On December 6, 2022, Godwin “Meffy” Emefiele’s Central Bank of Nigeria (CBN) wrote a memo to bark orders at Nigerian banks over the rollout of the new naira banknotes.

The memo dropped just a week before the new notes are scheduled to enter public circulation on December 15, 2022. But the instructions won’t go into effect until January 9, 2023. 

What’s in the memo?

Let’s run down the highlights:

• The maximum any individual can withdraw over the counter (OTC) per week is ₦‎100k. For corporate organisations it’s ₦500k. Anything higher will attract processing fees of 5% and 10% respectively.
• Third party cheques above ₦50k won’t be paid over the counter.
• The maximum you can withdraw from an ATM is ₦20k per day, and ₦100k per week.
• Only  ₦200 banknotes will be loaded in the ATMs.
• In serious situations where you need to go above these limits, the maximum you can withdraw as an individual is ₦5 million and ₦10 million for corporate organisations. And for that to happen, you need to meet some conditions, including uploading valid means of identification, your bank verification number (BVN), a notarised document of purpose, letter to the managing director of the bank, and approval from senior management of the bank. 

To make sense of what it all means, Citizen spoke to Adedayo Bakare, a macro and investment analyst who works with Money Africa. 

What do you make of the CBN’s withdrawal restrictions?

“I think the fundamental thing everyone should know is, the entire restriction is part of the CBN’s plan to phase out cash in circulation and cash outside the banking system. Regardless, it doesn’t matter.

“Cash is the liability of a central bank because they’re the ones who issue it. Now, when the CBN issues cash, it doesn’t do so out of thin air. It prints it because people need it for transactions. When people need cash, they go to the commercial banks.

“When customers request cash, it becomes the responsibility of the banks to get it from the CBN. What this means is that the excess of cash in circulation isn’t just because the CBN wants to put cash out there, it’s because people are demanding it. The CBN therefore has to print it.

“The CBN is trying to do so many things at once with the currency redesign. They think that there’s too much cash in circulation with some of it being hoarded. In Nigeria, the banknotes in circulation, the one we spend, is less than 2% of the gross domestic product (GDP). If you look at the UK or USA, the level of cash in the system relative to the size of the economy is consistent with what we have in Nigeria. 

“In Nigeria, the level of cash in circulation compared to our GDP is lower than what you’d find in Kenya. Yet, Kenya has advanced payment systems. Nigeria, where such infrastructure hasn’t penetrated enough, is now saying it wants to introduce a cashless economy. According to the CBN, it’s to boost financial inclusion and to ensure their policies are more effective, fight money laundering, terrorism, kidnapping and all sorts of ambitious goals. But, cash isn’t the problem.

“If you want to fight money laundering, it’s to ensure regulation guiding the financial system is more sophisticated and more advanced to detect and prevent money laundering.

“If you want to stop terrorism, kidnapping and ransom payments, you have to ensure security is better in the country. You can’t do this by phasing out cash or saying people shouldn’t hold cash because there are more creative ways. If a kidnapper says they want ransom they’ll get it whichever way they want because people will have to go and find that cash.”

What does this new policy mean for Nigerians?

“Essentially, this policy will create hardship for Nigerians. When you go to the US, the EU, and even Kenya like I’ve mentioned, people still need to hold cash. This is especially true in rural areas where people aren’t very educated, in lower income groups, and are elderly. These people rely on cash. 

“When you look at the purpose of cash itself, it’s the most inclusive payment system we have in the country. For me to use my bank app, I need to have access to the internet. To use USSD, I need to have access to mobile phones. For internet banking I need to have a smartphone. How many people have these? How many people have the education to use Paystack, Flutterwave, or any of the other payment systems?

“Cash also doesn’t rely on any third party. Once you have it, there’s complete autonomy to conduct transactions. True, holding it comes with its security risks and it loses value, but that’s people’s preference. Think about it, this new policy is saying the money you have in the bank you can’t do this with it, you can’t withdraw it all at once. If I’m holding cash, nobody can tell me that. Cash is also instant which is why people use it for settlement. There are cases where people get fraudulent alerts, which is why they resort to cash instead. 

“Cash won’t affect monetary policy. Banknotes  in circulation relative to total money, that is, money available to be spent, including the deposits in your bank account, is just 6%. So when you say 6% of the money you have in your economy is what is slowing down the effectiveness of your economic policy, it doesn’t make any sense.

“You can’t say you want to restrict one of the primary ways people conduct transactions in your economy. This policy will only slow down transactions in the informal economy and affect the economy negatively in terms of output,  job opportunities and what they can earn. It’s not a crime to hold money.

“There are rumours that the policy might be connected to the current political cycle, I can’t speak on that. All I know is, the benefits the CBN has outlined and the decision to redesign the currency and the timeline and suddenness of its decision to restrict withdrawals won’t lead us to a cashless economy, won’t make policy effective and won’t lead to financial stability.

“Overall, the CBN is using the currency redesign and the withdrawal restrictions as a silver bullet to achieve things it can’t do. We’ve had experiences in India where these policies failed woefully because fundamentally, cash is a way to ensure transactions. The government needs to do its work to solve insecurity and other issues, not the CBN.

“At this point one has to ask, why should Nigerians bear all this pain? Why should Nigerians bear all the cost for a policy that’s likely to achieve nothing? These are questions the CBN has to answer.”