The Central Bank of Nigeria (CBN) is taking a tough stance on the cash economy.
On Monday (Jan. 9), new limits on ATM withdrawals come into force, a move which comes a few days after the government announced a ban on all cash withdrawals from government accounts.
Commenting on the move, Modibbo Tukur, the chief executive of the Nigerian Financial Intelligence Unit (NFIU), told reporters that the authority would be investigating any such withdrawal as a potential money-laundering or corruption case.
Like central banks around the world, the CBN has often extolled the benefits of non-cash transactions, and the new ATM limits are just one way the CBN is attempting to curb the use of physical cash.
When the governor of the CBN, Godwin Emefiele, announced the decision to redesign the naira and withdraw huge volumes of notes from circulation in the process, he made it clear that enabling the central bank to control the supply of cash in the economy was the principle aim of the exercise.
“The integrity of a local legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy are some of the hallmarks of a great central bank,” he remarked to the press in October.
Emefiele went on to state that “significant hoarding of banknotes by members of the public,” was having an adverse effect on the CBN’s ability to carry out its policy objectives, with over 85% of all Nigerian currency outside the vaults of commercial banks.
In fact, as of September 2022, he said that 2.73 trillion of the 3.23 trillion naira in circulation were not kept in banks, making it impossible for the CBN, and by extension any public agency, to keep track of who is in possession of what.
Adding to a narrative that the CBN has been building for some time, Emefiele said that the latest redesign “will help deepen our drive to entrench [the] cashless economy as it will be complemented by increased minting of our eNaira.”
Hurting Vulnerable Consumers
Emefiele’s comments stand in stark contrast to an evolving discourse in Europe, where politicians are increasingly making moves to protect cash access.
With concerns about Europe’s depleting cash infrastructure now influencing the mainstream political agenda, the conversation has moved on from how to encourage people to use non-cash payment methods to ensuring that those who still want to transact in cash are able to do so without discrimination.
Of course, it doesn’t appear that the CBN is intent on outlawing physical money entirely any time soon. And despite the waning significance of cash in global economies, no central bank or government in the world has yet to resort to non-physical money as the only form of legal tender.
Nevertheless, the CBN’s approach is blunt, to say the least. While phasing out old bills is an important part of the monetary cycle, such events are normally planned long in advance, and usually allow a transition period of months or years during which both forms of currency are in circulation.
In Nigeria, on the other hand, the CBN announced the redesign of the naira quite unexpectedly and gave Nigerians less than two months from the issuing of the first new notes until the old ones cease to function as legal tender on Jan. 31.
While the speed of the turnaround is not without precedent, and a little longer than the two-week transition period given for Croatia’s adoption of the euro on Jan. 1, its suddenness bears more resemblance to India’s demonetization drive in 2016.
Just as Indian authorities did back then, the CBN has argued that the move is needed to curtail the shadow economy and will be effective in reducing the use of hoarded cash to fund illegal activity.
In another similarity between the initiatives, the sudden announcement that old naira banknotes will no longer be valid, has faced stiff political opposition and even legal challenges.
Ultimately, the CBN’s redesign will be judged by how well it pulls off the rapid distribution of a whole new set of bills. For Nigerians without a bank account, there are limited options for exchanging old for new banknotes, creating the risk that a policy intended to cut off criminals’ ability to spend illicit cash ends up hurting society’s most vulnerable.
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