Cashless Policy as Economic Enabler

The cashless policy initiative of the Central Bank of Nigeria has proven to be a business enabler, rather than a threat to the economy, James Emejo argues.

In 2012, the CBN disclosed its plans to begin a transition to a cashless economy as part of the country’s ambition to become one of the best 20 economies before the year 2020.

The cardinal aim of the cashless initiative was to reduce the number of naira notes and coins used for business but not to eliminate cash usage in its entirety and seeks to ensure a seamless, inclusive and equitable implementation of the exercise for the overall benefit and growth of Nigerians, the financial system and the economy as a whole.

According to the central bank, “Our economy uses too much cash for transactions for goods and services, especially for buying and selling. This is not how it is done in other progressive countries of the world where there are other payment options like debit and credit cards, bank transfers, bank direct debits, Automated Teller Machines (ATMs), and even mobile phone money.”

According to the CBN Governor, Mr. Godwin Emefiele, the “level at which people carry cash in Nigeria is unacceptable”.

Essentially, the cashless policy seeks to among other things

increase the volume of all available payments instruments in the country, as well as promote end-to-end electronic payments in Nigeria as well as promote end-to-end electronic payments in the country.

·      Delayed implementation

Although the process to reduce cash usage in the economy commenced in 2012, the implementation had been delayed for obvious reasons.

Emefiele pointed out that there had been five reversals in the bank’s attempt to go cashless and promote financial inclusion since 2014 when he was first appointed as CBN Governor.

He explained that reversals were born out of the need to deepen the country’s payment system infrastructure, adding that the payment system in Nigeria is now among the best six in the world as well as the need to enlighten the public to choose other available payment options

instead of the excessive reliance on cash for transactions.

Emefiele however, said the time was now ripe for the implementation of the cashless programme given the robust infrastructure and payment systems that has been put in place across every nook and cranny in the country.

“So, we believe that we have put in place enough infrastructure that would help us attain or achieve a cashless policy that will be in the line of global practices,” he said.

Some of the initial objectives of the cashless system were to reduce the huge costs of providing banking services as the money saved will be used to lend credit to Nigerians, as well as help the central bank and commercial banks better manage our economy to ensure that monetary policy is effective.

·      Introduction of withdrawal limits

Consequently, on December 21, 2022, the central bank

announced an upward review of its cash withdrawal policy across all payment channels by individuals and corporate organisations.

Effective January 9, 2023, individuals and corporate entities can withdraw a maximum of N500,000 and N5 million respectively on weekly basis compared to N100,000 and N500,000 which was previously announced on December 6, 2022.

However, the central bank, in an updated circular dated December 21, 2022, and addressed to all Deposit Money Banks (DMBs) and Other Financial Institutions, Microfinance Banks, Mobile Money Operators, and Agents, explained that the upward review was, as a result of the feedback it received from stakeholders on the implementation of the policy. 

The CBN stated that in compelling circumstances where cash withdrawal above the limit is required for legitimate purposes, such request shall be subject to a processing fee of 3 per cent and 5 per cent for individuals and corporate organisations respectively.

The new policy on cash-based transactions seeks to reduce the amount of physical cash circulating in the economy, and not to eliminate it – as well as to encourage more electronic-based transactions in the payments for goods, and services among others.

According to the CBN, the policy was introduced to drive the development and modernization of Nigeria’s payment system in line with Nigeria’s vision 2020 goal of being among the top 20 economies by the year 2020.

The bank maintained that an efficient and modern

payment system is positively correlated with economic development and is a key enabler for economic growth.

Specifically, the cashless policy will cut the cost of banking services including the cost of credit and drive financial inclusion by providing more efficient transaction options and greater reach; improve the effectiveness of monetary policy in managing inflation and driving economic

Growth; provide increased convenience and more service options for consumers and reduce the risk of cash-related

crimes, particularly banditry, ransom taking and terrorism financing as well as provide cheaper access to banking services and access to credit.

No doubt, the policy has helped to achieve slower growth in inflation as well as a more stable exchange rate regime in the economy.

For corporations, the policy will create faster access to capital, reduce revenue leakage, and cash

handling costs while the government will enjoy increased tax collections, greater financial inclusion, and increased economic development.

·      Security as central to business growth

Unarguably, security guarantee remains one of the enablers of economic activities. Prior to the implementation of the cashless policy, growing insecurity occasioned kidnapping, banditry, and ransom-taking characterised the socio-economic landscape, denying the country the much-needed economic prosperity. For years, the activities of kidnappers, bandits and deadly groups ensured that businesses were deserted in affected areas. The farmers were unable to access their farms for fear of being cornered by criminals who requested millions of naira from their victims in order to regain their freedom, some even lost their lives even after paying the ransom.

However, the majority of Nigerians can now attest to the fact that the introduction of the cashless policy whose implementation became full-blown with the currency redesign programme of the central bank – had drastically reduced incidences of kidnapping and made the roads safer for businessmen and women to ply for economic activities. Farmers have also regained access to their farms.

One of the problems that had limited investment inflows into the Nigerian economy had been insecurity. Thus, the faithful implementation of the policy will reassure prospective investors and positively impact the economy in general.

On the political front, the introduction of the cashless programme and by extension, the Naira redesign policy helped minimise vote-buying and other financial inducements by politicians.

·      Cash policy limits corruption in public service

Only recently, in a complementary gesture, the Nigerian Financial Intelligence Unit (NFIU) unveiled new guidelines aimed at mitigating money laundering, terrorist financing, and proliferation of weapons among others.

The provisions of the framework also prohibit cash withdrawal from public accounts and ban the payment of estacodes and overseas allowances to civil and public servants in cash – in an apparent drive to complement the recent efforts by the CBN to tackle terrorism-related financing as well as promote a cashless economy.

The Enforcement, Guidelines, and Policies for Mitigation of Money Laundering, Terrorist Financing, Proliferation of Weapons and Prevention of Predicate Crimes which became effective on March 1, 2023, restricts cash payments of a sum exceeding N5 million (or its equivalent) for individuals, and N10 million or its equivalent for a body corporate. Section 19 of the MLPPA, 2022 imposes a fine of at least N10 million or imprisonment for a term of at least three years (or both), in the case of individuals; and a fine of N25 million in the case of a body corporate. Section 26 of POCA, 2022 makes provision for the seizure and detention of cash over the prescribed amount under the law.”

The framework allowed for the discontinuation of cash withdrawal in Naira and foreign denominations from public accounts at federal, state, and local government levels were in compliance with its statutory responsibility under Section 3(1) a – s and Section 23 (2) a of the NFIU Act, 2018, and other provisions under the MLPPA, 2022.

According to the NFIU, “Civil servants are becoming more and more vulnerable to money laundering and its predicate offences due to their exposure to cash withdrawals from public accounts”.

An analysis spanning 2015 to 2022, showed that the federal government, states, and local governments withdrew N225.72 billion, N701.54 billion, and N156.76 billion respectively – all in cash.

According to the NFIU chief executive, “The cash withdrawals directly contravene the provisions of the MLPPA, 2022 and the Proceeds of Crime (Recovery and Management) Act, 2022 (POCA, 2022) which provide the legal framework setting limitations on cash transactions and sanctions for infringement of the provisions.

“We support the CBN circular on cash withdrawal limit which is in harmony with the law, provided in Section 2 of MLPPA, 2022. This guideline will support the efforts of the CBN.”

Similarly, Emefiele, during his recent interaction with the diplomatic community also decried the continued use of cash for bulk transactions.

He said, “You are all foreign dignitaries representing your countries in Nigeria and you know and you would agree that the level at which people carry cash in Nigeria is unacceptable.

“In your countries, you do not carry cash anyhow. If you carry cash and you are seen, you are questioned and profiled continuously.”

He said, “We want to look at your country and that is why we are saying that Nigeria, being the largest economy in Africa and with the largest population in Africa, really must go cashless. And we are delighted at the CBN that with the support of President Muhammadu Buhari, we would achieve this.

“We know that at these initial stages, Nigerians will go through what we call temporary pains and we call it transient because there would be normal pains they would come with those kinds of shocks; indeed, I must describe this shock as unprecedented.

“And that is why I would continue to appeal to everybody – Nigerians and those of you constitute our diplomatic community to give us all the needed support for us to achieve this objective. We want our country to look like your country and we will continue to seek your support for us to be like you.”

Although most analysts lauded the policy as a step in the right direction to tackle corruption, insecurity, and vote-buying by politicians, others regarded the move as politicised.

But Emefiele had repeatedly clarified that the new cash withdrawal limits were not politically motivated, insisting that it was for the overall benefit of the economy.

·      Policy in interest of Nigerians

No doubt, beyond the immediate benefits of the CBN’s cashless policy and currency redesign, which includes countering terrorism, and managing money supply among others, the initiative will also ensure that going forward, social intervention programmes that are targeted towards poor Nigerians achieve their desired objectives.

This is partly because going cashless would ensure that such funds can easily be tracked and monitored and this will further provide for greater transparency and accountability by those who administer the resources.

Also, as attested to by Emefiele recently, though the security agencies have been on top of their game in recent times tackling insecurity across the country, nonetheless, the cashless policy initiative of the central bank has helped to reduce the incidence of kidnapping and banditry as a result of the restrictions placed on cash withdrawals.

In spite of the repeated assurances that the policy was conceived in the interest of the Nigerians, particularly the common man on the street and the country as a whole, some groups of individuals, particularly the elites who appeared to benefit from the old system of doing things, have continued to disagree with the CBN and resorted to maligning the bank in order to cause disaffection between the apex bank and the people.

These unpatriotic Nigerians have created the false impression that the recent policy directions of the CBN were inimical to the interest of Nigeria and these would cause them more hardship.

However, the CBN governor had always emphasised that the central bank under him would always be people-focused in its policy directions. This was particularly evident in the role played by the bank in supporting small businesses and households during the COVID-19 pandemic.

There is no doubt that the cashless policy remains popular with Nigerians who believed that the initiative would plug leakages in the administration of public resources and well as help to win the fight against corruption which is endemic in the country. The only obstacle to the policy is the privileged and corrupt elites who want to continue to take undue advantage of the system to enrich themselves to the detriment of vulnerable Nigerians. 

The cashless programme has recorded early benefits and will impact the lives of Nigerians positively in the long run.