The Central Bank of Nigeria (CBN) on Wednesday directed all deposit money banks (DMBs) and other financial institutions to charge 5% and 10% processing fees on weekly Over-The-Counter (OTC) withdrawals above N100,000 (by individuals and) and N500,000 (by corporate organizations), respectively. The same limit applies to withdrawals via Automated Teller Machine (ATM), although the naira denominations available in ATMs would be restricted to 200,000 and below. Daily withdrawals through Mobile money agents like POS are also restricted to N20,000. Even if it was intended as a monetary policy action, Analysts say that the policy was not likely to create any gains in fighting inflation, especially given that money in circulation is only a fraction of the country’s Gross Domestic Product (GDP). It is also incorrect to expect that the decision would stem the steady decline of the Naira against other major currencies, given that the demand for FX does not require physical cash.
Instead, the policy appears as a follow-up on redesigning the N200, N500, and N1000 notes and serves the purpose of preventing vote buying, money laundering, and terrorism. By encouraging customers to make most of their transactions digitally, the CBN would not only promote a digital trail for transactions, useful for law enforcement agents, but the CBN would also spend less on currency re-printing. While the decision to circulate more of the N200 notes instead of higher denomination currencies may reduce the portability of the Naira, Analysts argue that other channels such as internet banking, mobile banking apps, USSD, and the eNaira provide an alternative. But a downside to the policy could be that individuals may decide to keep large amounts of notes outside the banking system to avoid the higher processing fee.