The CBN’s Monetary Policies that will Shape Economic Activities from 2023

Currency Redesign

 The Central Bank of Nigeria (CBN) announced on the on October 26, 2022, that it has concluded arrangements to redesign 200, 500, and 1000 denominations of the naira which have about 75 percent of the notes outside the banking industry. The CBN opined that the redesigning of the naira notes will phase out old notes and render useless, huge amounts of raw cash in the hands of politicians, kidnappers, and terrorists. The essence of this policy is to mop up excess cash outside the banking industry with a view to handling monetary policy and foreign exchange programs credibly. The redesigned naira notes have been launched on the 23rd of November, the last date for the use of the existing 200, 500, and 1000 notes for transactions in the country is the 31st of January 2023. According to the CBN, the redesigning of the currency will help control the amount of money in circulation, estimated to be ₦2.73 trillion, out of the ₦3.23 trillion currency in circulation. Retrieving about 84.5% of the total amount in circulation back to o the CBN’s vault will help curb rising inflation and safeguard the integrity of the Naira.

National Domestic Card Scheme

Another policy that will shape the face of the financial sector from 2023 is the national domestic card scheme planned for introduction from the 16^th of January 2023 by the Central Bank of Nigeria (CBN) and the Nigeria Inter-Bank Settlement Systems (NIBSS) Plc, in conjunction with the Bankers’ Committee. According to the CBN, the card scheme will foster innovation within the Nigerian domestic market, while enabling African and international interoperability, The domestic card is expected to enable seamless dissemination of government-to-person or even person-government payments, such as micro payment and credit, e-government, identity management, transportation, health sector and agriculture and other social impact initiatives as well as track spending.

The domestic card will accelerate financial inclusion programme of the government, as well as deliver lower cost payments services that are more accessible and affordable for Nigerians, i.e., the national card scheme will reduce operating cost of cards in the country. The scheme will allow banks and other institutions to offer a variety of solutions including debit, credit, non-interest, virtual, loyalty and tokenized cards, etc. The implication of the introduction of the national domestic card is that ATMs will be scrapped. Hence, Nigerians will queue at their banks for a new card from January 2023. This also has the tendency to limit cash in circulation.

Revised Cash Withdrawal Limit

To further curtail the ravaging inflation and improve the cashless policy of government, the CBN, in addition to its currency redesign policy launched on the 23rd of November by Mr. President, President Muhammadu Buhari, is set to implement a new cash withdrawal limit from January 2023. In its policy document released on the 6^th of December, the CBN has instructed all Deposit Money Banks (DMBs) and other financial institutions to limit the maximum cash withdrawal over the counter (OTC) by individuals and corporate organisations per week to N100,000 and N500,000 respectively, with withdrawals above the thresholds attracting processing fees of 5 per cent and 10 respectively for individuals and corporate entities going forward.

Similarly, the CBN has pegged the maximum cash withdrawal per week via Automated Teller Machine (ATM) at N100,000 subject to a maximum of N20,000 cash withdrawal per day, in the same way that the daily maximum cash withdrawal via the Point of Sale (PoS) terminal has been set as N20,000 cash. Also, third party cheques above N50,000 shall not be eligible for OTC payment while extant limits of N10 million on clearing cheques remain. The new policy also limits the highest denomination to be uploaded in the ATM machines as N200 notes.

However, where bank customers have reasons to withdraw N5,000,000 or N10,000,000 depending whether such a customer is operating as an individual or corporate entity, such person must pay the compulsory processing fees as an individual or corporate entity. Such a customer must also fulfil all the requirements of the Know Your Customer (KYC) as will be required by the DMBs. While the believes that the policy will enhance the efficiency of the payment system, support economic growth and monetary policy transmission, there is this palpable fear that the policy will lead to cash crunch and crumble the opportunities for SMEs to grow thereby limiting the envisaged economic growth.

Likely Consequences

No doubt, these policies will impact negatively on the informal sector which makes up about 80% of commerce and trade in the economy and reside mostly in the rural areas without access to the right infrastructure for a cashless transaction and where no banks or other financial institutions exist. A reduction in the quantity of cash in circulation, the main means of exchange in the country, as targeted by these policies will result in the slowdown of business transactions in the sector and reduce economic activities, especially in the short run. If not properly addressed may force the informal sector to abandon banking activities which may negate the financial objective of the CBN.

However, a move towards reducing the quantity of money will create greater opportunities for more economic agents to move into the formal sector thereby helping authorities to collect taxes and improve revenue generation. This will lead to fast, seamless and transparency in business transactions, ease of monitoring of transactions and thus reduces corruption. The main reason for these new CBN policies is to enhance the effectiveness of monetary policy through the mopping up of excess liquidity to curtail the ravaging inflation in the country, and to drag most of the population into the financial system.