Understanding CBN’s Policy of Cash Withdrawal Limits
The latest intervention of the Central Bank of Nigeria which pegs cash withdrawal limits will not only regulate the amount of cash outside the banking system and serve as a great boost to the cashless policy, but it will also serve as an ambush against promoters of vote buying, reports Festus Akanbi
Two weeks after the unveiling of the new policy on cash withdrawal limit by the Central Bank of Nigeria (CBN), operators in the nation’s financial system have launched into feverish negotiation, planning and strategy to ensure that the new policy which is bound to reduce customers’ traffic to banking halls does not affect their operations and balance sheets negatively.
The new withdrawal limit was coming after the CBN began the distribution of its newly redesigned bank notes, which it said would help check inflation, counterfeiting and corruption.
On the one hand are Nigerians who welcomed the development, hoping that the policy which CBN claims is in line with its cashless policy will encourage more Nigerians to use alternative channels to carry out their banking transactions. On the other hand, some Nigerians have criticised the policy, saying that it will translate to a negative effect on daily businesses.
Feelers from the business community also showed that the new policy, which is due to kick off on January 9, 2023, may lead to a revision of their policies to reflect the enthronement of the cashless policy which is the kernel of the CBN action.
The directive on the new cash withdrawal limits was contained in the CBN letter dated December 6, 2022, which was addressed to all Deposit Money Banks, and Other Financial Institutions, Payment Service Bank (PSBs), Primary Mortgage Banks (PMBs) and Microfinance Banks (MFBs).
The new policy followed the apex bank’s recent currency redesign project in which it had expressed concerns over the high volume of cash outside the banking system.
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.
It stated, however, that withdrawals above the thresholds would attract processing fees of five 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 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 the Point of Sale (POS) terminal was limited to N20,000 daily.
The central bank, however, stated that in compelling circumstances not exceeding once a month, where cash withdrawals above the prescribed limits were 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.
Financial analysts believe that apart from the quest to tackle vote buying as the 2023 general election draws closer, and control the amount of cash in circulation, the new policy could be described as a necessary ambush against criminals engaging in vices like kidnapping, currency sale as well as robberies.
Explaining the nitty-gritty of the new policy, a banking industry source said the CBN policy is also aimed at driving kidnappers out of business since it will become very difficult for them to accept cash payment for ransom going further because, for obvious reasons, they cannot get away with bank transfer as means of payment. He reiterated the widely held view that the withdrawal limit will also curb vote buying (stomach infrastructure, etc) as cash will not be available to be distributed to electorates during elections.
Speaking further, he believed the new dispensation is an attempt to move the economy away from a predominantly cash economy.
He said: “This will stabilise the economy and engender growth and development. Currently, about 70 per cent of the money in circulation is outside the financial system. The bulk of the cash is in private vaults, inside Ghana must go bags and under the bed, inside dugouts and empty plastic tanks and all sorts. The implication of that is that such money is not available for transaction purposes and therefore not performing the role of money in a political economy.”
It could be recalled that a Nigerian Domestic Card is about to be launched which will be issued to all bank account holders at less cost than the VISA Card and Mastercard. There is also the understanding that many more payment channels have evolved that will cater for retail payments so that small naira payments can be done via electronic channels of individual choice.
The new policy has also considered the needs of the unbanked population.
The source believed that a large percentage of the unbanked will be compelled to open a bank account to be able to do business no matter how little or rudimentary their business may be. According to him, this money will be left in the financial system to oil the engine of economic growth and development.
“One of the reasons why our economy is referred to as underdeveloped is because it is largely cash-based. And no cash-based economy can be a developed economy. There would be an initial teething problem but we will eventually come good. For the unbanked, they may even opt for an e-wallet on their mobile phone as opposed to Bank Account.”
Clarifying the dynamics of e-wallet form of transactions, the source stated, “The Payment Service Banks (The Telcos and other PSP) would provide mobile phone subscribers with e-wallet on their phone into which they can receive payments and from which they can also make payments to the third party. There are various payment options available to help ease payment difficulties and eventually migrate people into the electronic payment system. It is the way to go. It will ensure safety and security as well as economic growth, development and stability,” he assured.
Writing on his Twitter handle, a financial expert, Kalu Aja, feels that the CBN’s actions on the Naira redesigning and limited cash withdrawals are fine as long as POS, mobile money, and other noncash transactions are offered at reduced prices. He, however, advised Nigerians to also utilise other options like writing a cheque, transfer, or mobile banking because they are trackable.
Meanwhile, the new cash withdrawal limit is said to have shut the door against currency dealers who might be planning to sabotage the plan to exchange old naira notes for new ones.
“When the redesigned naira notes come out, some people will start selling them. To prevent or restrict this to the barest minimum, the CBN decided to implement this policy.
“Also, note that denominations above N200 will not be inside an ATM. Therefore for those who are thinking of making brisk business by collecting old notes from criminals at high rates than going to the ATM to withdraw new notes, this has been taken care of,” a respondent said.
The Governor of the Central Bank of Nigeria, Godwin Emefiele, had on October 26, 2022, announced that new naira notes would be introduced to replace the current 200, 500, and 1,000 naira notes.
Emefiele said the redesign would take effect from Thursday, December 15, 2022. He also said that the existing notes would cease to be regarded as legal tender by January 31, 2023.
The governor explained that among other reasons, the naira note was redesigned to address the issue of individuals who have made currency fraud their main source of income. People who have hidden money they have stolen, for instance, would either find a way to change it by taking the money out or would not need it given the change in the value of the naira.
Reviewing the programme in a recent media session, the apex bank noted the positive response of the banking public to the policy through increased currency deposits across banks and other financial institutions.
In addition, it noted that the progressive increase in financial access points and alternative banking channels including electronic/internet banking, mobile apps, ATM, Cards/PoS, eNaira, and agent banking, among others, may not be evenly distributed across all geopolitical zones and in some rural areas.
In this regard, the central bank said it was collaborating with relevant agencies and other stakeholders in the financial system in the execution of the redesign policy to particularly ensure that vulnerable citizens are not disenfranchised.
It explained that the banking public in rural and/or underserved areas may access CBN branches in the 36 states of the federation to enquire about options for depositing their current N200, N500, and N1,000 notes, wallet/account opening processes, financial access points among others.
The bank also restated its commitment to continue to monitor developments and issue updates to the banking public on the implementation of the naira redesign policy as may be necessary.
As the apex bank continues to engage the Nigerian people in days to come, what is certain is the resolve of the monetary authorities to encourage more people to embrace the cashless policy, mop excess liquidity back to banks and frustrate criminal-minded individuals and groups who are planning naira rain in the up to the 2023 general elections.