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Mixed reactions trail CBN’s new policy on naira withdrawals

2 months ago
Herald News

*Experts say it will cause job losses, disorganize businesses

The new directives from the Central Bank of Nigeria (CBN) effecting withdrawal limit for customers in the country have been greeted with diverse reactions.

The decision is coming after the CBN began the distribution of its newly redesigned bank notes. The bank said redesigning the notes will help check inflation, counterfeiting and corruption.

A lecturer at the Department of Economics, Ahmadu Bello University, Zaria, Professor Ishaq Modibo, has kicked against the new cash withdrawal policy imposed by the Central Bank of Nigeria.

It would be recalled that the Central Bank of Nigeria, had on Tuesday, imposed fresh cash withdrawal limits on individuals and organisations.

The new policy, according to CBN, takes effect from January 9, 2023, as indicated in a memo to banks issued on Tuesday and signed by the Director of Banking Supervision, Haruna .B. Mustafa. The memo stated that individuals would only be able to withdraw N100,000 per week (from over the counter, Point of Sale Machines or the Automated Teller Machines), while organisations can access N500,000 per week.

Banks have also been directed to load only N200 and lower denominations into their Automated Teller Machines.

Reacting on Wednesday morning in Kaduna, Professor Ishaq Modibo, a senior lecturer, noted that the new policy, if implemented, would cripple the economy, thereby leading to more job losses.

According to him, all Point of Sales Operators (POS) will lose their jobs since the CBN has fixed a daily withdrawal limit of N20,000 per day, adding that business transactions involving cash withdrawal would equally disappear as the policy would make people poorer.

He further stressed that those many rich Nigerians would get poorer, as they would no longer have access to their money, adding that there would be a scarcity of money in circulation, which would badly affect the economy.

“When the principal or school proprietor of your children demands for school fees, your children would have to endure for a number of days or weeks of withdrawals before they can get back to school since the school authority may not even want transfer. This time, only few persons may need electronic transfer of money. Everybody needs cash which is limited in circulation,” he said.

In the same vein, the Chief Executive Officer Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf said that “currency in circulation as at October 2022 was N3.3 trillion, out of which N2.8 trillion was outside the banking vaults.

“There is nothing abnormal about this. Currency in circulation is meant for cash transactions and it’s a mode of payment.

“It is a contradiction to expect currency to be largely kept in the vault of banks, rather than outside the banks.  Currency notes are printed primarily to facilitate payments in the economy by segments of the population that needs them. There is a difference between money supply and currency in circulation.

“Total money supply as at October 2022 was N50.6 trillion.  Total currency in the economy was just N3.3 trillion, which is a mere 6.5 per cent of money supply. Currency outside banks as a percentage of total money supply is even less- 5.5 per cent. Currency as a percentage of GDP is a mere 1.8 per cent. Even in the advanced economies, the percentages are much higher.

“The implication is that the Nigeria economy is already substantially cash-less. It is therefore quite curious that so much energy and resources are being dissipated in this direction.

“The claim by CBN that there is too much cash outside the banking system is therefore erroneous. Currency as a percentage of GDP in Nigeria is 1.8 per cent, whereas in the United States it is about 10 per cent. We are more cash-less than many advanced economies.”

Implication of the directive on cash withdrawal

“It will negatively impact on the informal sector of the economy. The informal sector is a significant part of the economy accounting for over 80 per cent of trade and commerce in the Nigeria economy and substantial components of jobs in the economy.

“Many of them are in very remote locations where there are no bank branches.  And they transact business largely in cash. The distributive trade accounted for N23.3 trillion of the country’s GDP in 2021.

“This was about 15 per cent of GDP.  This restrictive policy will pose a major risk to this very critical sector of the economy.”

There is also the risk that this policy would negate the financial inclusion objective of the CBN.  Some of the informal sector operators may begin to avoid the banking system entirely.

This could also be an infringement on the fundamental rights of the unbanked Nigerians. The CBN needs to think through this policy properly to avoid creating more problems than it sets out to solve.

Also responding, the Executive Director of Nigerian Workforce Strategy and Enlightenment Centre (NIWOSEC), Dr David Kayode Ehindero said, “The decision of the CBN is a welcome development which will help to keep track of all the cash transactions in our economy.

He said, “There are too many unexplainable wealth in Nigeria therefore we need to stabilise our financial system.” There is palpable tension in the country over the new development, with many expressing serious concerns as to what awaits people with genuine businesses when the new policy takes effect officially.

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