Nigeria: Many Benefits of CBN's Cash-Less Policy

27 March 2023

Obinna Chima writes that the cash-less policy will contribute in the drive to formalise economic activities and reduce drastically the prevalence of cash in the economy, which has been established fuels corruption

One issue that has generated a lot of controversies in the country in the past few months is the Central Bank of Nigeria's (CBN) drive towards a cash-less economy.

The initiative, which was followed by the redesigning of the naira arguably remains a topical issue in the country because of the poor response of commercial banks to the initiative as complaints of transaction failures became prevalent.

The central bank had in October last year, announced its decision to redesign the N200, N500 and N1,000 denominations, and the subsequent announcements including the cash withdrawal limit - have continued to generate controversies.

The Supreme Court has since ruled that the old notes remain legal tender till the end of this year. This was as a result of tension mounted by some politicians who had alleged that the policies were targeted at them. Contrary to the insinuation, the cash-less and naira redesign policies are positive policies with overall benefits for the economy, especially as initiatives to manage excess liquidity in the economy, among others.

Although the process to reduce cash usage in the economy commenced in 2012, the implementation was delayed by the central bank to ensure that the industry develops the capacity to serve customers effectively.

Owing to this, there were five reversals in the bank's attempt to go cashless and promote financial inclusion since 2014. The reversals were born out of the need to deepen the country's payment system infrastructure.

Nevertheless, the benefits of going cash-less are numerous and remains the best option for any country as has been seen globally.

For instance, 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, it must embrace evolve to a cash-less society.

It is also necessary in the fight against inflation in Nigeria, which has stubbornly remained at double-digits. Also, the cash-less policy has led to a reduction in banditry and kidnappings which were rampant in the recent past.

By going cash-less, people can easily pay their bills online, shop and schedule transactions and manage all the finances using their laptops or smartphones.

Going cash-less not only eases one's life but also helps authenticate and formalise the transactions that are done. This helps to curb corruption and the flow of black money which results in an increase of economic growth.

Also, the cost of printing and transportation of notes would be reduced. According to the World Economic Forum (WEF), adopting cash-less eliminates the middleman and close the financial inclusion gap.

"A cash-less society - along with the transformation of the last mile of money transfers, payments and banking services - will help to close the financial inclusion gap. It is a tool to fight corruption. Cash-less technologies could be some of our greatest assets in the fight against corruption and organised crime, too.

"And, once again, the people who stand to benefit most are those who are most in need. There are 1.4 billion people in the world who have to make do with less than $1.25 a day.

"At the same time, around $1.26 trillion is effectively stolen from developing countries, due to corruption, bribery, theft and tax evasion. If we could reclaim that money for those countries, we could lift those 1.4 billion people above the poverty threshold and keep them there for at least six years.

"If everyone were connected to an end-to-end e-payment infrastructure - a cashless environment - there would be transparency in money flows. Whether it's international aid or private investment, if everyone in the chain were connected digitally, you could see where the money went and how it was spent," the WEF stated in a report.

On the other hand, the redesigning of the naira was to help ease risk of currency counterfeiting evidenced by several security reports and the increased risk to financial stability as well as the worsening shortage of clean and fit currency, with the attendant negative perception of the central bank.

Also, there was significant hoarding of naira notes by members of the public, with statistics showing that over 80 per cent of the currency in circulation was outside the vaults of the commercial banks.

The CBN Governor, Mr. Godwin Emefiele, had revealed that as of September 2022, a total of N3.2 trillion was in circulation, of which N2.73 trillion was outside the vaults of the banks, describing the development as unacceptable as this has the potential to harm monetary policy actions, further leading to higher inflation and currency speculation, thereby exposing vulnerable Nigerians to further economic hardship.

Notwithstanding the antagonism against the CBN's cashless policy direction, analysts have thrown their weight behind the move, noting that the decision to limit cash withdrawal limits to individuals and corporate organisations following the currency redesign programme was the right way to go if the country must move forward.

They said the policy would positively enhance the monetary and fiscal space as well as improve the profitability of the banking sector.

The analysts, however, cautioned that the slow adoption of e-banking, the rise in cybercrime coupled with an election year, and other macroeconomic factors could slow the benefits of the policy.

No doubt, beyond the immediate benefits of the CBN's cash-less policy and currency redesign, which includes countering terrorism, and managing money supply among others, the initiative would also ensure that going forward, social intervention programmes that are targeted towards poor Nigerians achieve their desired objectives.

This is partly because going cash-less would ensure that such funds can easily be tracked and monitored and this will further provide for greater transparency and accountability by those who administer the resources.

Also, though the security agencies have been on top of their game in recent times tackling insecurity across the country, nonetheless, the cash-less policy initiative of the central bank has helped to reduce the incidence of kidnapping and banditry as a result of the restrictions placed on cash withdrawals.

As a result of the illicit monies held by politicians and public officers in the homes, and outside the banking system, the economy and Nigerians, in general, have had to pay a huge price - high inflation, exchange rate crisis, distortion of monetary policy, and unemployment among others.

Interestingly, such illicit monies have been used to further suppress the political system through vote-buying during an election.

This subversion constantly allowed incompetent leaders to ascend to power and further compromise the system. It was definitely time to act.

Furthermore, a cash-less policy will ensure that people reduce the amount of cash they carry about.

Only recently, in line with the cash-less policy, the Nigerian Financial Intelligence Unit (NFIU) unveiled new guidelines aimed at mitigating money laundering, terrorist financing, and proliferation of weapons among others.

The provisions of the framework also prohibit cash withdrawal from public accounts and ban the payment of estacodes and overseas allowances to civil and public servants in cash - in an apparent drive to complement the recent efforts by the CBN to tackle terrorism-related financing as well as promote a cashless economy.

The Enforcement, Guidelines, and Policies for Mitigation of Money Laundering, Terrorist Financing, Proliferation of Weapons and Prevention of Predicate Crimes which became effective on March 1, 2023, restricts cash payments of a sum exceeding N5 million (or its equivalent) for individuals, and N10 million or its equivalent for a body corporate. Section 19 of the MLPPA, 2022 imposes a fine of at least N10 million or imprisonment for a term of at least three years (or both), in the case of individuals; and a fine of N25 million in the case of a body corporate. Section 26 of POCA, 2022 makes provision for the seizure and detention of cash over the prescribed amount under the law."

The framework allowed for the discontinuation of cash withdrawal in Naira and foreign denominations from public accounts at federal, state, and local government levels were in compliance with its statutory responsibility under Section 3(1) a - s and Section 23 (2) a of the NFIU Act, 2018, and other provisions under the MLPPA, 2022.

According to the NFIU, "Civil servants are becoming more and more vulnerable to money laundering and its predicate offences due to their exposure to cash withdrawals from public accounts".

An analysis spanning 2015 to 2022, showed that the federal government, states, and local governments withdrew N225.72 billion, N701.54 billion, and N156.76 billion respectively - all in cash.

According to the NFIU chief executive, "The cash withdrawals directly contravene the provisions of the MLPPA, 2022 and the Proceeds of Crime (Recovery and Management) Act, 2022 (POCA, 2022) which provide the legal framework setting limitations on cash transactions and sanctions for infringement of the provisions.

"We support the CBN circular on cash withdrawal limit which is in harmony with the law, provided in Section 2 of MLPPA, 2022. This guideline will support the efforts of the CBN."

Therefore, it is expected that as the CBN drives the cash-less revolution, Nigerians must give it the required support for the overall benefits of the country.

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