The reduction of cash withdrawal limits announced by the Central Bank of Nigeria (CBN) on Tuesday has generated different views from financial experts and other Nigerians.
The CBN had in a letter addressed to banks and other financial institutions announced new limits on cash withdrawals over the counter and via Automated Teller Machines (ATM), Point of Sale (PoS) and cheques.
The apex bank set N100,000 and N500,000 as the maximum limits for withdrawal over the counter by individuals and corporates respectively with effect from January 9, 2023.
The new policy has attracted different reactions, consisting of criticism, commendation and recommendations.
“I believe this would further constrain commerce and inadvertently undermine economic activities in the informal sector, which is largely a cash-based economy,” Abiola Rasaq, former economist and head of investor relations at United Bank for Africa Plc, said.
“While there is a lot of merit in formalising the economy through a cashless policy, especially as it helps to enhance anti-money laundering and terrorist financing controls, there is a need to put adequate measures in place to avert the immediate consequences on the people and the economy.”
He said banking penetration remains low and the electronic payment infrastructures are still relatively weak and requires major investments to deepen penetration.
Rasaq said: “For instance, the PoS failure rate is still high and while telephone penetration is high, internet penetration is still relatively low. Unfortunately, the regulatory limit on mobile banking applications such as USSD is low for obvious security reasons and that is what is available to everyone, including those with features phones.
“Likewise, erratic network reception and weak resolution mechanisms for resolving transaction failures undermine the adoption of electronic banking in the informal sector.”
According to him, it is important to consider the low literacy and poverty level in the country in adopting a holistic cashless policy, as these do not only affect the ability of some clusters, especially those in the rural areas, to adopt cashless policy but also the nature of their transactions.
“For instance, there are some rural areas without network and these are farms and traditional markets where agricultural produce are being traded. It takes hours to get to the nearest bank and this policy unfortunately also limits the value of transactions that can be done through the mobile money agents, thus it would create significant constraints to trade and broader productive activities in the rural areas,” he said.
Taiwo Oyedele, head of tax and corporate advisory services at PwC, said: “It is clear that the CBN is trying to drive a cashless economy by placing stiffer restrictions on cash withdrawals. However, a more effective strategy could have been to enhance the cashless economy infrastructure to remove or significantly reduce the challenges and irritations that people experience when transacting using electronic payments.
“Each of us regularly experiences unsuccessful electronic payment transactions either due to bad network, switch failure, or even lack of electricity to charge the devices.”
According to him, a different strategy could have been to make a cashless economy attractive as is the case with Mpesa in East Africa, so people voluntarily embrace it rather than the stick approach, which will, unfortunately, punish many people for circumstances that are beyond their control, especially the large unbanked population in rural areas.
Oyedele said as a consequence, there could be a lull in economic activities which may slow down GDP growth in the short to medium term.
He, however, said by forcing more transactions to be conducted electronically, there would be less currency outside the banking system which will make monetary policy interventions more effective.
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He said this would reduce the size of the black economy and provide more intelligence for the tax authorities to expand the tax net to economic activities which were previously under the radar.
“It is another step to drive the cashless economy agenda of the Central Bank of Nigeria,” Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said.
Uche Uwaleke, professor of finance and capital markets at Nasarawa State University Keffi, described cash withdrawal limit as an integral part of currency redesign meant to reduce the amount of currency circulating outside the banking system.
Citing India’s demonetisation exercise, he said the imposition of cash withdrawal limits by monetary authorities, following a demonetisation exercise, is a norm.
According to him, if depositors of old currency notes are able to exchange them for new naira notes which get withdrawn from the banks, then the primary aim of currency redesign is defeated.
“That said, I expect it to give impetus to financial Inclusion as Nigerians become compelled to embrace alternative payments platforms,” Uwaleke said. “It now behooves the CBN to ensure that bank charges on money transfers and other related charges are reduced to the barest minimum.”
