Nigeria: The Implications Of The CBN's Directives On The New Naira Notes, Cash Withdrawal Limits And Cash Swap Program

1. Introduction

On 26th October 2022, the President of the Federal Republic of Nigeria directed² the Central Bank of Nigeria ("CBN") to redesign the N200.00, N500.00 and N1000.00 bank notes.³ In explaining the directive, the CBN Governor stated that the policy was aimed at controlling the money in circulation within the country, as well as curb inflation. The CBN Governor indicated that through data collated by the apex bank, N2.73 trillion out of the N3.23 trillion in circulation was outside the vault of commercial banks across the country and supposedly held by members of the public. This disproportionate amount of cash in private hands aids the movement of illicit funds, facilitates insecurity, acts of terror, and serves as a breeding ground for hyper-inflation.⁴

2. Background

In line with the redesign policy, the CBN issued a circular to all Deposit Money Banks (DMBs), Payment Service Banks (PSBs), Primary Mortgage Banks (PMBs) and Microfinance Banks (MFBs) on the 6th of December 2022, stating that the maximum withdrawal threshold for Over The Counter "OTC" withdrawals was N100,000.00 and N500,000.00 for individuals and corporate entities, respectively and pegged maximum weekly cash withdrawals on ATMs at N100,000.00. In the same circular, the apex bank encouraged customers to embrace its cashless policy and utilize alternative channels such as internet banking, mobile banking apps, USSD codes and debit cards to carry out transactions.⁵

As soon as the policy came into effect it was met with complaints, as the citizenry and businesses which require cash immediately faced untold hardships. In response, the CBN issued a revised circular on the Naira Redesign Policy via a Revised Cash Withdrawal Limit, which increased the limits and pegged individual and corporate cash withdrawals at N500,000.00 and N5,000,000.00, ^{respectively. The revised policy reduced the uproar in the polity as it assured citizens that the effects of the currency redesign would not be significant. However, by January 2023, the situation was quite different from what was promised.}

3. Implications

By the new policy, Banks are mandated not to issue old naira notes to customers both at OTC and ATMs; yet the quantity of new notes issued was quite limited. This resulted in customers all over the country trooping in to banking halls to secure funds for legitimate business transactions.⁸

Consequent upon this, the CBN issued a circular⁹ dated 20th January 2023 on Cash Swap Program in rural/underserved areas of the country aimed at ensuring underserved and rural communities exchange their Naira through super agents and DMBs. The program has been successful thus far as CBN deployed its agents through Shared Agent Network Expansion Facilities "SANEF" to rural areas, communities, and villages across several northern and eastern states to educate traditional rulers, communities, and market women¹⁰ on the cash redesign policy as well as help swap the old Naira notes for new ones. The program aims at ensuring agents exchange a maximum of N10,000.00 per person in each community.

As stated by the CBN Governor,¹¹ the redesign and limited withdrawal policy is to aid reduction in inflation, reduction of the illicit funds in circulation, reduction of crime and insecurity, as well as to eliminate hoarded bank notes. However, these restrictions may also impact the ability of individuals and businesses to access their funds for legitimate purposes, particularly for those who rely heavily on cash transactions. Several people and financial analysts have argued that it is a big distraction aimed at imposing severe costs on the economy and an avenue to create hardship in the polity.¹² It is worth noting that the policy of the Apex bank has caused chaos, with long queues, riots, and criminal destruction of the properties of commercial banks now a regular fixture across the country. People queue in front of ATMs for several hours just to withdraw cash of not more than N5000 per withdrawal. Others who want to withdraw over the counter are given very low denominations which are mostly bulky. Recently, there are trends of people hawking cash in strategic locations over the country. This includes POS agents who transact the same business with exponential and ridiculous sums as transaction charges.¹³

Considering the widespread hardships, three State Governors instituted an action at the Supreme Court challenging the legitimacy of the cash redesign policy and CBNs implementation efforts. In their application, they urged the Supreme Court to grant them an interim injunction restricting the demonetisation of the , N500 and N200 Naira notes.¹⁴ Consequent upon this, the Nigerian President addressed the nation via a National Broadcast on March 16th 2023 and ordered that the old N200 notes be brought back into circulation, whilst reconfirming that the N500 and N1000 notes ceased to be legal tender despite the interim order of the Supreme Court.¹⁵ This only provided a little reprieve, as the cash in circulation was limited. Protests continued across several locations with citizens expressing anger by burning bank structures across the country.

Further to this, the CBN released press statements on the 2nd and 17th of February 2023,¹⁶ assuring Nigerians of the availability of cash at ATMs and OTC for withdrawal. The press release recognised the growing illegality of hawking and selling of Naira notes by criminal elements and vowed to address same through the Nigeria Police force as well as the Economic and Financial Crimes Commission. Since then, the Supreme Court has held in the case filed by the three State Governors¹⁷ that the currencies are still legal tender and the CBN has acknowledged the judgement and notified the general public that N1000, N500 and N200 old Naira notes remain valid till 31st December 2023.

4. Conclusion

Despite the challenges and poor implementation process, the restrictions on cash withdrawals will create opportunities for a wider adoption of more fintech products and services. It will further deepen the National Financial Inclusion Strategy¹⁸ developed by the CBN which is aimed at ensuring 80% of bankable adults in Nigeria are banked. As such, it will promote increased adoption and usage of financial services in priority demographics while expanding digital financial services through fintech and other digital means. If the policy is properly observed, it will encourage transaction closure through virtual platforms while checkmating financial insecurity, excessive cash in circulation and inflation.

The Naira redesign, cash swap program, and the CBN's directives on cash withdrawal limits have great implications for the economy. While these measures may help address some of the challenges faced by the financial sector, they also raise new challenges that need to be addressed. Essentially, it is important that individuals, businesses, and the government work together to ensure a smooth transition while minimising the negative impact of these changes. Although fingers are crossed on the implication of the new circular¹⁹ on OTC withdrawals pegged at a maximum daily payout of N20,000 per person, the CBN should strive to integrate and deepen its cash swap policy across southern Nigeria, which remain underserved. Also, banks should be provided adequate cash to meet up with their daily customer needs.

Footnotes

1 Emmanuel C. Onele, Associate Corporate Finance & Capital Markets Department, SPA Ajibade and Co., Lagos, Nigeria.

2 Section 20 (3) of the Central Bank of Nigeria Act 2007 grants the president the power to notify and direct the CBN to call in any of its notes or coins and at the expiration of the notice, the notes or coins ceases to be legal tender.

3 Thisday Newspaper, 'Many Benefits of Naira Redesign Policy', available at https://bit.ly/3M3jW3z accessed 3rd February 2023.

4 Arise TV News, 'CBN Gov. Emefiele says Currency Redesign will Curb Nigeria's Inflation and Banditry', available at http://surl.li/fxotj accessed 3rd February 2023.

5 CBN circular on Naira Design Policy - Revised Cash Withdrawal Limits, issued 6th December 2022 with reference number BSD/DIR/PUB/LAB/015/069.

6 CBN circular on Naira Design Policy - Revised Cash Withdrawal Limits, issued December 21st 2022 with reference number BSD/DIR/PUB/LAB/015/087.

7 Daily Trust Newspaper, 'Naira Scarcity - Hardship Lingers as Businesses, Travels Suffers', available at https://dailytrust.com/naira-scarcity-hardship-lingers-as-businesses-travels-suffer/ accessed 3rd February 2023.

8 Vanguard Newspaper, 'Nara Redesign Hardship Anger as Old and New Notes Remains Elusive', available at https://www.vanguardngr.com/2023/02/naira-redesign-hardship-anger-as-old-new-notes-remain-elusive/ accessed 3rd February 2023.

9 CBN Circular on Naira Redesign Policy - Cash Swap Program in Rural/Underserved Areas, issued January 20, 2023 with reference number BSD/DIR/PUB/LAB/015/022

10 See, https://allafrica.com/stories/202301300404.html, accessed 3rd February 2023.

11 Ibid at 2.

12 BusinessDay Newspaper, 'Naira redesign cash withdrawal limit and implication on the Nigerian financial economy' available at https://businessday.ng/news/legal-business/article/naira-redesign-cash-withdrawal-limit-and-implication-on-the-nigerian-financial-economy/ accessed 3rd February 2023.

13 Vanguard Newspaper Editorial: 'Naira Redesign, Hardship Anger as Old Notes and New Notes Remain Elusive' available at https://www.vanguardngr.com/2023/02/naira-redesign-hardship-anger-as-old-new-notes-remain-elusive/ accessed February 3, 2023.

14 Kayode Oladele, 'Naira Redesign Litigation - Why The Supreme Court Has Original Jurisdiction 2023', available at www.premiumtimes.com/opinio/581989-naira-redesign-litigation-why-the-supreme-court-has-original-jurisdiction-by-kayode-oladele.html accessed February 21, 2023.

15 Full text of the President's speech is available at https://www.premiumtimes.com/news/top-news/582309-naira-scarcity-full-text-of-buhari-speech-to-nigeria.html accessed 21st February 2023.

16 CBN Press Release on Police and Other Agencies to Prosecute Sellers and Abusers of Naira - 2nd February 2022 available at https://www.cbn.gov.ng/Out/2023/OFISD/CBN%20Press%20Release%20-%20February%202%202023.pdf. accessed 3rd February 2023 and CBN Press Release via its official Twitter account 17th February 2023.

17 AG Kaduna & Ors. v. AG Fed & Ors. (unreported) Suit No. SC/AB/103/2023 delivered on the 3rd of March 2023.

18 National Financial Inclusion Strategy - 2012, available at https://www.cbn.gov.ng/out/2019/ccd/national%20financial%20inclusion%20strategy.pdf. accessed 22nd February 2023.

19 CBN press release on Police and other agencies to prosecute sellers and abusers of Naira - February 2, 2022. This is the latest circular by the CBN. The circular is aimed at criminalizing sales of cash, illegal cash swaps and spraying of cash at parties. The circular also pegged OTC withdrawals at N20000 per day.

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