Analysts have said that the newly revised withdrawal limit policy of the Central Bank of Nigeria (CBN) will have serious unintended adverse consequences and expressed hope that the apex bank would review its decision.
On Tuesday, December 6, 2022, the CBN issued a policy that restricts weekly cash withdrawals via Automated Teller Machines (ATMs) to N100,000 only and N20,000 withdrawals per day. In a memo issued on Tuesday, signed by the Director of Banking Supervision, Haruna Mustafa, to back up the policy, the apex bank further directed all banks and other financial institutions to ensure that over-the-counter cash withdrawals by individuals and corporate entities do not exceed N100, 000 and N500, 000, respectively, per week.
Reacting to the announcement, Sam Ndata, the Managing Director of Compass Investments and Securities Limited pointed out that by this policy decision, the CBN is going to create an unprecedented scarcity of funds in the economy such as has never been seen or known anywhere.
He says the sum of N100, 000 and N500, 000 is too little to cover the financial spending of an individual let alone a company, wondering why the CBN would take such a unilateral decision without consulting stakeholders in the financial markets.
“It is not a good development by any stretch of the imagination. It is not. If I have a building project and need to pay workers on my site, how do I pay labour hands that do not operate any bank accounts? How do you tell a rural labourer who has never been to any bank before that he or she should open one so that you transfer money to his or her account?
“How many people will accept payment by electronic means? Payment by electronic means is viewed with suspicion most times when you attempt to do so. In fact, a lot of ongoing projects will be stalled. Markets will be down. Economic activities will be shaken like never before. It is going to have a cataclysmic effect,” said the senior dealing member of the Nigerian Exchange.
When reminded that the CBN is fighting inflation and that this latest policy might be one of the ways to address the scourge, he said “But this is not the way to fight inflation. Government after government before now fought inflation, but this is the first time in history that a regulator would compel people to reduce spending by fiat. It is uneconomic,” Ndata concluded.
However, Tajudeen Olanyinka, the Managing Director of Valmond Securities Limited, hailed the decision, saying it was a good move in that direction.
He said: “I think the decision is intended to compel people to begin to embrace the eNaira, to start using electronic wallet or use ATM cards to do electronic transactions even though I learned CBN is going to ban ATM cards also as we progress into the year 2023.
“What the CBN is trying to do is to effectively cause the scarcity of cash so that everyone will embrace the use of eNaira and use eNaira wallet. In their calculation, allowing people to carry on with much use of cash will negate the idea of redesigning the Naira.
“Remember the apex bank wants to discourage people from hoarding illegal currency in their houses. Keeping illegal currencies seems to be fueling inflation. The CBN wants to stop money from getting into the wrong hands so that they can no longer use it to cause inflation.
“When money gets into the wrong hands, they take wrong economic decisions. That creates inflation and triggers all sorts of distortion in the economy. The way to eliminate it is to cause scarcity of cash, in the absence of such scarcity, the economy will revert to the status quo that necessitated the redesign of the Naira in the first instance,” said the financial expert.
He insisted that it is a healthy development stressing that the economy has suffered too many distortions and for too long fueling inflation because of money falling into wrong hands and corrupt officials in government.
A forensic expert, Ori Adeyemo, described the monetary policy initiative as a two-edged sword that is likely going to make and also, mar. According to him, it is going to counter corruption among those corrupt government officials keeping money in their homes.
He said through this initiative the CBN can now check the movement of money going into the wrong hands, and to that extent is quite good for the economy. He noted that the unrestrained withdrawal of cash by people in the economy has fueled all sorts of evil as well as inflation.
“So if the CBN is trying to checkmate this culture of unrestrained withdrawal of cash, that is quite good,” Adeyemo, a hot critic of the central bank, told our correspondent.
He added: “But my concern is that N100, 000 for an individual in a week and N500, 000 for corporate organization is damn too low and can destabilize the system. You can’t herd everyone in one fell swoop to join the bandwagon of cashless policy.
The majority of market women and men don’t make use of electronic channels. How do you deal with such a situation in rural areas where trading in commodities does happen in their markets? In trying to fight the corruption of inflation, you must not discriminate against Nigerians who are illiterate or outside the financial system. You can’t just cut them off like that. To that extent, CBN has to review cash withdrawal limit otherwise it is going to cause unintended consequences,” the forensic expert warned.
He advised the CBN to carry the organized sector along before taking far-reaching decisions such as this one.1
