The recent evolution of technology
for financial transactions poses interesting questions for policy makers and
financial institutions regarding the suitability of current institutional
arrangements and availability of instruments to guarantee financial stability, efficiency
and effectiveness of monetary policy. Over the course of history, different
forms of payment systems have been in existence. Initially, ‘trade by barter’
was common; however, the problems of barter such as the double coincidence of
wants necessitated the introduction of various forms of money (Swartz et al, 2004). Nevertheless, analysts
have been predicting the complete demise of study instruments and the emergence
of potentially superior substitute for cash or monetary exchanges, that is,
‘cashless society’.
Unlike the barter
system which involves the exchange of one good for another, a cashless
environment refers to one in which transactions are carried out with minimal
exchange of physical cash. It implies that the payment instrument is not physical
cash but other instruments such as cheques, electronic transfers, e-payment and
so on. The rapid advancement in electronic distribution channels has produced
tremendous changes in the financial industry in recent years, with an
increasing rate of change in technology, competition among players and consumer
needs as argued (Hughes, 2001). Since Nigeria‘s Independence in 1960, there
have been different governments, constitutional reforms, change in economic
policies and banking reforms, mainly directed at enhancing social welfare and
achieving developmental goals but there has been no substantial positive change
in Nigeria‘s Human Development Indicators. This also calls to question the
effectiveness of the cash-less policy of the Central Bank of Nigeria (CBN). At
the end of the 1980s, the use of cash for purchasing consumption goods in the
US has constantly declined (Humphrey, 2004). Hence, most LDCs (Less Developed
Countries) like Nigeria are on the transition from a pure cash economy to a
cash-less ‘one for developmental purposes’. Little wonder why the Central Bank
of Nigeria recently introduced a cashless policy. Thus, as part of its
regulatory functions, the Central Bank of Nigeria, issued a circular dated
April 20, 2011 in which it conveyed to operators and the banking public its
decision to introduce a cash less banking policy into the Nigerian financial
system with effect from January 1, 2012 using Lagos as the pilot programme that
is the policy kick-starts from Lagos and eventually all over the other states
in the nation. To enforce the implementation, the Central Bank had, in a
circular April last year, declared that “commencing from June 1, 2012, a daily
cumulative limit of N150,000 and N1,000,000 on free cash withdrawals and
lodgements by individuals and corporate customers respectively with deposits
money banks shall be imposed.” Following public outcry, the daily cash
withdrawal and deposit limit was raised to N500,000 and from N1,000,000 to
N3,000,000 for corporate accounts.
According
to CBN, the new cashless policy was introduced
for a number of key reasons, including, To drive development and modernization
of our payment system in line with Nigeria‘s vision 2020 goal of being amongst
the top 20 economies by the year 2020. An efficient and modern payment system
is positively correlated with economic development, and is a key enabler for
economic growth. To reduce the cost of banking services (including cost of
credit) and drive financial inclusion by providing more efficient transaction
options and greater reach and to improve the effectiveness of monetary policy
in managing inflation and driving economic growth. In addition, the cash policy
aims to curb some of the negative consequences associated with the high usage
of physical cash in the economy, including: high cost of cash: high risk of
using cash, high subsidy, informal economy and inefficiency & corruption
(CBN, Website, 2011). Regarding this context, the study seeks examine the
cashless economy by exploring its impact on the Nigerian economy.
1.2
Statement of the Problem
As more payment systems have been
introduced, pundits have been predicting the emergence of a cash less society’.
Today, we still pay with cash and checks, but several other payment
instruments, such as credit and debit cards, are widely used. The use of paper
money is more declining, but at a rather slow pace. As it were, Nigeria is a
country heavily dominated by cash and there are some factors that negatively
affect the choice of cash over non-cash instruments, some of these include time
spent in counting and verifying cash, susceptibility to loss, time spent in the
banking halls, amongst others (Nnanwobu et al, 2011).
A cash-based economy is one which is characterized by the psychology to
physically hold and touch cash a culture informed by ignorance, illiteracy, and
lack of security consciousness and appreciation of the merit of digital payment
(Ovia, 2002). Cash, as a payment system, attracts lots of negative consequences
such as high cost of handling cash, risks of using cash and keeping them in
houses which eventually lead to high rate robbery, financial loss in the case
of fire and flooding incidents. High cash usage results in lots of money
outside the formal economy, thus limiting the effectiveness of monetary policy
in managing inflation and encouraging economic growth. Also high cash usage
enables corruption, leakages, money laundering, counterfeiting, mis-management,
mutilation and depreciation in value if not invested. Some or most of these
factors are one which exists in the Nigerian economy today thus creating gap
for this current study.
In Nigeria today, infrastructure is a
major problem that hinders the money deposit banks from attaining full potential in terms of certain
policy implementations and its impact on financial transactions in the banking
industry.
The infrastructure in Nigeria over the years has not been reputable and thus
has given way to ineffectiveness to the sincerity in financial transactions in
the banks. The level of
technology in the nation is rather poor and increasing at a slow pace and as
such hasn’t given room for major development and policy implementations that
may have risen. The technology available for carrying out banking transactions
are not as effective as they ought to be therefore leaving people with no other
choice than to keep cash in their houses in order to avoid having to spend lots
of time in the banking halls due to low servers, interrupted power supply, bad
internet services. Illiteracy and the low level of education of people does
nothing else than leave people in the dark and therefore results into the
inability of the people to understand when developments are being put into
place. Many people do not see the need to keep their money in the banks or
invest them due to the lack of understanding they have and also insufficient
publicity and awareness measures are what have being in existence which if
dealt with would at least reduce the lack of understanding of many and make
them see viable reasons why they should keep their money in the banks and
invest them other than keep them in their houses as a route to the safety of
many lives and better growth of the economy and as such increase the standard
of living. This of course, is the motivation behind this study.
As a matter of fact, the demand for money is being taken in terms of
demand deposits in banks and liquid assets outside the banks that is the
average willingness of people to either hold money in cash or keep it as demand
deposits in the banks effects the activities of commercial banks in controlling
the amount of money in circulation, which in turn determines the hold of the
CBN on the economy in terms of monetary policy implementations. The analysis of
banking innovations and the response of the public towards them would help determine the hold of the Central
Bank of Nigeria (CBN) on the extent to which they have been able to foster financial
transactions in money deposit banks across the nation.
The introduction of E-commerce has made room for various
tools in transacting business, although not all of these tools have been fully
utilised. The new policy adopted is such that has been made to affect the whole
economy and to put in full use all of these tools which include the monetary
and fiscal policies, and in turn will maximise the effort of the e-commerce
innovation.
1.3 Objectives of the Study
The general objective of this study
was to examine the impact of Cashless policy on Nigerian economic growth.
However, the specific objectives were:
(i)
To
determine the degree of the relationship between cashless policy and Nigerian
economy.
(ii)
To
ascertain empirically the impact of cashless policy on Nigeria economic growth.
1.4 Research
Questions
In order
to carry out this study effectively these research questions were made:
(i)
To what degree does cashless policy relate to
the Nigerian economy?
(ii)
To what extent does the policy effect the
Nigeria economic growth?
1.5 Research Hypothesis
The
following research hypotheses were formulated and tested for the study:
Ho- Cashless policy does not relate to the
Nigerian economy.
H1-Cashless policy relate to the Nigerian
economy.
Ho -Cashless policy has no effect on the
Nigeria economic growth.
H1-Cashless policy has effect on the Nigeria
economic growth.
1.6
Significance of the Study
This study
will be of immense benefit to the following persons:
It would add the new knowledge
generated to the existing knowledge of the researcher.
It will increase the volume of literature in
the institution’s library. It will serve as a reference material to people who
would want to carry out further research study on this topic in future.
It will also assist bankers,
business analysts and policy makers on monetary policy formulation and
effective decision making.
It will help the general public
who may have time to go through the findings and recommendations of this study
to gain knowledge as regard to the benefits and challenges of introducing the
policy in Nigerian economy.
1.7 Scope
and Limitation of the Study
This study
is geographically limited to Nigeria. It would have include both human and material resources
drawn from banking sector for effective study due to large population involved,
it is limited to Abakaliki metropolis in
Ebonyi State, one of the 36 States of the federation. However, the major
constraints of this study are the attitudes of some respondents who
deliberately and out of bias refuse to disclose some relevant information needed
for successful completion of this study; there was insufficient fund to be able
to gather enough data and materials needed for this study due to non-reliable
source of income of the researcher and time given to carry out this empirical
study was very short and therefore inadequate comparing to the nature of this
empirical study. Despite that the researcher endeavoured to make effective use
of the available resources at her disposal to ensure that this study became
successful.
1.8 Definition of Terms
Access
Products — Products that allow
consumers to access traditional payment instrument electronically, generally
from remote locations.
ATM
Card — An ATM(Automated
Teller Machine) card is also known as a bank card, client card, key card, or
cash card, is a payment card provided by a financial institution to its
customers which enables the customer to use an automated teller machine (ATM)
for transactions such as: deposits, cash withdrawals, obtaining account
information, and other types of banking transactions, often through interbank
networks.
CBN- Central Bank of Nigeria.
Chip
Card — Also known as an
integrated circuit (IC) Card. A card containing one or more computers chips or
integrated circuits for identification, data storage or special purpose processing
used to validate personal identification numbers, authorize purchases, verify
account balances and store personal records.
Electronic
Data Interchange (EDI) — The
transfer of information between organizations in machine readable form.
Electronic
Money — Monetary value
measured in currency units stored in electronic form on an electronic device in
the consumer’s possession. This electronic value can be purchased and held on
the device until reduced through purchase or transfer.
Internet
Banking- This is a product
that enables the Bank leverage on the Internet Banking System Module in-built
on the new Banking Application (BANKS) implemented by the Bank to serve the
Internet Banking needs of the Bank’s customers.
Mobile
Banking - This is a product that
offers Customers of a Bank to access services as you go. Customer can make
their transactions anywhere such as account balance, transaction enquiries,
stop checks, and other customer’s service instructions, Balance Inquiry,
Account Verification, Bill Payment, Electronic fund transfer, Account Balances,
updates and history, Customer service via mobile, Transfer between accounts
etc.
Payment
System — A financial system
that establishes that means for transferring money between suppliers and of
fund, usually by exchanging debits or Credits between financial institutions.
Point Of Sale (P05) Machine - A Point-of-Sale machine is the payment device
that allows credit/debit cardholders make payments at sales/purchase outlets.
It allowed customers to perform the following services Retail Payments,
Cashless Payments, Cash Back Balance Inquiry, Airtime Vending, Loyalty
Redemption, Printing mini statement etc.
Smart
Card — A Card with a
computer chip embedded, oh which financial health, educational, and security
information can be stored and processed.
Transaction
Alert - Our customers carry
out debit/credit transactions on their accounts and the need to keep track of
these transactions prompted the creation of the alert system by the Bank to
notify customers of those transactions. The alert system also serves as
notification system to reach out to customers when necessary information need
to be communicated.
Western
Union Money Transfer (WUMT) -
Western union Money transfer is a product that allowed people with relatives in
Diaspora who may be remitting money home for family up-keep, Project financing,
School fees etc. Nigerian Communities known for having their siblings gainfully
employed in other parts of the world are idle markets for Western Union Money
Transfer.
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