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Issues around new naira note, limit on cash withdrawal as CBN commences circulation of new currency today

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By Oludare Mayowa

Many Nigerian banks will on Thursday open their vault for customers and depositors to exchange their old naira notes for the newly redesigned currency, which has a stipulated deadline of January 31, 2023.

Some Nigerians are already envisaging rush and long queues in the banking hall across the country as a result of people trying to get access to the new naira note, which was unveiled last month by President Mohammadu Buhari at a brief ceremony at the state house, Abuja.

Though the old notes are expected to be in circulation alongside the new ones until January 31, 2023, when the old notes are expected to be phased out, it is expected that many Nigerian businesses would start to reject the old notes as soon as the banks start paying out the redesigned notes to customers.

Access to the new notes may be compounded by the recent circular by the CBN, which limit the amount of cash individuals and corporate entities could withdraw within a certain period of time. For instance, the CBN said individuals could only withdraw N100,000 per week while corporate could only have access to N500,000 per week through over-the-counter (OTC) transactions.

Other limits placed on cash withdrawals include N20,000 per day withdrawal on Automated Teller Machines (ATM) and Points of Sales (PoS).

However, those who want to have access to large quantities of cash above the limit would have to pay processing fees of 5 percent and 10 percent for individuals and corporate entities respectively. Large withdrawals are also subjected to scrutiny by the regulator to determine the importance and usage of such cash.

The CBN target for both the redesigning of the currency note and the imposition of a cap on the amount customers can withdraw from their account is to bring an estimated N2.7 trillion that circulates outside the banking system into the financial system.

The measures are also expected to compel people to deploy other channels of transactions such as electronic and internet banking to carry out their businesses in furtherance of the cashless system introduced in 2012 by the regulatory bank.

But cash is the lifeblood of Africa’s biggest economy and there’s concern that the switchover could trigger the kind of chaos that broke out when India tried something similar in 2016 when the inability of banks to meet customers’ cash needs led to long queues in the banks.

The expectation of the CBN is that more people will embrace the cashless system of transactions and do away with the risk of carrying cash around. But the politicians and other people who believed that the policy was specifically targeted at them ahead of the forthcoming general elections are already kicking against the implementation of the measure.

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Experience from the recently conducted election has shown that politicians depend largely on the power of cash to win elections, especially in the areas they seem unpopular, and therefore deploy large cash to buy votes from willing electorate.

Also, politicians have a way of bribing officials of the electoral body to swing the results of the election in their favour even after the conduct and counting of ballots. They also deploy cash to bribe securities agencies who oversee the conduct of the election so that they can look away when their agents are manipulating or buying votes from the electorate.

Without cash, therefore, many of the main political parties are no longer sure where the pendulum of the election would swing in the coming crucial election where four main political parties are contending for the highest position in the country.

Besides politicians, there are also many people who are campaigning against the transition from a cash to a cashless economy, where there will be less cash in circulation, and fewer high denominations of currency in circulation.

The fear is that government would be able to track people’s accounts and the movement of cash for the purpose of taxation and other security purposes, which many would ordinarily not want.  People believed that the measures is more for the purpose of tracking people’s cash balances and enabling the government to monitor the movement in and out of their accounts.

This is not the first time Nigeria would implement such reform of its currency, the last major currency redesign similar to this was in 1984 during the regime of the present president, who happened to be in power as military head of state then.

It’s a reminiscence of President Buhari as military head of state in 1984 decision to change the colour of the currency in his efforts to confront huge corruption and ensure that politicians who have stacked away the naira are made to pay huge price for that.

However, to date, there is no record of study to show how successful was the measure taken 38 years ago on the economy, the politics, the value of the currency and even to deter the state of corruption in the country.

However, unlike in 1984, when the economy was far smaller in size than what we have today and the fact that reason for the difficulty faced then with the exchange of old notes for new ones is because of the limited number of bank branches then, Nigeria has expanded its banking access since then.

Today, apart from the fact the numbers of banks have grown in size and branches, internet banking and electronic transactions have also expanded far more than it was 38 years ago with more people now within the banking system.

Also, more people are conducting their financial transactions through electronic transfer and other forms of internet banking, reducing their interaction with cash and long queue in the banking halls.

There may not be long queues at the banking hall today and in the days to come because of the level of development undergone over the years by the banking industry. Equally, more than 133 million Nigerians are in multidimensional poverty, meaning that more than 60 percent of the population may not be adversely affected by the cash withdrawal limit.

Even the average working class is properly covered under the N100,000 per week stipulated by the CBN because not many people have up to N400,000 allowable cash withdrawals per month as cash balances in their accounts.

Despite the fact that the process of exchanging the old for the new currency may not really be burdensome for the majority of Nigerians, the elites are still not happy with the CBN due to the fact that the policy will expose their penchant for keeping huge cash stack away in their homes for other behind the scene transactions.

It has also been said, but without evidence that the growing kidnapping in the country is majorly sponsored by the high and rich in the society for political and economic reasons. Those are the people opposing the cash limit policy recently introduced by the regulatory bank.

But it’s envisaged that the exercise would help the regulatory banks to mop up huge currency outside the banking system and in the process support the monetary policy to curb inflation, reduce the pressure on foreign exchange reserves and curtail the cost of currency management by the bank.

The coming months would reveal some of the unintended consequences of the new currency reforms and we expect the CBN to rise to the occasion and adjust its measures where necessary to avert hardship for the citizens and ensure the success of its policy and its impact on the economy.

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