search of the nearest bank branch.
Financial inclusion stakeholders had been at the forefront of providing innovative solutions for addressing some of the pressing issues which Nigerians face as a people.
Buhari said, “For instance, to increase financial services access points in underserved locations in the country, the Central Bank of Nigeria issued the Payment Service Bank regulatory framework.
“Furthermore, through the Shared Agent Network Expansion Facility (SANEF), the number of agent banking locations in the country is now over 1.4 million from 86,000 in 2018.
The development is a further reassurance that the cashless policy will not leave anyone behind.
Analysts welcome cash withdrawal limits
The cash withdrawal limit has continued to enjoy the support of well-meaning Nigerians including analysts who said the move by the CBN was long-overdue, adding that the measure will boost monetary policy effectiveness, tax compliance, strengthen Naira
Speaking in separate interviews with THISDAY, the analysts said the new CBN policy will aid in accelerating the monetary policy objectives and positively enhance the monetary and fiscal space as well as improve the profitability of the banking sector.
Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, said the effectiveness of monetary policy hinged on being able to mop up excess liquidity and having the majority of the population included in the financial system.
He said, “Several initiatives by the CBN have tried to encourage both financial inclusion and a cashless society, however, these have been largely ineffective. The new CBN policy will certainly aid in accelerating the monetary policy objectives, whilst also tackling the insecurity challenges and encouraging financial inclusion.
“Though there will undoubtedly be implementation challenges, it is a step in the right direction for sanitizing the economy. The excess liquidity floating around in the economy needs to be mopped as this will also help inflation.”
Also, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said the step taken by CBN in limiting cash withdrawal will not only curb vote buying, and terrorism and encourage digital payments, but also reduce the pressure on foreign currency.
“In other words, the measure will improve the value of the Naira against other currencies. It is always a play of demand size against supply size. If there is a scarcity of Naira, foreign currencies will become surplus in the market to exchange for scarce Naira.
“It will also help CBN to manage the supply of the redesigned currency which may not be very available to cover the demand for it in all states of the federation at the same time,” he said.
Also, a renowned economist, Mr. Tope Fasua, said the policy could address the current exchange rate gaps.
He said, “The policy will also be a good step in strengthening the value of the naira. At this rate, if this is played right and it is sustained, we may see a scenario where the naira/dollar rate comes down and the naira can strengthen a little bit against the dollar when there is not much money flowing after the dollar.”
On his part, Professor of Finance and Capital Markets, Nasarawa State University, Keffi, Prof. Uche Uwaleke, said the cash withdrawal limit is part of the currency redesign package, adding that the two are mutually dependent.
He said, “It goes without saying 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.
Uwaleke said, “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 payment platforms.
“It now behooves the CBN to ensure that bank charges on money transfers and other related charges are reduced to the barest minimum.”
The Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, described the cash withdrawal limits as a step in the right direction by the CBN, adding that the measure will to a large extent reduce the cash in the economy to an acceptable minimum as stipulated by CBN guidelines.
He said, “The measure will also boost the value of the Naira when there are less of N500 and N1000 naira notes in circulation as it is being done with major currencies in the world like the US Dollar, British Pound Sterling, and the Euro.
“This policy implementation will go a long way to increase the use of other means of transactions like internet banking, USSD, ATMs, and POS to boost the cashless policy of the CBN.”
He said, “We know that our economy has been a cash economy for a long time so these measures will initially cause disruptions in the economy but things will settle in the long run and the economy will be better for it.
“The policy will also deter cash hoarders and politicians carrying cash for vote buying, terrorists and kidnappers will also not be getting large sums as ransom with these new measures.”
