Cashless Economy in Nigeria: Discourse of the Advantages and Disadvantages of the Policy

Raimi, Lukman Centre for Entrepreneurship development Yaba College of Technology

Email: Luq_man2001@yahoo.com, newglobedev@yahoo.com, Phone: 08023462555 --------------------------------------------------------------------------------------------------------------------------

Introduction
Recently, Mallam Sanusi Lamido Sanusi, the Governor of Central Bank of Nigeria, proposed a policy requiring that all cash withdrawals and deposits in the country be set at a daily limit of a maximum of One hundred and fifty thousand naira (N150, 000) for individuals, while the Apex body pegs that of corporate organisations at One million naira (N1, 000,000), with penalty fees of N100 per extra N1,000 and N200 per N1,000 imposed on individual and corporate customers respectively. Since its announcement, there has been a discussion on the advantages and disadvantages that the new policy portends. Moreover, Central Bank of Nigeria reported that about N150 billion is spent yearly to produce, store, transport, protect and destroy naira notes. This cost according to the Apex body would be extensively reduced with the adoption of modern payment system driven by ICT, otherwise called mobile payment. Mobile payment, an advancement of the use of mobile devices and a drive towards a cashless society, is set to change the face of commerce across the world. Mobile payment (or mobile wallet) is an alternative payment method. Instead of paying with cash or cheque, a consumer can use a mobile device to pay for goods and services (Adili, 2011). The aim of this assignment is to critically review the concept of cashless economy, its application, inherent advantages and disadvantages.

What is cashless policy?

People have varied understanding of the concept of cashless economy or system. Cashless economy is operationally defined as a payment system where large chunk of financial transactions are carried out with little or no cash. The parties involved prefer electronic payment system such as bank cheques, wire transfers, direct debits
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and credit cards, online transactions, mobile banking system et cetera (Ikeji, 2011). Cashless economy does not mean that physical cash would no longer be used, but the use and volume of cash in the economy would be regulated and modulated. It is a payment arrangement viewed globally as a potent alternative payment system, which is more convenient and safe relative to the traditional cash payment system. The cashless economy, driven by the credit card system & operations enhances window of improved efficient economic financial flow with the least hiccups and facilitates a proper tracking of cash flows in the banking system. It is very convenient at all times and for all transactions, and also reduces waste of resources both for the consumers on one part and the government on the other part. The cashless system in all economies where it is being operated (like Kenya, Pakistan and other developing countries) promotes efficiency in the economic services due to the reduced time of the entire transaction compared with deals that involve counting of currencies in the banks for several hours (Nwachukwu, 2011). A cashless economy is also viewed as one that favoured the use of card transactions and less of cash payments. The move to adopt cashless economy by the CBN is aimed at addressing the varied constraints associated with physical cash movement in the modern times, such as theft, risks, inefficiency, storage and other ancillary cost of handling (Atili, 2011). All risks & logistic constraints attached in physical cash movements especially violent robbery attacks that have becoming endemic in Nigeria would be wiped out in a cashless system. This is argument is justified when the performance of the Automatic Teller Machine (ATM) is observed. ATM has drastically reduced the issue of hoodlums that pick pockets at the motor parks and many other public gatherings (Ibid.). The cashless economy is expected to reduce the amount of currency outside the banking system by discouraging the use of cash in financial transactions. In Nigeria, an estimate of N3.5 trillion circulates yearly within the unbanked and under-banked among 10 million traders and entrepreneurs (Abayomi, 2011).

Rationale for Cashless Policy

According to Ezumba (2001), the rationale or policy thrust of the cashless policy is to strengthen the nations financial system; checkmate easily the ill of money laundering and illicit financial activities, mop up inflation caused by excess money in circulation, reduce the cost of maintaining/reprinting of new notes in an economy predominately cash base and the need to adapt to global best practice with regard less cash handling in preference to automated transactions. When fully operational all means of payments for high profile business transactions are carried out without the use of physical cash. Payments via cashless economy range from the use of cheques, wire transfers, debit and credit cards, online transactions, and mobile banking. The advantages of a cashless society are enormous; from regulating, controlling, and securing the financial system of any economy.

Advantages of Cashless Economy

a) The first advantage of cashless economy is huge reduction of cost of cash management. CBN put the direct cost of cash management in 2009 at N114.5 billion; in-depth projection by the Apex body in 2020 is N200 billion in cash management. The above is corroborated by the Deputy Director, Currency Operations, Mr. Albert Ikmseedun, who noted that in 2009 alone, the total cost spent on cash-in-transit was N27.3 billion, while cash processing stood at N69 billion. The policy when functional would in the long run, help to bridge the gap between lending and deposit rates in the country. b) Secondly, cashless policy would help curb wave of robbery, high cost of processing cash, revenue leakages, and inefficient treasury management, among others, as some of the negative side of a cash-based economic system. c) Another advantage of this novel cash management policy is that it facilitates prompt fraud detection as obtained in all developed nations of the world. For example, the Federal Trade Commission (US) estimated that there were 48.7 million individual fraud transactions in 2005 and the average loss was $60
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per transaction. This would put the total dollar loss to fraud at approximately $2.92 billion per year in the United States. In 2006, UK fraud study estimated total dollar losses in the UK in 2005 at 3.5 billion pounds. Similarly, the Consumer Authority in the Netherlands estimated fraud losses in 2008 totaling 579 million Euros. d) The fourth advantage of cashless economy is availability of surveillance information and data. Considering the fact that cashless system requires the collation of proper and accurate identification of account holders and maintenance of such information and sharing with Apex and other bodies as at when necessary by all financial institutions; it is an effective policy that provides security surveillance over financial activities of individual and groups. This is welcome development. e) Furthermore, cashless economy is an effective global financial model for curbing the endemic problem of money laundering in Nigeria and the need for the proper authorities to follow the public monies and finances. This in the long run help the nation save and retain money in the country, which can be effectively used for additional developmental projects and socio-economic welfare programmes. f) Another benefit of cashless economy is the tendency of drastic reduction in money laundering, drug money, terrorist financing and other economic and financial crimes in Nigeria.

Disadvantages of Cashless Economy

a) The first disadvantage of cashless policy is the possibility of the policy precipitating economic recession in Nigeria because 70 to 75 percent of Nigerians do not have bank accounts. Therefore saying that the CBN does not have 70 to 75 percent of the nations financial statistics is a safe call. Money circulation works its way down and around from the top 10 percent of bank accounts which accounts for 75 percent of the total value of

cash. The Majority of this 10 percent service directly or indirectly affects 70 to 75 percent of the Nigerians who are without bank accounts. b) Secondly, the enforcement of cashless policy will also force a significant number of Nigerian employers to compel their employees to start operating bank accounts to save the headache of paying extra charges for business transaction with the Nigerian banks. c) Thirdly, opening of bank accounts by every Dick, Tom and Harry as required by the cashless policy in order to get their salaries/wages/payments/other incomes will put more pressure on the infrastructure of the banking industry as they are not ready to handle the amount of new accounts. Nigerians face a lot of disappointment with ATM and waste time even in the banking halls. When cashless policy is implemented, the pressure will increase. d) Furthermore, the cashless policy with its associated precondition of operating bank account and threat of excess charges by defaulters could slowdown cash flow into mainstream and encourage cash hoarding in the black markets. The black markets or unofficial banking service providers will explode by simply selling for 10 to 20 percent lesser than what formal banking system charges. e) Besides, cashless economy has fuelled wide doubts and speculations among the illiterate traders and businessmen; these doubts and speculations if not well handled could precipitate negative effects on prices, manufacturing production, availability, supply and demand and even the stock market. Judging from Nigerias past history of implementation of policies, these policies may not be effectively administered and the possibility of gradual fading out is very high. f) Another major disadvantage of the cashless policy which the CBN should be aware of is increase in the wave of online scams and online fraud. Proper arraignments by the banking industry have to be made to protect the rights of citizens and the amount of fraud transactions. With proactive measures to forestall fraud, the policy will end-up crippling the economy.

Conclusion
From the discourse, it is obvious that all around the world, there is a gradual shift towards cashless payment systems because of the various challenges associated with cash transactions. The cashless system is people-friendly, easy, and stress-free and allows for prompt reconciliations of transactions. What every Nigerian requires is a bank card or any e-payment products for settling physical purchases or services.

REFERENCE Abayomi, Amaka (2011). CBNs cashless economy policy Operators. Available on http://www.vanguardngr.com/2011/11/mfbs-crucial-to-achieving-cbn%E2%80%99s-cashlesseconomy-policy-operators. Accessed on November 12, 2011. Eboh, Michael (2011). Nigeria: Cashless Economy Policy Will Save the Country N192 Billion. Published in Vanguard. Available on Allafrica.com/stories/201110060223.html. Accessed on November 14, 2011. Ezumba, Steven (2011).The Transition to a cashless economy in Nigeria. Published by 2011 Reinventing Rebuilding LLC. Available on http://www.reinventrebuild.com/nigeriaone.php Central Bank of Nigeria reported that the cost of processing, handling and managing cash, if unchecked by 2012 would cost the nation approximately N192 billion (Eboh, 2011). Ikeji, Ifeoma (2011). Cashless Economy: Lagosians still indisposed to ATM use. Available on http://www.businessdayonline.com/NG/index.php/city-file/city-file/29606-cashless-economylagosians-still-indisposed-to-atm-use. Accessed on November 11, 2011. Nwachukwu, Sunny C. (2011). Running a cashless economy. Available http://www.businessdayonline.com/NG/index.php/analysis/commentary/29947-running-acashless-economy. at