The Central Bank of Nigeria Just Gave a Whole New Meaning to the Term “Financial Repression”

To try to salvage its floundering central bank digital currency (CBDC), the eNaira, Nigeria’s Central Bank just launched an all-out assault on physical cash. 

In October this year, the governor of the Central Bank of Nigeria (CBN), Godwin Emefiele,  unveiled a plan to redesign and reissue high-value currency notes. It is ostensibly intended to mop up excess cash liquidity, stay ahead of counterfeiters and take greater control of Nigeria’s money in circulation, more than 85% of which is currently outside the vaults of the country’s banking system.

The central bank will begin issuing redesigned high value notes from mid-December and has given residents until the end of January to turn in their old notes. This week, a CBN circular titled “Naira Redesign Policy – Revised Cash Withdrawal” has offered more information about the demonetisation process. And it is, to put it mildly, troubling. From Bloomberg:

Nigeria’s central bank slashed the daily withdrawal limit from automatic teller machines in a bid to boost digital payments in Africa’s most-populous nation.

The Central Bank of Nigeria capped the maximum customer withdrawal at 20,000 naira ($44.97) a day, down from the previous limit of 150,000 naira, according to a circular sent to lenders on Tuesday. Weekly cash withdrawals from banks are restricted to 100,000 naira for individuals and 500,000 naira for corporations, and any amount above that limit will attract a fee of 5% and 10%, respectively, the central bank said.

The ultimate goal of these desperate measures is to breathe life into Nigeria’s floundering central bank digital currency, the eNaira.

As readers may recall, Nigeria was the first largish country in the world to launch a CBDC, which it did with the advice and assistance of the IMF. The roll out of the eNaira, in October 2021, put the West African country in the “global spotlight”, attracting the interest of “global stakeholders” such as the International Monetary Fund (IMF), World Bank, other central banks [which are working on their own CBDCs] and “the CBDC community,” the CBN noted in October this year.

But so far, the eNaira has been a complete dud, as I reported in July and November. The numbers speak for themselves.

The eNaira recorded just 700,000 transactions worth ₦8 billion ($18 million) in its first year. By August only 905,588 people had downloaded an eNaira wallet — a thoroughly underwhelming number in a country with an estimated population of 225 million people. Worse still, only 282,600 of those accounts, representing just over 0.1% of the population, were currently active. Meanwhile interest in cryptocurrencies has continued to rise despite a government ban barring financial institutions from enabling transactions in cryptocurrencies.

But as I warned in November, the central bank is undeterred. In fact, with the world’s central banks and Bretton Woods institutions watching on and taking notes, it is arguably more determined than ever to make the CBDC a success. To deepen its drive to “entrench a cashless economy” (its own words) and boost take-up of the eNaira, it is launching a demonetisation process not too dissimilar from the one India’s government unleashed in late 2016.

As of January 9, Nigerians will face an 87% reduction in the amount of cash they can withdraw from the bank on a daily basis before having to pay usurious fees. The central bank will also ban the cashing of checks above 50,000 naira over-the-counter and set a limit of 10 million naira on checks cleared through the banking system. Cash withdrawals from point-of-sale terminals, which are frequently used by Nigerians who don’t have a bank account, will be capped at 20,000 naira daily.

“Customers should be encouraged to use alternative channels—Internet banking, mobile banking apps, USSD, cards, POS, eNaira to conduct their banking transactions,” the central bank said on Tuesday.

This gives a whole new meaning to the term “financial repression.”

As Matt Stoller noted wryly in a Naked Capitalism post back in 2011, the term “financial repression” is invariably used to describe financial policies that rentiers hate, such as “preventing them from moving their capital anywhere in the world at a moment’s notice, stopping them from engaging in predatory lending and usury, directing investment to national priorities (like public investment, war, health care and education, a safety net, etc), and regulating banks so they don’t become casinos.”

In recent years it has mainly been used to describe explicit or implicit caps on interest rates, usually well below inflation or even below zero, as a means of gradually liquidating bloated government debt. It is savers who have been on the sharpest end of said repression.

Now, the CBN appears to have devised a whole new brand of financial repression, one not aimed at rentiers or savers but at the entire population…

Read the full article at Naked Capitalism

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