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Cbn Cashless Policy Is Going Live On April 1st 2017

  • Jan 2018
  • biznews

  • [b]News Reaching us this morning has it that the proposed CBN cashless policy is going live on April 1st, 2017 across the FCT, Lagos, Ogun, Abia, Anambra, Kano, and Rivers states. and other states is said to follow suit.[/b]

    [b]Now let us talk what are the possible implications of this?[/b]

    When an economy adopts a cashless policy, it propels its people and companies to convert their paper money to bank deposits with the hope that they can be persuaded to spend that money rather than save it because those deposits will carry considerable costs (negative interest rates and/or fees), which could in turn boost consumption, GDP and inflation to pay for the massive debts accumulated (leaving aside the very controversial idea should now have to pay for the privilege of holding their hard earned money in a more liquid form, after it has already been taxed).

    In other words, the cashless policy is aimed at shifting the economy from a cash-based economy to a cashless one, with a view to reducing the cost of banking services and improving the effectiveness of monetary policy in managing inflation and driving economic growth. It also helps stimulate, develop and modernize the payment system, while also curbing the criminality usually associated with traveling around with a lot of physical cash. An efficient and modern payment system is not only positively correlated with economic development but also is a key enabler for economic growth.

    With the cashless policy, inflation will easily be managed and the high risk of using cash will be reduced or curtailed. Cash, on the other hand, encourages robberies and other cash-related crimes. It can also lead to a financial loss in the case of fire and flooding incidents. High cash usage also.

    [b]Some of the prospects and problems of a cashless policy are as follows:[/b]

    [b]A. Prospects:[/b]

    1. Enhance the tax base, as most/all transactions in the economy, could now be traced by the government.

    2. Substantially constrain the parallel economy, particularly in illicit activities.

    3. Force people to convert their savings into consumption and/or investment, thereby providing a boost to GDP and employment.

    4. Enable the adoption of new wireless/cashless technologies.

    [b]B. Problems:[/b]

    1. The government loses an important alternative to paying for its debts, namely by printing true-to-the-letter paper money.

    2. Paper money costs you nothing to hold and carries no incremental risk, apart from physical theft. Converting it into bank deposits will cost you fees (and likely earn a negative interest) and expose you to a substantial loss if the bank goes under. After all, you are giving up currency backed by the central bank for a currency backed by your local bank.

    3. The cashless policy would be problematic for the very poor people, many of whom don't have access to the banking system; this will only make them more dependent, in fact exclusively dependent on government handouts.

    4. It would be interesting to know if the banks would actually like to deal with the administrative hassle of handling millions of very small cash transactions and related customer queries.

    5. If there is an event that disrupts electronic transactions (e.g. extensive power outage, cyberattack, cascading bank failures) people in that economy will not be able to transact and everything will grind to a halt.

    6. Enforcing a government mandate to ban cash transactions must carry penalties, which means more regulations, disclosure requirements and compliance costs, potentially exorbitant fees and even jail time.

    [b]Here are some suggestions that will make the policy succeed:[/b]

    1. Periodic review of the policy to iron out gray areas.

    2. Embarking on intensive awareness campaign and sensitization of the citizenry.

    3. Putting adequate security mechanisms in place to forestall fraudulent practices.

    4. Making the public power supply work efficiently and

    5. Exempting cash lodgements and public holidays from cash management charges.






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