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CBN cash limit claim to fix inflation counterfactual, says Bismarck Rewane

The cash withdrawal cap and new currency policies, which seek to lower inflation, increase the value of the naira, and minimize vote buying, have been criticized by Bismarck Rewane, managing director and CEO of Financial Directives, as being contrary to economic theory.

The economist said in an interview on Arise TV on Friday that the ability of a currency to facilitate the exchange of goods and services, rather than its color, determines how much inflation occurs.

“The last time I checked the value of a currency was appreciated because of the colour if not the Lebanese currency, the Egyptian currency would have been the most valuable currency. They are very colourful. No team wins a game because of the colour of the jersey. But people win a game because of the capacity. Between France and Argentina, the colour of their jerseys is going to be blueish but that won’t determine. It depends on the ferocity and the tenacity of Mbappe on one hand and Lionel Messi on the other hand,” Rewane said.

The Central Bank of Nigeria (CBN) had in December directed that over-the-counter withdrawals by individuals and corporate entities are not to exceed N100,000 and N500,000 respectively, per week. The apex bank also directed that only N200 and lower denominations should be loaded into banks’ Automated Teller Machines (ATMs) and the minimum cash withdrawal per week via ATM should be N100,000 per week subject to a maximum of N20,000 per day. The policy kicks off on 9 January

While the policy has been widely criticised including the senate urging the CBN to review the limit, Godwin Emefiele, Governor of the Central Bank insists there is no going back given that the President has expressed his support of the policy. Emefiele also denied the policy is politically motivated but that it is for the good of the economy.

“We can only just continue to appeal to Nigerians to please see this policy the way we have presented it. We will be reviewing from time to time how this is working, because we are not going to be rigid but it is not to say that we will reverse, or change the timing but whether it is about tweaking some amount to be a little bit higher or lower, we will do so because we are human and we want to make life good for our people,” Emefiele said last week.

Bismarck Rewane however disagrees that the policy would be responsible for any change in the current economic situation of the country is in. According to him, all cash is money but not all money is cash. The total cash in circulation which is in the banking system and outside the banking system is N3 trillion while the money supply is N50 trillion. This means that cash is about 6 percent of the total money supply. He insists that should the CBN succeed in mopping up N2 trillion of the total cash in circulation it is still 4 percent of the total money supply. Whereas the federal government borrowing from the CBN is at N23 trillion.

“So if you take the N2 trillion away – assuming they got the N2 trillion from people – you still have N23 trillion of government debt to the CBN which is a worse enemy to inflation. What happens to the government debt?” Rewane said.

He also defined money as what money can buy and not legal tender.

“I am interested in how much the currency can buy. If the bag of rice is N56,000 whether the currency is red, blue, or yellow and I have a currency that will give me a bag of rice at N35,000 I will go for that currency. The rice seller won’t sell it because of the colour of the currency. We need to understand things from a proper perspective. As a matter of fact, the more money you horde the lower the price because inflation is defined as money chasing goods. So if I keep my money and I do not give it to anybody it will not push up prices. So it is counterfactual it doesn’t make. It falls flat in the face of economics,” he said.



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