Wednesday, May 18, 2011

Views on the CBN New Cash Withdrawal Limit

On Thursday, April 28, 2011, Central Bank of Nigeria issued a circular titled “Industry Policy on Retail Cash Collection and Lodgement”. In the circular the CBN put a cap on the amount an individual can withdraw from his or her account at N150, 000 while corporate organisations can only withdraw maximum of N1 million in a day. The apex bank also stipulated penalties for contravention of the new monetary policy.

Most of the reactions to the new policy have been on cash withdrawal with deafening silence on cash lodgement. I think CBN needs to clarify the position of the circular on cash lodgement. Is there a ceiling as well on cash lodgement? If there is, is it same as placed on retail cash collection?

On the new cash withdrawal limit, I think it is a noble idea, if faithfully implemented. It has the potential to enhance transparency and accountability in the banking industry as well as curb corruption, money laundry and terrorism financing. It will enable CBN to channel the huge resources spent on currency minting to better use. The new monetary policy will also promote wider use of alternate payment systems such as cheques, electronic money transfer, and so on.

However, in the short term a lot of people may be scared keeping their money in the banks if it will be cumbersome withdrawing it. Business transactions may also be slowed down as a result of service providers or traders waiting for the confirmation of money transfer before releasing goods or providing service. There is also likelihood of increase in the rate of credit and debit card frauds, issuance of dud cheques and hacking of cyber-criminals into banks or customers database in order to perpetrate frauds. Bank customers may also start indulging in multiple accounts holding in order to meet their cash needs.

For the new policy to succeed, Central Bank of Nigeria and all the financial institutions involved in the implementation of this directive must build their staffs capacity to effectively monitor compliance and enforcement. The banking public should be adequately sensitized and educated on the advantages of this new initiative. There must also be expansion of the new payment channels such as Point of Sale terminals and other e-payment platforms for prompt and efficient settlement of transactions or claims. It is important for banks to offer incentives for people to embrace the alternative payment channels than cash withdrawal. There could also be higher interest on savings than presently obtained so that people will imbibe saving culture.

CBN should also consider increasing the cash withdrawal ceiling for individuals to N500, 000 per day and that of corporate organisations to N5 million per day. I believe this will meet the daily need of those who may prefer to pay cash for goods and services. This new policy needs to be backed by the freedom of information act as well as anti-money laundering and anti-terrorism law in order to be more effective. The strengthening and expansion of information, communication technology (ICT) backbone of banks is very important if the new policy will succeed. Improved electricity is also sine-qua-non or imperative to power the ICT equipment and enhance seamless operations of the e-payment platforms. Most importantly, erring financial institutions must be promptly sanctioned to serve as deterrent to others.