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Navigating the murky waters of cashless policy

The cashless policy of the Federal Government has been a subject of sharp criticisms from inception despite its huge benefit to the economy.

In this piece, JOSEPH INOKOTONG looks at the attendant challenges from commencement to date.

The Cashless policy of the Federal Government, spearheaded by the Central Bank of Nigeria (CBN), arguably has remained to date, the most talked about programme in the country, perhaps next to the 2023 Presidential elections. This is understandable when one considers its effect on the economy and generality of the populace.

Perhaps, unknown to many Nigerians, the country has been neck- deep in deepening cashless economy long before the Naira redesign policy. The numerous Point of Sales (PoS) operators that dot the nooks and crannies of the country, the eNaira, Automated Teller Machines (ATMs) and other electronic channels of payments are all means of transacting business without the use, and exchange of physical cash. These modes of payments, which reduce the risk of carrying bulk cash have been in place, and generally accepted by the majority before the advent of the Naira redesign policy.

In the early past, it was fashionable for many to brag about these policies, which some had elevated to status symbol, especially the electronic money transfers, using various applications. The failure rate was minimal, and seemed unnoticeable as many hardly complained about it. In fact the PoS terminal became an instant source of employment to the horde of jobless youths, who were, and still remain the major beneficiary of the programme.

All these seemed to have changed drastically, as the cashless policy wore another toga a day after Mr Godwin Emefiele, Governor of the Central Bank of Nigeria announced the decision of the apex bank to undertake the policy.

The CBN on 26th October 2022 announced the introduction of the redesign of N200, N500 and N1,000 banknotes. The CBN Governor, Godwin Emefiele, told journalists at a special press briefing in Abuja that the banknotes were to be redesigned after due approval from the federal government, and in a bid to control currency in circulation, among other reasons given for embarking on the exercise.

Announcing the issuance of new naira banknotes, Mr Emefiele had said, “We have called this gathering to inform relevant stakeholders and the general public of persisting concerns we are facing with the management of our current series of banknotes, and currency in circulation, particularly those outside the banking system in Nigeria. As you, all may be aware; currency management is a key function of the Central Bank of Nigeria, as enshrined in Section 2 (b) of the CBN Act 2007. Indeed, the integrity of a local legal tender, the efficiency of its supply, as well as its efficacy in the conduct of monetary policy are some of the hallmarks of a great Central Bank.”

After laying the foundation, Mr Emefiele noted that in recent times, however, currency management has faced several daunting challenges that have continued to grow in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country. He enumerated the challenges to include primarily, “significant hoarding of banknotes by members of the public, with statistics showing that over 80 percent of currency in circulation are outside the vaults of commercial banks; worsening shortage of clean and fit banknotes with attendant negative perception of the CBN and increased risk to financial stability, and increasing ease and risk of counterfeiting evidenced by several security reports”.

Still rationalising why the exercise was necessary, the CBN Governor pointed out that recent development in photographic technology and advancements in printing devices have made counterfeiting relatively easier. In recent years, he said the CBN had recorded significantly higher rates of counterfeiting especially at the higher denominations of N500 and N1,000 banknotes. He added that although global best practice is for central banks to redesign, produce and circulate new local legal tender every 5–8 years, the Naira has not been redesigned in the last 20 years.

On the basis of these trends, problems, and facts, and in line with Sections 19, Subsections a and b of the CBN Act 2007, Mr Emefiele stated that the Management of the CBN sought and obtained the approval of President Muhammadu Buhari to redesign, produce, and circulate new series of banknotes at N200, N500, and N1,000 levels.

”In line with this approval, we have finalised arrangements for the new currency to begin circulation from December 15, 2022. The new and existing currencies shall remain legal tender and circulate together until January 31, 2023 when the existing currencies shall seize to be legal tender. Accordingly, all Deposit Money Banks currently holding the existing denominations of the currency may begin returning these notes back to the CBN effective immediately. The newly designed currency will be released to the banks in the order of First-come-First-serve basis”, Mr Emefiele said.

He enjoined customers of banks to begin paying into their bank accounts the existing currency to enable them withdraw the new banknotes once circulation begins in mid-December 2022. All banks were directed to keep open, their currency processing centers from Monday to Saturday to accommodate all cash that will be returned by their customers. For the purpose of the transition from existing to new notes, bank charges for cash deposits were suspended with immediate effect. “Therefore, DMBs are to note that no bank customer shall bear any charges for cash returned/paid into their accounts. Members of the public are to please note that the present notes remain legal tender and should not be rejected as a means of exchange for purchase of goods and services”, Mr. Emefiele further stated.

He reassured the public that the CBN would continue to monitor both the financial system in particular and the economy in general, and always acts in good faith for the achievement of the Bank’s objectives and the betterment of the country.

Shortly afterwards, President Muhammadu Buhari on Wednesday morning, November 23, 2022 unveiled the redesigned naira notes before the Federal Executive Council (FEC) meeting at the state house, Abuja. The redesigned notes presented to the public were the N1000, N500 and N200, the country’s highest currency denominations as earlier planned by the CBN.

Following in quick succession was the introduction by the apex bank of the cash withdrawal limit policy. Under the updated regime, the CBN said effective January 9, 2023, individuals and corporate entities can withdraw a maximum of N500,000 and N5 million respectively compared to N100,000 and N500,000 which was previously announced on December 6, 2022.

In an updated circular dated December 21, 2022, and addressed to all Deposit Money Banks (DMBs) and Other Financial Institutions, Microfinance Banks, Mobile Money Operators, and Agents, the CBN in a correspondence signed by the Director, Banking Supervision Department, Mr Haruna Mustafa, explained that the upward review was, as a result of the feedback it got from stakeholders.

Following suit, the Nigeria Financial Intelligence Unit (NFIU) on January 5, 2023 prohibited cash withdrawals from accounts belonging to the federal, states and local governments, as well as Ministries, Departments and Agencies (MDAs). Announcing the prohibition in his office in Abuja, Modibbo R. Hamman Tukur, Director/ CEO of the NFIU said the action was necessitated by the need to arrest the rate by which monies were siphoned out of public accounts without recourse to the money laundering laws. He noted that the rate of withdrawals above the threshold from public accounts has been worrisome, adding that over N701 billion had been withdrawn in cash by state governments from 2015 till date.

The first pointer to what lies ahead of the cashless policy initiative of the CBN was when the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed denied knowledge of the exercise when she appeared before a committee in the National Assembly. She had told the committee that she was not consulted by the CBN before the policy was announced but read about it in the newspapers.

This set the tone for the flurry of opposition that greeted the cashless policy with the aim of derailing it. First, to fire the salvo was the National Assembly, which summoned the CBN Governor, and sought extension of the deadline, but the apex bank stuck to its guns. The cashless policy, though laudable was fraught with many teething problems bothering on the scarcity of the new Naira notes. Many could not withdraw their monies from the DMBs despite directive by the CBN that each customer should be paid a maximum of N20,000.00 over the counter.

The Banks also refused to load their ATMs with the new notes. The few that loaded their ATMs attract a flood of customers who queued daily to withdraw cash. Some of ATMs could not dispense cash due to the unscrupulous activities of bank workers. The PoS operators became a thorn on the people’s flesh through their exorbitant charges on each withdrawal.  The public was subjected to untold hardship due to the inability to get cash for their basic needs.

Amidst these sufferings by the people, many economists rose in stout support of the masses, querying why the CBN should make the people to agonise in order to have access to their monies.  The economist said the CBN has no right to impose the choice on citizens of when and how they can withdraw their monies, describing it as a flagrant violation of the rights of citizens for the CBN to withhold the cash of citizens under the guise of currency redesign.

“The CBN act does not give the CBN that right. The act cannot be superior to the constitution of the country. The CBN cannot request the citizens to bring their cash for a swap, only to deprive them access to it. A swap presupposes that whatever old notes were received by the banks must be replaced with new ones instantly. Otherwise, the period of the swap should be extended until the CBN is in position to do so. In many other climes, such swaps are done over 12 to 20 months, or even more, to minimise disruption.

“The claim by the CBN that the economy has too much cash outside the banking system has no basis in economic theory; neither can it be supported by empirical evidence. As at December 2022, the total money supply was N52 trillion, cash component of money supply was N2.6 trillion, which was just five per cent. Similarly, the country’s Gross Domestic Product (GDP) was N202 trillion, which gives a cash to GDP ratio of 1.3 per cent.  These ratios are some of the lowest around the world, which shows that the Nigerian economy is not really a cash-dominant economy. Cashless transactions in 2022 was about N400 trillion, according to NIBSS. The truth is that nothing is broken. And we don’t fix what is not broken.  Of course, we can do better, but not by crudely mopping up of cash in the economy.

“The contention that the arbitrary mopping up of cash will curb inflation and enhance monetary policy effectiveness equally has no basis going by available data. It is also on record that about N15 trillion has been mopped up with the Cash Reserve Ratio (CRR). Indeed, the bigger threat to monetary policy effectiveness and inflation is the N22 trillion ways and means finances of the CBN”, Dr Muda Yusuf, Director Centre for the Promotion of Private Enterprise (CPPE) had said.

Again, worried by the effects the CBN’s naira redesign policy was having on the residents of their states, the governments of Kaduna, Kogi and Zamfara have dragged the Federal government before the Supreme Court, seeking a restraining order to stop the full implementation of the policy. They were later joined by other States for, and against the policy.

In a motion ex-parte filed on their behalf by their lawyer, Abdul Hakeem Uthman Mustapha (SAN), the three states urged the apex court to grant them an interim injunction stopping the Federal Government either by itself or acting through the CBN, the commercial banks or its agents from carrying out its plan of ending the timeframe within which the now older versions of the N200, N500 and N1000 denominations of banknotes may no longer be legal tender on February 10, 2023.

In its judgment, the Supreme Court on Friday in Abuja nullified the Federal Government’s cashless and Naira re-design policy, declaring it as an affront to the 1999 Constitution, and held that President Muhammadu Buhari breached the Constitution of the Federation in the ways and manners he issued directives for the re-designing of the Naira by the Central Bank of Nigeria, CBN. The apex Court also held that unlawful use of executive powers by the President inflicted unprecedented economic hardship on the citizens by denying them ownership of, and access to their monies.

In the wake of the judgment, many economists commended the Supreme Court ruling on the use of the old Naira notes as legal tender.

They expressed the views that complying with the apex court decision will help revive economic activities and reduce the current difficulties being experienced by Nigerians on account of the policy, pointing out that the time frame till December 31, 2023, provides an opportunity for the CBN to re-assess the policy and improve on its implementation without causing distortions to the economy. Another said, “the entire exercise was a needless disruption of economic activities, especially among the most vulnerable segments of the economy, unfortunately.”

However, despite the commendations and sharp criticisms of the cashless policy, its benefits far out weight the negative aspect of it. Perhaps the policy needs fine-tuning to unearth smooth implementation mechanir shared prosperity.

Written by JOSEPH INOKOTONG

Prevail Inegbenose

Prevail Inegbenose is the Chief Executive Officer (CEO), Spark Media & Entertainment Ventures, the Publisher of Spark News Daily - Nigeria's most sought-after online newspaper in Government, Politics, Sport, Entertainment and Religion. Prevail Inegbenose studied Mass Communication from the prestigious Auchi Polytechnic Auchi and graduated in 2007. He is an experienced journalist with 16 years of active and practical journalism. Prevail Inegbenose is the Lead Pastor, House of God Int'l - Rest Tabernacle, Abuja - Nigeria. Tel: 08039564796.

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