Beyond the CBN Naira Redesign Policy, by Bello Abdulwaheed-Onikanhun
Like many Nigerians, the health status of Nigeria economy is always of great interest to me. This may not be unconnected to the realization of the fact that the prosperity of a nation is an aggregate of individual prosperity.
To prosper in Nigeria parlance means to possess notable worldly materials and chief among these materials is money. This suggest the reason why most Nigerians are ultimately concern about the policy options of the Central Bank of Nigeria, CBN for regulating the cost, volume and type of money in circulation.
On Tuesday, 4th December, 2022, virtually all Nigerian dailies flied with varying eye-catching headlines, the Central Bank of Nigeria (CBN) new Naira Redesign Policy-Revised Cash Withdrawal Limits on their front page in recognition of the role money plays in the national economy.
Money is indeed powerful. It’s the roots of every form of the good, the bad and the ugly. In a country like Nigeria where the economy is largely informal sector-based, most economic activities are cash-based with low level of financial inclusion, money becomes the Kings and Queens.
The world bank stated in May, 2021 that 80.4% of Nigerian employments are in the informal sector. This includes casual day labourers, domestic workers such as carpenters, bricklayers, tilers, weavers, fashion designers and part-time or temporary workers without secured contracts, worker benefits or social protection.
The majority of those working in informal sector are either underbanked or unbanked.
While 41.14% of Nigerian adults are banked as against the world average of 65.76%. This is an instance of financial exclusion that must be corrected within the shortest possible time if Nigeria is to attain meaningful development. The goal of policy makers should be to attain the minimum 96% financial inclusion by the year 2025.
Financial inclusion implies that individuals and businesses have access to useful and affordable financial products and services that meet their needs, transactions, payments, savings, credit and insurance-delivered in a responsible and sustainable way. It is so crucial that the world bank posited that it’s an enabler for the seven (7) of the seventeen (17) Sustainable Development Goals (SDGs).
A country desirous of reducing extreme poverty and boost shared prosperity must be consistent in policy options aimed at deepening financial inclusion and attain greater prosperity.
Like many developing countries, Nigeria has a National Financial Inclusion Strategy (NFIS) to guide market and ecosystem actors on how to improve the cost of microenterprises. While making efforts to attain the maximum Financial Inclusion by 2024, the Central Bank of Nigeria (CBN) stated in the 2nd quarter reports of 2019 that the bank aimed at attaining 95% financial Inclusion by 2024. This target is however may not be realistic considering the state of financial infrastructure in Nigeria.
Consequently, the recent policy of the Central Bank of Nigeria (CBN) ordering Deposit Money Bank (Commercial Bank) and other Financial Institutions to ensure that weekly Over-The-Counter (OTC) Cash Withdrawals by individuals and corporate entities do not exceed One Hundred Thousand Naira (#100,000) and Five Hundred Thousand Naira (#500,000) respectively. Any withdrawals of cash above these limits shall be charged 5% for individuals and 10% for corporate bodies.
The CBN directed further that only Denominations of Two Hundred Naira (#200:00) and below should be loaded into Automated Teller Machine (ATMs) and also cash withdrawal via Point of Sales (POS) terminal shall be #20,000 daily.
This Policy options by the Central Bank of Nigeria (CBN) is firstly aimed at reducing the amount of physical cash circulating in the economy which are largely outside the banking system and encouraging more electronic-based transactions.
Secondly, to address the challenges of financial exclusion as many Nigerians would now be forced to engage in cashless transaction.
Thirdly, to discourage kidnapping for ransom which is now a very prominent social vice in Nigeria.
Fourthly, to reduce the cost of managing the New Naira Notes to be released on the 15th December, 2022.
It should be noted that several initiatives by the Central Bank of Nigeria (CBN) have tried to encourage both financial inclusion and a cashless society, however, these have been largely ineffective.
As ineffective as the previous policies have been, this new policy of Central Bank of Nigeria (CBN) may also follow the same suit largely due to the fact that it has no known basis in economic theory and practice. Even the Motor Parks economic analysis does not align with this new restrictive policy.
The damning recent revelation by the Central Bank of Nigeria (CBN) that by September, 2022, a total of N3.2 trillion was in circulation, of which 2.73trillion was outside the vaults of banks is completely unacceptable and is indeed renders the CBN useless. With these huge cash outside the banking system, the Central Bank of Nigeria will not be able to effectively control the money supply in the economy and inflation may indeed spiral completely out of control leading to an ineffective monetary policy formulation and implementation.
By default, the Central Bank of any country is saddled with the primary responsibility of formulating and implementing monetary policy, control inflation, managing both short term and long-term interest rate. Control of money supply within an economy is crucial and occupy an important place in the management of nation economy.
The new policy, when effective may partially achieve the first objective of reducing the volume of cash in circulation and drive cashless economy but most likely to stifle Nigeria Economy further thereby reducing the Country Gross Domestic Product (GDP). By implication, reduced cash transaction will translate to reduce economic activities in the short run because the informal sector will find it difficult to adjust immediately. For instance, to buy a bag of local rice from Gbugbu Market in Kwara State for your family, you need between #40,000 – #45,000 to pay to a farmer who has may have no Account Number or reside where there is no bank. And even when he/she has Account numbr, the financial network infrastructure may not allow the transfer to be immediately effected. A more effective strategy could have been to enhance the cashless economy infrastructure to remove or significantly reduce the challenges and irritations that people experience when transacting using electronic payments just as each of us regularly experience unsuccessful payment transactions either due to bad network, switch failure or even lack of electricity to charge the devices.
Another prominent strategy could have been to make cashless economy attractive as is the case with Mpesa in East Africa, so people voluntarily embrace it rather than the stick approach, which will unfortunately punish many people for circumstances that are beyond their control, especially the large unbanked and underbanked in rural areas.
Also, kidnapping for ransom may still persist despite the Cash Withdrawal limit. The victims may result to mopping up the available cash from the informal sector engaging in cash-based transactions as nobody really prepare for this dastard act but when it happens, every available means would be explored. A more practical way of dealing with kidnapping for ransom could have been to reduce the ungoverned spaces, judicial reform leading to quick dispensation of justice, improve security architecture especially in the area of intelligence gathering, creation of state police to serve as neighborhood watch and strengthen institutions responsible for fighting corruption.
In the same vein, with this new policy, the cost of managing the naira notes may substantially be reduced but the reduction in this cost will likely be insignificant as to warrant this highly restrictive policy.
Additionally, its indeed fundamental to also look at the number of previously unemployed youths who are today running the Point Of Sales (POS) business. Available records has it that as of March 2017, there were around 155 thousand POS terminals in Nigeria. By April, 2022, the figure has reached roughly 1.1 Million. This is very significant considering the role these POS Operators play in the Financial sector of the economy. By limiting the cash withdrawal on each account to be twenty thousand Naira(#20,000) per day, where do they get the cash to continue the running of this business?
The Withdrawal limits will now make these POS Operators to spend more in sourcing for cash to run their business. This will automatically lead to increase charges and in doing so, majority of these category of entrepreneur may eventually be forced out of business, leading to the addition of 133 Million Nigerians who are currently Multi-Dimensionally poor.
Conclusively, it is clear that the CBN is trying to drive cashless economy by placing stiffer restrictions on cash withdrawals, this policy coming barely two weeks after the launching of new naira notes by president Muhammadu Buhari appears to be heading for rock and irrespective of how beautiful and desirable any policy of government may appear at any time, it’s imperative for the policy makers to always come up with the policy that have human face. This recent restrictive policy of the CBN appears to lack the required human face and may subject many more Nigerians to untold hardship.
Abdulwaheed-Onikanhun write from Ilorin via email@example.com