As the Chinese government continues to roll out its digital yuan across the country, Nigeria is trying to follow in the footsteps of the Asian economic giant. The limits set by the Central Bank of Nigeria are part of a move to encourage the use of state digital currency.
Nigerien population forced to use CBDC?
As part of its policyCashless Nigeria“, Nigeria has drastically reduced the amount of cash withdrawals individuals and businesses can make. This program aims to increase the use of eNaira, the digital currency of the central bank of Nigeria (central bank digital currency or CBDC in English).
Similar to cryptocurrencies, central bank digital currencies are digital tokens issued by a central bank. They are pegged to the value of that country’s fiat currency. Many countries are in the process of developing their CBDC, and some have even already implemented them (China, Nigeria, etc.).
Here are the important points to remember for better CBDCs:
- A central bank digital currency is the digital form of a country’s fiat currency. CBDCs are often compared to stablecoinsbut are fundamentally different;
- A CBDC is issued and regulated by a country’s monetary authority or central bank;
- CBDCs promote financial inclusion and simplify the implementation of monetary and fiscal policy;
- As a form of centralized currency, they may not anonymize transactions like some cryptocurrencies do;
- Many countries are studying how CBDCs will affect their economies, existing financial networks and their stability;
- A CBDC also provides a country’s central bank with the means to implement its policy to ensure stability, control growth, and influence inflation.
The Central Bank of Nigeria issued this directive for financial businesses this December 2022. It announces that individuals and businesses would now be limited to withdrawals of $45 (20,000 Nigerian naira) per day and $225 (100,000 naira) per week at ATMs.
These will also be limited to withdrawals in the banks $225 (100,000 Naira) and $1,125 (500,000 Naira). Individuals are already subject to a 5% fee and companies a 10% fee for amounts exceeding these limits.
The maximum amount of cash withdrawals via point-of-sale terminals will also be capped at $45 (N20,000) per day. Upon announcing the changes, Chief Banking Supervision Officer Haruna Mustafa said:
Customers should be encouraged to use alternative channels (Internet banking, mobile banking apps, USSD, cards/POS, eNaira, etc.) to conduct their banking transactions.
Customers should be encouraged to use alternative channels (internet banking, mobile banking apps, USSD, cards/POS, eNaira, etc.) to complete their banking transactions.
The limits are cumulative limits for each withdrawal. In this way, a person withdrawing $45 from an ATM who then attempts to withdraw money from a bank on the same day would be charge a 5% service charge.
Prior to this announcement, previous daily cash withdrawal limits were $338 (150,000 Naira) for individuals and $1,128 (500,000 Naira) for businesses.
Failure of the Central Bank and its CBDC
The rate ofadoption of eNaira has been low since launchOctober 25, 2021. As Cointelegraph reported on October 26, the Central Bank of Nigeria had some hard to convince its citizens to use the CBDC. Less than 0.5% of the population said they had used eNaira as of October 25, a year after its launch.
Suggesting that moving away from physical cash would make its payment system more efficient, Nigeria had put in place his politics “cash-less” in 2012. The African country also thought to reduce the cost of its banking services and improve the effectiveness of its monetary policy.
On October 26, 2022, the Governor of the Central Bank of Nigeria, Godwin Emefiele, indicated that 85% des nairas in circulation were held outside the banks. Therefore, the central bank was going to reissue new banknotes in order to support the shift to digital payments.
According this follow up from the American group Atlantic Council, Nigeria is one of 11 countries to have fully deployed a CBDC. Fifteen other countries have launched pilot programs and India is expected to join the ranks during the month.
In the same theme, learn more about Nigeria and its CBDC thanks to our article:
