The Circular

On 6 December 2022 a letter went out from the Banking Supervision Department of the Central Bank of Nigeria. It carried a reference number, BSD/DIR/PUB/LAB/015/069, and it was addressed to deposit money banks, payment service banks, primary mortgage banks and microfinance banks. Its subject was the naira redesign and the revised cash withdrawal limits that would follow it.

It said that from 9 January 2023 an individual might withdraw no more than one hundred thousand naira a week across the counter, and a company no more than five hundred thousand. It set the automated teller machine at twenty thousand a day. It directed that the machines be loaded with two-hundred-naira notes and below. Withdrawals above the limits would attract processing fees of five and ten per cent.

Fifteen days later, on 21 December 2022, a second letter went out under the reference BSD/DIR/PUB/LAB/015/073. The weekly limit for individuals was now five hundred thousand naira, and for companies five million — five times and ten times what had been set a fortnight before. The Bank said it had received feedback from stakeholders.

The rule had been answered before it commenced.

Nothing in that fifteen-day sequence was unlawful, and nothing about it was unusual. It is simply what the instrument does. A circular is a rule written at the speed of a memorandum, landing in a country that responds at the speed of a market, and the gap between those two speeds is where a great deal of Nigeria’s recent economic history has actually taken place.

Begin with the law, because the popular understanding of a circular is wrong in a way that matters.

A circular is not legislation. It is an exercise of supervisory power: the Central Bank of Nigeria Act 2007 and the Banks and Other Financial Institutions Act 2020 together give the Bank authority to issue directives, guidelines and policy instruments to the institutions it licenses, and the circular is that authority in its ordinary working form. It is signed by directors, not assented to by a President. It is not debated. It is often not gazetted. It commences when it says it commences.

More importantly, it is addressed to licensed institutions and binds licensed institutions. The 6 December circular did not command any Nigerian to withdraw less money. It commanded banks not to pay out more, and the difference is not a technicality — it is the whole mechanism. The Bank supervises a few hundred institutions. Those institutions hold the accounts of well over a hundred million people. A rule aimed at the few hundred arrives at the hundred million as a fact of life, delivered by a teller who did not write it and cannot explain it.

This is the circular’s peculiar power and its peculiar danger. It has the reach of legislation, the speed of an internal memorandum, and none of the deliberative machinery of either. It is drafted by people who understand banking and lands on people who understand markets. Those are not the same competence.

A circular binds a few hundred institutions and rearranges the lives of a hundred million people. That asymmetry is the instrument.

Between the signature and the street there is a chain, and something is lost or added at every link.

The circular reaches a compliance department first. Compliance reads it conservatively, because compliance is punished for permitting what was forbidden and never punished for forbidding what was permitted. The conservative reading becomes an internal memorandum. The memorandum becomes a system configuration — a hard limit coded into the banking application, which cannot express nuance, exceptions, or the phrase in compelling circumstances. The configuration becomes a message on a screen at a branch in Lafia. The teller reads the screen aloud to a customer, in whatever words come to hand.

By the time the rule arrives it has usually become stricter than it was written, because every link in the chain has an incentive to round in the same direction. The customer then hears a rule that no document actually contains, from a person who cannot cite it, and arranges his affairs accordingly.

Two consequences follow, and both are structural rather than accidental. The first is that the rule as experienced is not the rule as issued, so analysis conducted on the text alone is analysis of something that never happened. The second is that the burden of the gap falls on whoever is least able to challenge it: the customer who knows the reference number and can quote the exception is served differently from the customer who does not. Knowledge of the instrument is itself a form of capital, and it is distributed exactly as one would expect.

What follows is the cluster’s discipline applied to six real instruments. Each is named by reference and date. Each adaptation is the observed response, not a prediction.

Take the six together, and four constructions stand out — none of them written in any of the documents.

An intermediary economy. The point-of-sale agent is now permanent infrastructure, present in wards where no bank has ever opened a branch. It began as an inclusion policy and was enlarged enormously by a scarcity a circular created. Whether one regards it as a triumph of financial inclusion or as a privatised toll on cash — and there is a serious argument on both sides — it is the direct issue of the instruments above.

A price for cash. When a good is capped below what people will pay for it, a premium appears at a distance from the counter. The premium is not evidence of criminality. It is a price doing what prices do, in the only place left available to it.

A shadow channel. The 2021 prohibition built the peer-to-peer market as surely as if it had funded it, and the 2023 reversal has not dismantled it. Channels built under prohibition outlive the prohibition, because the people who learned them keep using them.

An expectation. After the cybersecurity levy, every subsequent announcement touching electronic payment is received by a public that has learned to price in the possibility of a deduction. Credibility is an asset that instruments spend, and the eleven-day circular spent some of it.

What is withdrawn in a sentence was still, for eleven days, the future everyone was planning for.

One correction is owed here, or this essay becomes the very thing the cluster refuses to be. None of the above establishes that these circulars should not have been issued.

Currency held permanently outside the banking system is a real problem, with real consequences for monetary policy, for taxation and for the financing of violence. Unregulated virtual-asset intermediation is a real problem, and Nigeria’s own experience of collapsed platforms is evidence enough. The correct question is never whether an instrument produced unintended effects, since every instrument does. It is whether it produced fewer bad effects than the next best instrument available — including the instrument of doing nothing, which in each of these cases also had a cost.

An Act of the National Assembly is slow. It is debated, reported, amended, assented and gazetted, and by the time it commences the affected parties have had months to arrange themselves. That delay is usually treated as a defect of the legislative process. It is at least as accurate to call it a feature: it gives the country time to answer before the rule is fixed, and it gives the drafter time to hear the answer.

The circular has no such interval. It can be signed on a Tuesday and effective within the month, and it can be unsigned as quickly. In an economy that must move faster than legislation — foreign exchange, payments, systemic risk — that speed is exactly what is needed, and no serious person proposes that a central bank should require an Act to change a limit.

But speed removes the one thing that makes second-order effects visible in advance: the interval in which the people who will be affected can say what they will do. Consultation is not a courtesy in this analysis. It is the cheapest available instrument for discovering the second sentence before it is written in the country rather than in a document.

Three practical consequences follow for anyone who must live under these instruments — a business, an adviser, a citizen.

1. Read the circular itself, by reference number, and not the reporting of it. The distance between what a circular says and what the public understands it to say is where most avoidable loss occurs.
2. Treat the announcement as the commencement. Behaviour, pricing and expectation move on the day of the announcement, whatever date the document names — and the cybersecurity levy shows that they move even where commencement never arrives.
3. Watch for the second rule. When an adaptation frustrates a circular, the question is whether the next instrument goes after the adaptation or after the incentive. The December 2023 reversal went after the incentive, and that is why it is the more durable of the two.

Compared with what? Against an alternative in which several trillion naira circulate permanently outside the banking system, the case for some instrument is strong. Against a different instrument — the same policy phased across four quarters, with denominations available and agents provisioned in advance — the December 2022 sequence looks less like a necessary cost than an avoidable one. That is the comparison that matters, and it is the comparison the public argument never held.

Return to the woman selling tomatoes in Wuse.

She was not addressed by BSD/DIR/PUB/LAB/015/069. She is not a deposit money bank, a payment service bank, a primary mortgage bank or a microfinance bank. The document does not contemplate her, and not a line of it could be enforced against her.

She paid for it anyway — in the premium on the cash she needed to buy stock, in the customers who could not pay her by transfer, in the days her table stayed half empty. She never read the circular, and she was, in the end, its principal subject.

A circular is addressed to banks. It is paid for by whoever cannot transact any other way.