It is the worst nightmare of most opponents of a Central Bank Digital Currency (CBDC): central banks that ban cash. In theory, cash is a way to escape a CBDC. Nigeria should know nothing about that and prohibits the withdrawal of cash above certain limits.
All kinds of limits
Both individuals and businesses are prohibited from withdrawing more than $45 in cash per day. The maximum per week is $225 at ATMs. Individuals and companies can now also withdraw a lot less money from bank counters. Individuals can withdraw up to $225 per week, while companies have to make do with $1,125.
For everything above that, you pay 5 percent as an individual and 10 percent as a company. Nigerian Director of Banking Supervision Haruna Mustafa says: “Clients should be encouraged to use alternative channels (Internet banking, mobile banking apps, eNaira, etc.) to manage their banking affairs.”
This is exactly what some journalists in the Netherlands are warning about when we get the digital euro. In principle, most people no longer use cash. However, it is important to realize that cash money offers some protection against extremely negative interest rates.
Protection against negative interest
If the European Central Bank chooses to raise interest rates to -5 percent in the future. Then it is theoretically possible to escape that interest via cash money. If you go to an ATM and withdraw all your money from the account, it is impossible to collect that interest of -5 percent from your money. After all, you have it all in cash.
The only way the central bank can then maintain the interest rate of -5 percent is by banning cash money or making it worth less. Suppose the interest rate has been -5 percent for 1 year. Then 100 euros in cash would have the purchasing power of 95 CBDC euros. You still have 100 euros in cash, but that no longer has the same value as the CBDC.
