Transitioning Digital Economy Through e-banking, Naira Redesign
With digitisation deepening across the globe, many countries, especially developing economies, are gradually moving towards a cashless society, in which all financial transactions are electronic.
In addition to simply eliminating the costs and hassles of managing currency, going cashless may also reduce certain types of crime like kidnapping for ransom, terror financing, among others.
It was with this understanding that the Central Bank of Nigeria (CBN) embarked on a cashless policy journey in 2012.
10 years down the road, the CBN, Deposit Money Banks (DMBs) digital services providers and other players in the financial ecosystem have invested heavily to operate a cashless system through digitisation.
According to economic experts, the benefits of a cashless economy includes; reduced crime rates without tangible money to steal, digital paper trail, and less money laundering less time and cost associated with handling, storing, and depositing paper money and easier currency exchange while traveling internationally.
As a country battling terrorism, banditry and other crimes, it is very important to run on modern banking templates that dwarfs cash usage because illicit financial inflows, terror financing and tracking spending would be easier.
Besides, the CBN, in its examination of the economy, realised that as at December 2022, N2.7 trillion out of N3.2 trillion currency in circulation was outside the banks.
The CBN, while driving the initiative, began by redesigning the old naira notes (N200, N500 and N1,000) and unveiled the new ones in December 2022. It also pegged weekly cash withdrawals by individuals and corporate bodies at N500,000 and N5 million, with effect from January 9.
The apex bank said the redesigned naira notes would be rationed to encourage the public, regardless of location and social ranking, to use digital platforms for transactions.
These are; internet banking, mobile banking, domestic card (AFRIGO), USSD, PSBS, POS, eNaira app and 1.4 million mobile banking agents spread across the country to attend to the informal sector and those in far-flung settlements.
Experts note that while the naira redesign project has loads of economic goodies, some section of Nigerians, apparently those addicted to cash spending, unfortunately, have not considered the gains but have detonate the policy and tried to stir public objection.
Critics of the cashless policy have argued that it would further impoverish Nigerians and create unemployment in the financial value chain. But they lacked evidence to buttress their rejection.
It is not surprising that most of the objections to the central bank policies are by those who currently benefit from the rot in the system – politicians, and other corrupt public officials who take undue advantage of the opaque system of administration that does not allow for transparency in government business.
As a result of the lack of transparency in financial dealings, social safety interventions for instance have been compromised as monies end up in private pockets while the vulnerable are left in worse conditions.
Because monies cannot be partly accounted for or traced as a result of physical cash handling, a lot of underhand transactions are perpetrated and often go unnoticed by anti-graft and regulatory agencies.
However considering the timing of the policies – being an election year – some Nigerians, particularly politicians, believed that the apex bank’s move was targeted against certain individuals and have refused to see beyond their assumptions to know that the actions are in the best interest of Nigerians and the economy if the country must address the current gale of insecurity, corruption and economic sabotage among other actions of some privileged elites who continued to take advantage of a dysfunctional system to short-changed the country.
Analysts note that if the experience of India’s demonetization exercise is anything to go by, then it is evident that imposition of cash withdrawal limits by monetary authorities, following a demonetisation exercise, is a norm. This makes the cash withdrawal limit an integral part of the currency redesign package as both are mutually dependent.
The move, according to the CBN Governor, Mr Godwin Emefiele, became necessary because of the need to deepen financial inclusion, track spending, smoothen monetary policy implementation, reduce the high cost of cash handling and mop up excess cash outside the banks.
“We aim to increase financial inclusion in the country by reducing the number of the unbanked population. Thirdly, our aim is to support the efforts of our security agencies in combating banditry and ransom-taking in Nigeria through this programme and we can see that the military is making good progress in this important.
“Ordinarily, when CBN releases currency into circulation, it is meant to be used and after effluxion of time, it returns to the CBN thereby keeping the volume of currency in circulation under the firm control of the CBN. It should also be noted that the notes in private homes and outside the banking system are not available for economic activities and thus may affect the economy attaining its potential growth.
“Chiefly, this naira redesign policy is expected to reduce the amount of cash in underground or illicit economy, truncate the activities of racketeers, and obliterate rent-seeking businesses in the black market. By reducing currency outside banks, it will shrink money stock and accordingly lower the long-run path of inflation. The ensuing deflationary pressure could elicit interest rate cuts that will in the short- to medium-term boost economic activities, spur aggregate demand, and enhance output growth,” Emefiele said.
According to him, the macroeconomic impacts of currency redesign are multidimensional and could seem uncertain especially at this early stage when its inconvenience is widespread.
Emefiele said, “By spurring more people to use bank accounts, this policy will further increase bank account ownership and increase the use of accounts by enhancing people’s saving behaviour, and further encourage some hitherto informal business operators to formalize the pattern of transactions and adopt more formal settlement channels.”
On plans to deepen financial inclusion, the Director, Development Finance Department of CBN, Mr. Yusuf Yila said Nigeria targets to get 95 per cent of the over 200 million population financially included by 2024.
Weighing in on the new initiative, Nigeria’s first professor of capital markets, Prof Uche Uwaleke said that the cash withdrawal limit is an integral part of currency redesign meant to reduce the amount of currency circulating outside the banking system.
He said it will have no negative impact on these businesses given the many alternative payment platforms available to them.
“Rather, the impact will be positive as it reduces the risk associated with carrying huge cash such as armed robbery. The incidence of money laundering is equally likely to reduce.
“In place of cash transactions, these businesses can use more reliable and safer channels such as PoS, Debit cards, eNaira and electronic transfers,” he said.
In his view, the former Managing Director/Regional Executive Ecobank Nigeria, Patrick Akinwuntan, expressed confidence that the cashless policy would improve financial security and transparency.
“If you look at the level of theft when people go to buy things in the market, it is cash robbery. It happens when people are coming from the shops, robbers believe that there is money with you. But with this policy, the average Nigerian will know well, maybe this person will not be holding up to N100,000”, Akinwuntan said. He however urged regulators to monitor and walk with Nigerians on the journey.
“If Nigerians see the support from the regulators, they will fall in line. For instance, we can see that most banks want to be available on Saturday and I actually think some will be available on Sundays also. That process needs to take a lot of feedback.”
Once the people understand that the regulators are focused on this policy and are supportive in its implementation, I think it has a good opportunity of taking Nigeria to a better monetary environment,” he said.
