Recently, the Central Bank of Nigeria came up with a policy on daily cash withdrawal limits. Individuals’ are limited to N150,000 daily cumulated withdrawals while corporate customers are pegged at N1,000,000. Penalties for flouting the above limits are N100 per N1,000 on individuals and N200 per N1,000 on corporate customers on the excess withdrawals.
The reasons behind this policy included the fact that cash is increasingly dominating the economy with implication for cost of its management to the banking industry. Security and money laundering were included as some of the reasons.
The policy was therefore aimed at reducing high usage of cash and moderating the high cost of management. It is aimed at encouraging the use of electronic payment.
The effective date is June 1, 2012. This has now been brought down to December, 2011. In the first instance, it will be implemented in Lagos State, the Federal Capital Territory (FCT), Port Harcourt, Kano and Aba.
I shall hasten to add that it could reduce corruption which is cancerous in our system. This, it will do through the dwindling movement of “Ghana-must-go” bags.
But it could increase the pressure on the value of Naira as hard currencies could shove off the/ “Ghana-must-go” bags with their ‘ Naira contents in the stead of portfolio/briefcases-filled-hard currencies in the corruption arena.
People could be persuaded to become mini banks by hoarding cash in their homes or business premises to avoid the consequences of excess cash withdrawals. The attendant risks are obvious, including theft, burglary and fire.
Those who may ‘choose to avoid the above scenario may resort to split cash withdrawals – withdrawing and stock piling the maximum for a number of days.
The CBN must have done its research in cash withdrawals at the Deposit Money Banks (DMBs) to come up with the limit of N150,000. If it also did with prices of essential basic commodities, it could have found out that the prices of such commodities like cows are above N150,000.
To the Mallam from whom you buy a cow in the bush where he is shepherding them, will you give him ‘a cheque? Very many localities have no nearby DMBs. The Rural Banking Policy, imposed on the ‘DMBs in the past, was not a cheering exercise to them. Many have closed such shops they opened in obedience and not a few is prepared for such experimentation again, no thanks to the non-availability of basic infrastructure – power, good roads, security, etc. Traders who go to such locations for their purchases need cash which they collect from the nearest banks. All their transactions in such remote places are done on cash basis. These require more than N150,000.
The Regulatory Authorities should churn out’ less ‘paternalistic policies. :’ People know what is good for ‘them and need no legislation. In the past, it was in vogue for businessmen to travel with bags of money for their transactions. Armed robbers had their boom as they would attack luxurious buses, especially those plying in the nights and relieve the traders of those bags of money.
Today, the traders travel with only their cheque books to any part of the country and do their businesses.
Central Bank of Nigeria should try more to attack the reasons that make the economy still a cash one. After all, many Nigerians travel to more developed economies and do not engage in cash transactions. Cheque is not a legal tender but some jurisdictions have faith in it and accept it as an instrument of payment. Here in Nigeria, people issue cheques, aware there is no cover. The cheque is unpaid and nothing happens to the drawer.
The operation of the Automated Teller Machine (ATM) has not been attractive to many. Some of the converted fans are opting out because of mirage problems encountered by the .users and the DMBs’ foot-dragging on their solutions.
Our currency denominations also encourage cash transactions Cash of NI billion (One billion naira) in NI,000 denominations, can comfortably be spread in wraps and transported in a briefcase.
If our highest denomination is N20 (Twenty naira) as was attempted in the past, cash transportation and possession will be discouraged because it will be inconveniencing to do so. The economy will be better for it as every naira denomination will be relevant in the system.
Many Nigerians are prepared to vouch that they had not seen any coin of naira denomination for years now. Not even the DMBs are prepared to accept the lodgement of corns into any account with them. . The acceptable naira denomination for any business transaction in the country today, is paper denomination – N5 (Five naira). Consequently, the minimum· price tag in Nigeria is N5. 11). many other economies, coins play significant roles in business transactions. Price tags are not in round figures but have coins as components and the correct change of the coin given to the buyer.
The CBN should manifest more significant signs of encouraging the use of all the denominations it issues.· It should have a second look at the denominations above N20.
Frequent upward rise of the Monetary Policy Rate (MPR) (three times for this year so far) only. exacerbate inflation. The manufacturers who obtain funds at higher cost push the incidence to the consumer by way of higher prices.
Banking as of old began with the custodian of people’s securities by the goldsmiths. People deposit their money with the banks with the confidence that they will collect it back or part of it as the need arises. But the CBN has come in between the bank and its customers. The customer will no longer have the freedom to operate his account as he wishes. If he insists on doing so, he will be penalized. What statute has he infringed upon?
The CBN should strife more to encourage the economic system that will stimulate less appetite for cash. Plastic Card and electronic payment systems will naturally take over without any cohesion!