The Nigerian government in Lagos was the first African country to launch a digital currency (eNaira) October 25, 2021. The central bank of Nigeria (CBN) has since imposed new cash withdrawals limits on individuals and businesses, N100,000 and N500,000 respectively, to promote the adoption of the digital currency.
These new cash withdrawal limits take effect Jan 9, 2023.
To further drive the adoption of the eNaira and mobile banking, the central bank will be releasing new bank notes on December 15. Existing notes will no longer be considered legal tender from 31 January 2023. New bank notes will consist of the following denominations N100, N200, N500.
Nigerians with large cash holdings face the decision to deposit them at the bank or watch these notes expire early next year. The third option is to find money changers and exchange for foreign currencies. Money changers will almost certainly steeply discount the Naira as it leaves them holding the bag.
The official reasoning for the extraordinary push towards a cashless society is the root of structural and societal problems. Nigeria has seen a large surge in kidnappings and ransom payments in 2022. The central bank says this will help combat kidnappings as a cashless society removes anonymity and allows for easier tracking of nefarious actors. The biggest challenge will be earning the trust of the young Nigerian public, who have expressed extreme discontent for the current political climate.
The structural reason for this push into the eNaira and online banking is for the banks to regain control of the money supply. Some 80% of all current Naira in circulation are held by private individuals. This limits the lending capacity of Nigerian financial institutions and the effectiveness of monetary policy.
The current drive forces Nigerians without bank accounts into official financial institutions, where new rules significantly reduce their anonymity and flexibility in withdrawals. The forced conversion of the informal markets that dominate Nigeria will lead to an increased tax base for the government as cash is squeezed out as a viable option. Nigerians don’t have high approval ratings for the political ruling class and will rightly think that these taxes will merely decrease their standard of living with no material improvements on society.
by Mitchael Antonorsi