The Central Bank of Nigeria (CBN) has limited daily ATM, bank withdrawals, and cashback transactions to 20,000 Naira ($45) and 100,000 Naira ($225) per week to facilitate CBDC usage. Business customers may withdraw 500,000 Naira ($1,128) per week. Withdrawals above these amounts will carry a 5% processing fee for individuals and 10% for businesses. Any transaction above these amounts requires approval in writing that the transaction is for a legitimate purpose and the issuing bank to send justifying documentation to the CBN.
As part of the CBN cashless policy, the CBN instituted the restrictions and instructed banks to encourage customers to use alternative channels for banking transactions (internet banking, mobile banking apps, USSD, cards/POS, and the Nigerian CBDC called the e-Naira). The policy will take effect on January 9, 2023. The CBN has threatened severe sanctions for individuals or businesses aiding and abetting the circumvention of the policy. Read the CBN document.
What is eNaira?
eNaira is the central bank digital currency (CBDC) issued by the Central Bank of Nigeria (link-https://www.enaira.gov.ng/). Learn about CBDCs. The CBN released the eNaira on October 25, 2021. Within a month of launch, nearly 500,000 people had downloaded the wallet. In June 2022, the CBN added support for USSD codes which work similarly to SMS messages to make the eNaira accessible to people without smartphones.
In September 2022, CBN Deputy Governor, Dr. Kingsley Obiora, spoke at an International Monetary Fund conference about the new USSD technology and the eNaira in general. He spoke about the eNaira being a faster, simpler, cheaper, and safer financial payment system. CoinDesk reported nearly $10 million transactions settled with the eNaira.
Also, Obiora spoke about the new technology offering inclusion to the 30% of Nigerians without access to the banking system. In addition to “rapid financial inclusion,” the eNaira offers “significant benefits including reducing the cost of processing cash, enabling direct welfare payments, reducing the informal economy, improving tax collection, boosting cross-border trade and remittances, reducing the cost and improving the efficiency of payments, and encouraging economic growth.
What does it mean?
According to the Atlantic Council, 112 countries are actively developing CBDCs. Eleven central banks have successfully launched their CBDCs. The eNaira is still in its infancy but is the largest CBDC launched. The world is closely watching its road to mass adoption. In October, Bloomberg reported that only 0.5% of Nigerians use the eNaira. Government intervention was needed to increase adoption. The IMF has been working closely with Nigeria to make the eNaira a success and collecting data for cross-country studies.
The lesson Nigeria is teaching is that cash is an obstacle to widespread adoption. People generally follow the path of least resistance, and the withdrawal limits add resistance to the process. Limiting withdrawals may or may not lead to further CBDC adoption, but it does make cash transactions inconvenient. The policy goes into effect on January 9.
What would you do if you were a Nigerian and had about three weeks before you would be limited to $45 per day? Would you get as much money from the bank before January 9 or accept the new rules separating you from your money? Depending on how many people conclude they don’t want separation from their money, a Nigerian bank run is possible.
The U.S. and China are among the countries at different stages of testing and rapidly developing CBDCs. Like it or not, the U.S. will test its CBDC payment processor in late May 2023. The results of the CBN withdrawal limits will be the test case and shape U.S. and Chinese banking regulations and policies concerning cash.
Suppose the CBN is successful. Do you want to leave your cash in the U.S. banks and hope for the best? Why not remove your excess cash from the bank and store your wealth in precious metals? Precious metals are highly liquid and quickly turn back into cash if needed. Suppose the government limits access to your cash. In that case, a time may come when you can no longer turn your cash into precious metals. Do you want to take that chance?
Get your excess cash out of the bank today.