Nigerian economy has passed through various developments from time immemorial with different economic policies. Before 1986, a medium-term “Development Plan” was adopted for key development frameworks aimed at restructuring the economy. For instance, the First National Development Plan (NDP) of 1962-1968 was propounded with the aim of placing the economy on a rapid growth scale. The NDP reproduced necessary priorities to the agricultural sector whilst also focusing on the industrial sectors of the economy.
The distraction (Nigerian Civil War) to the economic activities and advancement during these periods later presented a need for further rapid economic policies which aimed at reconciling and reconstructing the economy. This led to the production of the Second National Development Plan (SNDP) of 1970-1974. This new plan was propounded chiefly for reconstruction and rehabilitation of the infrastructure developments that had been destroyed during the civil war. In responding to this internal armed conflict’s aftermath, the government invested its resources into the reconstruction and rehabilitation of the country’s economic infrastructures whilst ensuring improvement in the social development of the people, especially the vulnerable people.
Following the rehabilitation and reconstruction policy of 1970-1974, the Government in 1972 introduced a preceding national policy with the motivation of nationalism. The Indigenization Decrees or (1972 & 1974) positioned Nigerians as superior in the interplay of the country’s economy, partly inspired by the principle of nationalism.
Subsequent economic policies around this period includes the Third National Development Plan (1975-1980) and the “Ghana Must Go” Policy (1983) of the then, President Shagari. The country has continuously propounded various economic policies including the recent Central Bank of Nigeria (CBN)’s “Naira Redesigned Policy (Revised Cash Withdrawal Limits)” of December 6, 2022.
This article will present the prospects of the new CBN Policy, advantages and disadvantages in light of the present socio-economic realities of the country.
- ECONOMY POLICY IN GENERAL
In any country, monetary and fiscal policy espoused the coordination of tools or mechanisms utilized by central banks of that particular country to maintain the stability of its economy, whilst mitigating the effects of inflation and curbing unemployment. Monetary policies are set of measures and strategies used in controlling a nation’s actual money supply and whilst achieving stable economic growth. These strategies include interest rates revision and changing of bank savings requirements. Example of these is the CBN Amendment to the Regulatory Framework for Bank Verification Number Operations and Watch-List for Nigerian Banking Industry of 2018.
There are mainly two economic policies in this regard. These are Contractionary and Expansionary Monetary Policies. A Contractionary Monetary Policy entails the need to increase interest rates and mitigate the initial monetary supply within the people to slow the growth and reduce inflation. Expansionary Monetary Policy ensures that during the time of recession; it must grow the economic activities and elongates its survival. This is done by lowering the interest rates, unattractive savings to ensure consumers’ spending and borrowing increase.
- THE CBN NAIRA REDESIGN POLICY-REVISED CASH WITHDRAWAL LIMITS POLICY
The Mandate of the Central Bank is derived from the enabling Act that establishes it, its functions and operations. These are the Central Bank of Nigeria (C.B.N) Act (2007) and the Banks and Other Financial Institutions Act (2020).
The mandate of CBN is espoused in its Act of 2007 as indicated above. Under section 12 of the Act, in order to have informed monetary policy promulgated, there is established the Monetary Policy Committee (MPC) which is manned by the Governor of the Central Bank and other members relevant to the business of this Committee. The CBN together with this Committee is responsible for the promotion and maintenance of monetary stability with sound and efficient financial system in the country by enacting and implementing the relevant policies.
a. Sneak Peak of the Naira Re-design Policy – Revised Cash Withdrawal Limits
According to the CBN Monetary Policy of 2016, monetary policy may be considered as:
any conscious or deliberate actions of the monetary authorities, mostly central banks, to control (change) the quantity, availability or cost of money in an economy in order to achieve laid down goals/ objectives. It is also a combination of policy measures designed by a central bank to control the quantity of money and cost of credit in the economy in consonance with the expected level of economic activity. In other words, monetary policy is the process by which the central bank or monetary authorities of a country controls the supply, availability and cost of money in order to attain a set of objectives, usually geared towards promoting national economic goals. It is, therefore, the deliberate actions taken by the central bank to stabilize the economy.
As stated in the circular containing the guidelines of the Central Bank of Nigeria on the new policy dated 6thDecember, 2022 and titled Naira Redesign Policy-Revised Cash Withdrawal Limits:
- the maximum cash withdrawal by an individual and corporate organizations over the counter (OTC) per week shall henceforth be #100,000.00 and #500,000.00 respectively. Withdrawals above this limit shall attract a processing fee of 5% and 10% respectively.
- Third party cheques of over #50,000.00 shall not be eligible for payment over the counter, while extant limit of #10,000,000.00 on clearing cheques still subsists.
- The maximum cash withdrawal per week via Automated Teller Machine (ATM) shall be #100,000.00 subject to a maximum withdrawal of #20,000.00 cash withdrawal per day.
- Only denominations of #200.00 and below shall be loaded into the ATMs.
- The maximum cash withdrawal via point of sale (POS) terminal shall be #20,000.00 daily.
- In compelling circumstances, not exceeding once a month, where cash withdrawal above the cash limit is required for legitimate purposes, such cash withdrawal shall not exceed #5,000,000.00 and #10,000.000.00 for individuals and corporate organizations respectively and shall be subject to the reference processing fee already mentioned above, in addition to enhance due diligence and further information requirements.
Further to (6) above, banks are required to obtain the following information at the minimum and upload same on the CBN portal created for the purpose.:
- Valid means of identification of the payee (National ID, International Passport, Driver’s License).
- Bank Verification Number (BVN) of the payee
- Notarized customer declaration of the purpose for the cash withdrawal.
- Senior management approval for the withdrawal by the Managing Director of the drawee, where applicable.
- Approval in writing by the MD/CEO of the bank authorizing the withdrawal.
Banks and other Financial Institutions are to take further notice of the following:
i. Monthly returns on cash withdrawal transactions above the specified limits should be rendered to the Banking Supervision Department of the Central Bank of Nigeria.
ii. Compliance with the extant AML/CFT regulations relating to KYC, ongoing customers due diligence and suspicious transaction reporting etc is required in all circumstances.
iii. Customers should be encouraged to use alternative channels (internet banking, mobile banking apps, USSD, cards/POS, eNaira, etc.) to conduct their banking transactions.
The policy also stated that aiding and abetting the circumvention of this policy will attract severe sanctions and the effective date of this policy is 9th January, 2023.
b. Rationale behind the Naira Re-design Policy and Revised Cash Withdrawal Limits
Similar to the Financial System Strategy 2020 (FSS 2020), the new CBN Policy intends to curb Inflation, Insecurity and Protection of the Naira’s integrity. The new policy which has constrained financial transactions presented an idea according to the circular from the Bank through its Director of Banking Supervision Department and as apparently concluded by its Monetary Policy Committee (MPC). Suffice to say that the sharp end of inflation affected the Country’s economy ridiculously.
i. Inflation control
According to the Monetary Policy Committee (MPC) in one of its concluded sessions and reports, there is continuous upward of inflation for seven consecutive months. This can be represented as “inflation (year-on-year) rising to 20.52 per cent in August 2022, from 19.64 per cent in July.” All basic commodities prices skyrocketed to 23.12 and 17.20 per cent in August 2022, from 22.02 and 16.26 per cent in July 2022, accordingly. Also, there was the famous upward hike in fuel prices and energy. For example, there was rising price of Automotive Gas Oil (AGO), electricity tariff, perennial scarcity of Premium Motor Spirit (PMS) which contributed significantly to the development of our prospects. These, including other scarcities, certainly caused the hike in the cost of transportation and production.
Also, the Committee noted the decrease in Market Capitalization (MC) largely due to money at hand and money present in banks for businesses. For instance, there is decreased of (MC) to ₦26.88 trillion, from ₦27.94 trillion within a short period. This can be understood to mean an increase in the hoarding of bank notes in circulation by the general public at a percentage of eighty-five outside commercial banks’ vaults. Specifically, as at September 2022, available data at the CBN indicates that N2.73 Trillion out of the N3.23 trillion naira was out of the accounts of all commercial banks in the Country, compared to when it was N1.46 trillion in December 2015.
In curbing these economic challenges, the CBN decided to reduce the amount of Naira in circulation through this Policy of “cashless policy”. This is implemented by placing all Deposit Banks (DMBS) and other Financial Institutions (Payment Service Banks (PMBs) and Microfinance Banks (MFBs) under perpetual obligation to reduce the amount withdraw-able by their customers. For instance, the maximum cash withdraw-able by a customer over the counter is now limited to N100,000 for individual and N500,000 for corporations per week respectively. Any withdrawal at the counter above these shall attract processing fees of five per cent and ten per cent respectively.
ii. Insecurity issues
Another reason advanced by the CBN for the new policy is insecurity in the country. One of the conclusions of the Monetary Policy Committee was specific to this and critical to its essence in the protection of lives and property of the citizenry. It was enunciated by the Committee that there were domestic shocks and some of these domestic shocks include the high level of insecurity currently disrupting the free flow of economic activities and heightened sovereign risk as the 2023 general elections looms. Examples cited were kidnapping, terrorism and terror sponsored attacks certainly orchestrated by large amount of physical cash availability.
In alternating and mitigating the effects of these shocks, the prevailing circumstances has inspired the Bank to take this measure so as to amputate the incidents of terrorism and kidnapping. This is critical to ensure the mitigation of having access to the large amount of cash outside the banking system used as source of funds for ransom payments.
iii. Naira note integrity
According to section 2 of the CBN Act, protecting the integrity of the Naira note is one of the core responsibilities of the Bank. Of course, the integrity and dignity of our local legal tender should be promoted. Also, as advanced by the Bank’s Governor, there was dire need for the promotion of the currency’s efficiency in its supply. The currency fell in value compared to other currencies making it complicated for the Country to do meaningful business with other countries or international corporate companies.
For instance, ‘the naira exchange rate to the US dollar at the officially recognized I&E window depreciated marginally by 0.94 percent between the end-July and end-August 2022.’ This was caused by partially recent strengthening of the US dollar by the US Government; though, this is in line with the African Union monetary policy. However, as at August 2022 (M3) grew by 11.05 percent comparable to 8.66 percent in July 2022.
For these dire needs, the CBN was required under the CBN Act (2007) to impose stringent measures to curb the unfortunate circumstances befalling the country’s economy. The measure was not to witch-hunt the people within the dollar business or to busy-bodied the trend of their dollarization in the economy that is leading to large volume of cash floating in the economy. It was rather to regularize the economy on an equal footing for everyone. This will therefore abort the serious implications for inflation, exchange rate stability and prepare for the future of the economy.
- THE SOCIO-ECONOMIC IMPLICATIONS OF THE POLICY
As earlier espoused, the new policy come with it sound benefits and necessary developments. However, it also has with it conspicuous disadvantages. These disadvantages are analyzed in the subsequent paragraphs.
a. International remittance downfall
In early 2022, remittance flowing through international transactions to Nigeria grew by 7.1 per cent driven by continued shift to the use of recognized means in the country. There were increase in inflow of money through family and friends overseas due to skyrocketing increase in basic commodities such as food. For instance, according to the Ministry of Finance, Budget and National Planning, Diaspora remittances were among the top sources of non-oil foreign exchange for the Country. In the beginning of the year 2022, Nigerians received the sum of $10.11 billion as from Diaspora remittances between January and June, which represents a 9.6% increase when compared to $9.23 billion received in the corresponding period of 2021. This presentation is an obvious evidence of the facts that the general livelihood of some Nigerians is based on what they receive through Diaspora remittance. Now with the advent of this policy, that would be certainly a downward shift of foreign currency rate to Naira. With effect of this policy, dollar will drop drastically causing loss of revenue and money for those middle-income families who relies on foreign aid or remittance to survive.
b. Poverty insurgency
Poverty alleviation will become practically impossible through the new policy. For instance, a study concluded by Tahir Yousaf et al postulated that monetary policy is not neutral to socio economic variables inequality, poverty and unemployment in a sense. The study suggests that the monetary policy on extensive money growth and real interest rate are associated with increase in inequality, poverty and unemployment, as it normally focus on the “big-picture”, otherwise big businesses or finances. In the context of Nigeria, we can conclude that the policy would place the rich businesses and well-to-do populace ahead of the rest of the population. This is so because these well-to-do businesses and peoples have the capabilities to cope with the consequences that the policy will come with compared to the other classes in the economy. It is certainly possible that this will lead to increase in poverty level, inequality and unemployment.
c. Diminished capital and credit opportunities
Economically disadvantaged individuals would be socially disadvantaged due to inability to compete in the free enterprise system which has been impaired due to diminished capital and credit opportunities as compared to others who are already established. These second group of people have proper running bank systems, ATMs or e-Banking capable transaction models. It is unfortunate that, these disadvantaged groups of people are going to be more subtle to poverty like never before. This is because the little cash they have at hand would have been deposited to the bank in compliance with the new Policy. They are groups that involve in small scale enterprises, start-ups and grass-root petty businesses. They may not survive the hardship that will follow because of the policy and its consequences.
Additionally, the policy will also have effect on medium scale businesses borrowing. For instance, banks in the country are now afraid as to who to lend their monies for a matter of security. They want to put their money in less risky businesses, which include large scale investment companies and corporations. Due to these circumstances, there would be fewer funds available for small businesses, start-ups and consumer lending. The corresponding effects of this would then be peoples’ inability to expand their businesses.
d. Proximity of banks
In the country at the moment, there are places where banks are unavailable or farther than the places where people reside. According to the circular from the CBN and the public declaration of the CBN’s Governor, all old naira notes should be deposited to banks. That ‘the new and existing currencies shall remain legal tender and circulate together until January 31, 2023 when the existing currencies shall cease to be legal tender.’
One, not everyone has a bank account and Two, banks are far in some areas compared to others.
It is therefore feared that, rural or remote dwellers that live far from where banking services are located would definitely experience serious hardship depositing the old notes and transacting the new one.
Those without bank accounts would have to be placed in different categories as they will have to get an account prior these activities for easement.
Those who may not be able to provide the above would go at a loss and causing more upsurges of poverty and insecurity. Also, some financial analysts are expecting the coming experience to bring more traditionally unbanked people into the banking system, making it more difficult for bankers to maintain the policies modus operandi due to possible superfluous of new customers with micro-savings.
e. Exportation deficiency
The main inspiration behind the decision for the Policy was cited to be international economic recession through the armed conflict in Ukraine and Russia and the Corona Pandemic.
School of thoughts for the expansionary monetary model indicates that, if banks decide to lower interest rates for consumers and businesses, they are still likely to spend more money during this global recession. This will make exportation struggle and lavish in futility. Therefore, exportation businesses will be trouncing more compared to other businesses.
The new Policy has come with it great prospects concerning the Naira integrity, curbing insecurity and inflation control; however, it has with it certain short and long term consequences on the population, especially the low income earners. It is thus important for the government to come up with alternative policies to avoid the consequential effects of this policy on the social economic development of the country.
 Research Department ‘Monetary Policy; Education in Economic Series No. 2’ (2016) 18 Central Bank of Nigeria.
 Ibid, p. 20.
 BPS/DIR/GEN/CIR/ 05/007 (04 July 2018).
 BPS/DIR/GEN/CIR/ 04/004 Circular on Nationwide Implementation of the Cash-Less Policy (20 April 2017)
 Central Bank of Nigeria Act (2007), s. 1.
 Ibid, 5 s. 2.
 Ibid, 1.
 Ibid, p. 4.
 Prof. C.C Soludo ‘Nigeria Financial System Strategy Plan (2020); Our Dream’ (2007) International Conference, Abuja, Nigeria.
 Mr. G.I Emefiele (Con.) ‘Press Remarks on Issuance of New Naira Bank Notes’ (2022) Central Bank of Nigeria.
 Central Bank of Nigeria ‘Letter to All Deposit Banks (DMBS) and other Financial Institutions (Payment Service Banks (PMBs) and Microfinance Banks (MFBs)’ (2022).
 Central Bank of Nigeria ‘Communiqué No. 144 of the Monetary Policy Committee Meeting’ (2022).
 Ibid, p. 3.
 Ibid, p. 4.
 Ibid, 4 p. 4.
 Ibid, 4.
 https://www.icirnigeria.org/here-are-ways-redesigning-the-naira-notes-will-affect-you/ (Last accessed: 11/12/2022).
 Ibid, 4.
 O. H Osahon & Y Gabriel ‘Benefits and Challenges of Nigeria’s Cash-less Policy’ (2015) Kuwait Chapter of Arabian Journal of Business and Management Review.
 https://www.tekedia.com/diaspora-remittance-to-nigeria-hits-10-11-billion-in-h1-2022/ (Last accessed: 12/12/2022).
 Tahir Yousaf et al ‘Impact of Monetary Policy on Socio Economic Indicators: A Case Study of developing Asian Economies’; https://pide.org.pk/psde/wp-content/uploads/2018/12/Mian-Ghulam-Ghouse.pdf (Last accessed: 12/12/2022).
 Ibid, 4.
- Research Department ‘Monetary Policy; Education in Economic Series No. 2’ (2016) Central Bank of Nigeria.
- BPS/DIR/GEN/CIR/ 05/007 (04 July 2018) CBN Amendment to the Regulatory Framework for Bank Verification Number Operations and Watch-List for Nigerian Banking Industry of 2018.
- BPS/DIR/GEN/CIR/ 04/004 Circular on Nationwide Implementation of the Cash-Less Policy (20 April 2017)
- Central Bank of Nigeria Act (2007).
- https://www.cbn.gov.ng/MonetaryPolicy/#:~:text=Maintain%20Nigeria’s%20external%20reserves%20to,of%20last%20resort%20to%20banks(Last accessed: 09/12/2022)
- Charles Chukwuma Soludo ‘Nigeria Financial System Strategy Plan (2020); Our Dream’ (2007) International Conference, Abuja, Nigeria.
- Godwin Emefiele (CON) ‘Press Remarks on Issuance of New Naira Bank Notes’ (2022) Central Bank of Nigeria.
- Central Bank of Nigeria ‘Letter to All Deposit Banks (DMBS) and other Financial Institutions (Payment Service Banks (PMBs) and Microfinance Banks (MFBs)’ (2022).
- Central Bank of Nigeria ‘Comminuque No. 144 of the Monetary Policy Committee Meeting’ (2022).
- https://www.icirnigeria.org/here-are-ways-redesigning-the-naira-notes-will-affect-you/ (Last accessed: 11/12/2022).
- Osazevbaru, Henry Osahon (Ph.D) & Prof. Yomere, Gabriel O. ‘Benefits and Challenges of Nigeria’s Cash-less Policy’ (2015) Kuwait Chapter of Arabian Journal of Business and Management Review.
- https://www.tekedia.com/diaspora-remittance-to-nigeria-hits-10-11-billion-in-h1-2022/ (Last accessed: 12/12/2022).
- Tahir Yousaf et al ‘Impact of Monetary Policy on Socio Economic Indicators: A Case Study of developing Asian Economies’; https://pide.org.pk/psde/wp-content/uploads/2018/12/Mian-Ghulam-Ghouse.pdf (Last accessed: 12/12/2022).