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To discourage the use of raw cash in economic transactions in
the country, the Central Bank of Nigeria (CBN) has taken steps to promote the
use of electronic payment systems.

The CBN yesterday in a circular to all banks, Cash-in-Transit
(CIT) operating firms, payments system service providers, as well as money card
acquirers, issuers and processors, said that the new policies, including
payment of increased penalties for cash transactions by individual and
corporate bank account holders, are to help reduce the high usage of cash as
well as moderate the cost of cash management among operators in the country’s
financial system.

The CBN’s director, currency operations department, Muhammad
Nda, said in the circular that the increasing use of cash in transactions has
dire consequences on the overall economy, particularly concerning cost of cash
management to the banking industry, security, and money laundering.

To limit the negative impact on the economy, Mr Nda said the CBN
has directed all deposit money banks (DMBs) in the country to ensure that,
effective June 1 next year, daily cumulative free cash withdrawals and
lodgements by individual and corporate customers do not exceed a maximum
ceiling of N150,000 and N1 million respectively.

Cut down on cash
transactions

Consequently, he said the CBN has imposed a penalty of N100 per
N1000 on all individual cash transactions in excess of the limit, while
corporate customers that go contrary to the new policy are to pay a fee of N200
per N1000 withdrawn above the stipulated cumulative limit.

The circular added that, “Contravention of this policy shall
attract a fine of five (5) times the amount that the bank waives as a first
offender, while the bank shall, subsequently, pay ten (10) times the charges
waived.”

Though commercial banks are allowed to charge their customers at
least an interest of N5 per N1 million as cost of transaction (COT), there is
no approved rate stipulated by the CBN for overdrawn accounts, as the customers
are allowed at the discretion of their bankers.

With effect from June 1,this year, operators of card payment
schemes, processors, switching companies, service providers, and banks risk
being suspended for a month or licence revoked by the CBN, for not acquiring
approved operational agreements/contracts for local currency Point of Sale
(POS) card scheme.

“All financial institutions, including Deposit Money Banks (DMBs),
Savings and Loans, Mortgage and Microfinance Banks shall comply accordingly.
Compliance with the policy shall be monitored by the Banking Supervision
Department and the Other Financial Institutions Supervision Department with
appropriate sanction applied to erring institutions,” the CBN warned.

Similarly, in line with the new policy, third party cheques by
individual customers in excess of the N150,000 limit would no longer be
eligible for encashment over the counter, as the value for such cheques will be
required to go through the clearing house.

Besides, the CBN said where a bank allows a third party cheque
encashment in violation of the stipulated regulation, such a bank would be made
to pay higher than the sanctions between 10 per cent of the face value of the
cheque and N100,000 fine.

On cash-in-transit (CIT) lodgement services rendered to
merchant-customers, the CBN ordered its immediate stoppage, effective June 1,
2012, adding that customers interested in such services should engage the CBN
licenced CIT operators to aid cash movement to and from their banks at agreed
terms and conditions.

The new arrangement, which is to be operational initially in
some major cities, including Abuja, Lagos, Port Harcourt, Kano, and Aba,
attracts a fine of N1 million per specie movement for violators.

This step, many believe, would help curb incidents of violent
robberies which have become common because people move huge volume of cash
around.

However, there are concerns about the implementation of this new
policy, especially as it would mean transiting from a cash-based economy to a
near cashless one in just one month. A medical equipment supplier who gave his
name as Monday, said the policy would cause some distortion in the economy in
the short term.

“For instance, some of my customers always insist on cash
payment before they would release their goods. How do we make this change all
within one month,” he asked.

He said the CBN ought to have carried out sensistisation
programme to prepare Nigerians for the transition.

Currency outside the banking system is currently put at over
N1.025 trillion, as at February, according to the latest official figures
released by the Central Bank.

The figure stood at N927 billion as at December 2009, due
largely to skepticism about the efficiency of the Nigerian banking system.

The latest move is expected to reduce the amount of currency
outside the banking system.