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in excess of the limit, while corporate customers that go contrary to the new policy are to pay a fee of N200 per N1000 withdrawn above the stipulated cumulative limit.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.