The policy is good for the economy
Two years after he suspended the cashless policy, the Governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele recently unveiled plans to extend it nationwide. “We had to wait a while because we felt that there was need to be sure that the rate of financial inclusion in Nigeria has effectively penetrated all the nooks and crannies of the country for us to proceed on cashless banking. Very soon all the structures that have been put in place would improve banking services in Nigeria,” Emefiele said. This is a welcome development.
Introduced to reduce the amount of physical cash used in business transactions in the economy as well as encourage more electronic-based transactions, it is a policy that we have always endorsed. We believe that if well-implemented, it can help to facilitate economic development, reduce the cost of banking services and improve the effectiveness of monetary policy in Nigeria. Although the policy was initially conceived to include a penalty on cash deposits, Emefiele had on assuming office in June 2014 removed such charge so as to encourage people and businesses to put their funds in the banking system.
While we commend Emefiele and his predecessor Mallam Sanusi Lamido Sanusi (now the Emir of Kano) who actually launched the initiative in 2012, it may be necessary to have an overview of its implications for our economy. The benefits are many but the most poignant is that the more transactions take place within the banking system, the more effective monetary policy will be in managing inflation and driving economic growth. It is also cost-efficient in that the policy reduces the risks (and of course, expenses) associated with handling large volume of cash and there is already evidence that it is working.
In Nigeria today, the cashless policy has resulted in the modernisation of the payments system, which is an enabler for economic growth. It has led to the use of various channels to deliver financial services and such channels include but are not limited to mobile phones, POS and the internet. Consequently, there has been an increase in access points for financial services and a resultant increase in the use of such services. Put simply, the introduction of the cashless policy has spurred financial inclusion and the participation of poor, geographically distant and more vulnerable members of society in economic activities.
However, despite what can be seen as the early successes of the cashless policy, there are still a few challenges that limit its efficacy. Such challenges include illiteracy, limited knowledge of computing/use of internet and lack of trust and confidence in the system, among others. Many people are not conversant with using electronic channels and thereby breach security by giving their PINs to strangers to transact on their behalf. In addition, infrastructural challenges persist, internet access remains erratic, ATMs still debit accounts without dispensing cash and the apathy to using POS terminals remains in a society where patronage has become a defining characteristic of business and politics.
Nevertheless, the upside is that Nigerians are witnessing an increase in the usage of technology and the growth of technology-enabled businesses such as e-commerce and social-media blogs. Therefore, we expect this full-scale implementation to result in a deepening of these activities, new business opportunities and new jobs. As the implementation of this policy expands, we also expect to witness a reduction in cash-related fraud, an improvement in the efficiency of the financial system and further job growth in agent banking and the technology sector.