February 6, 2023
His Excellency
Muhammadu Buhari, GCFR
President, Commander in Chief of the Armed Forces
Federal Republic of Nigeria
State House
Abuja
CONCERNS OF THE STATES REGARDING THE NAIRA RE-DESIGN AND NEW POLICY ON CASH WITHDRAWAL
On behalf of the 36 State Governors of the Federal Republic of Nigeria under that platform of the Nigeria Governors’ Forum, we write to request Mr. President’s urgent intervention on issues confronting the States with regards to the Naira Redesign and Cash Withdrawal Policy of the CBN and the associated Guidelines and Advisory released by the NFIU. These issues were extensively discussed at our meeting of 19th January and 29th January 2023, with the CBN Governor, the Director/CEO of the NFIU and the EFCC Chairman in attendance.
On 6th of December 2022, the Central Bank of Nigeria (CBN) announced new limits for cash withdrawal, specifically limiting daily withdrawals to N20,000 for individuals and N100,000 for corporate organisations. For withdrawals beyond these limits, 5% and 10% processing fees will be charged for individuals and corporate organisations respectively. Similarly, the CBN announced the re-designing of the N200, N500 and N1000 and specified an implementation period of 45 days. We note also that the CBN later shifted the deadline to February 10, with another grace of period of 7 days.
From the foregoing:
1. We do not doubt the good intention of the CBN to curb the excesses emanating from cash transactions and the imperative to migrate the country to digital financial services and cashless economy.
2. We note that this policy is intended to address the contradictions in our fiscal environment including the dysfunction that has resulted from large volumes of cash circulating outside the banking system, estimated at over 80%. Understandably, the policy is designed to have been aimed at addressing the shortage of clean banknotes, the attendant negative perception of the CBN, the increased risk to financial stability and the threat of counterfeiting.
3. However, we also acknowledge the concern shown by experts and renowned institutions, such as the International Monetary Fund (IMF), which have advised the Nigerian authorities to approach the planned implementation with caution and avoid missteps that could undermine confidence in the financial system. A poor execution of this transition would hurt the economy and have a disproportionate impact on the most vulnerable.
4. Mr. President, a State by State analysis has shown that this policy will affect several intra State security arrangements which basically depend on cash transactions to ensure effective implementation. We respectfully refer Your Excellency to a Table (find attached) developed by our Secretariat from a collation of the views of States on how these policies will impact them both from an economic and security points of view. Even though the identified constraints are to be found in almost every State in the country, they are particularly evident in States like Borno in the North East and Bayelsa in the South Southwhere one finds a pitiable number of banks located only in the State capital which would basically render the workability of the new policies impossible for now.
5. Your Excellency, we also find the timing of these policies untenable. The new currency was unveiled between mid-December 2022 and January 2023, which essentially allows a 45-day window for implementation. This period also coincides with the Christmas and new year festive season which is traditionally a time of heightened commercial activity. The speed of implementation of the policy is a recipe for anarchy in the country and we urge a re-think of the policy.
6. Regarding the reviewed cash withdrawal limit, we have found from synthesizing experiences across the country that the informal sector in the States, particularly in the Northern and Niger Delta States almost wholly depend on cash transactions because of the nature of their trade. The attached table provides specific illustrations of the scenarios being painted here. It is our view, Sir, that an immediate limitation in the use of cash without robust engagement with stakeholders as well as the provision of accessible alternatives will deny such people legitimate sources of livelihood.
7. We fear that the cumulative effect of these unintended but very profound and probable consequences of these policies would be a rise in the number of unemployed and unengaged persons who will inevitably resort to crime to make ends meet. This has a dangerous implication to the security of the country and a potential to derail Mr. President’s security agenda.
8. The low literacy rate in large segments of the rural communities in the county as well as minimal access to information in these remote locations requires that more time is given before these policies can effectively be kickstarted. This also requires that mass public enlightenment is undertaken over a long period of time to allow citizens to understand and appreciate the thrust of the policy.
9. In reaching the conclusion that these policies, though well-intentioned but ill-timed, we are guided by the experiences of other nations who have travelled this road. In 2016, the government of India in its bid to tackle corruption and reduce the amount of money in circulation, adopted a measure to re-introduce the 500 and 1000 denominations of the Indian rupee within 6 months. A 2018 evaluation of the programme by Bloomberg reported that the scheme had “frozen agriculture and small businesses with a liquidity shock, put people through unnecessary hardship, disrupted supply chains, and destroyed demand for everything from autos to property”. The IMF in 2018 corroborated these findings and noted that the disruption caused by cash shortages dampened commercial activities. The suddenness of the policy coupled with the attendant shortage of cash led to the dismal performance of the policy.
10. We have in the past days noted a remarkable unavailability of the new notes and some banks are rejecting the old notes even though they are still legal tender. These has resulted in riots and protests from Nigerians who are clearly frustrated by this policy.
11. Your Excellency, to further compound the unfortunate situation occasioned by these new policies, the Nigeria Financial Intelligence Unit (NFIU) recently released an Advisory and new Guidelines on cash transactions. We are already in talks with the NFIU for a review of these policies.
In the light of the above, we most respectfully PRAY Mr. President to:
i. Approve an expanded time frame for the implementation of the policy AND Direct the CBN to make the new notes available within the enlarged time frame.
ii. Direct a thorough assessment of the prevailing economic conditions related to the implementation of the currency change and cash withdrawal limit policies.
iii. Direct that States be involved in future discussions regarding the policies in order to have revised policies that would recognize and consider States’ peculiarities.
iv. Consider and approve the putting in place of necessary infrastructure and facilities within a reasonable time frame to facilitate the implementation of the policy, including:
• Introducing incentives to encourage the use of digital payment solutions. This will help reduce the pressure on physical cash and promote financial inclusion.
• Investing in infrastructure to expand access to financial services.
v. Direct that a robust enlightenment campaign be mounted to create sufficient awareness in the citizens of the thrust of the policy. This will help people better understand the implications of the naira redesign and cash withdrawal limits and how to use digital payments platforms.
vi. Direct the review of the NFIU Advisory and Guidelines to accommodate the peculiar circumstances of States.
vii. Direct the CBN to increase foreign exchange availability to alleviate the pressure on the naira.
viii. Direct increased collaboration between the government and the private sector to encourage the use of digital payments and create a more conducive environment for financial inclusion.
Whilst looking forward to Mr. President’s consideration of the above-mentioned concerns and prayers, please accept the assurances of my highest consideration.
Rt. Honourable Aminu Waziri Tambuwal
Governor, Sokoto State & Chairman,
Nigeria Governors’ Forum
