Was the Cashless Policy Needed?

Anthony Iwu

When the Central Bank of Nigeria (CBN), with Godwin Emefiele as the helmsman embarked on the controversial policy of introducing Nigeria into the international economic community where there is less dependence on physical cash for all manner of transactions, the question asked by many was “is the policy needed at the time?” Some even suggested that the country was not ripe for that level of sophistication in the application and usage of what was then perceived as an advanced monetary activity reserved for only a few elites. How wrong they were.

It must be noted that as at the time the policy was introduced in Nigeria, it was already in use in some African countries. Let us leave Europe and America yet because in those places, cash transactions above a certain limit exposes the individual or corporate body to security scrutiny. In other words, cashless policy was the rule in shops, eateries, hair salons and in banking halls. Emefiele, thought, rightly, that Nigeria, being the largest economy in Africa, such a policy was long overdue. The only snag was the fear of the unknown by those allergic to change.  

Curiously, despite the initial pessimism regarding its prospects by naysayers, the policy has become a huge success as it has continued to drive the economy to desirable heights creating jobs for a retinue of jobless youths. It has also helped businesses to do away with the anachronistic methods of logging cash around for all manner of transactions.

At every available opportunity, Emefiele took out time to explain to even those who should know but who are fixated to old ways of doing things, the need to have the Nigerian economy key in to the league of advanced economies and the benefits of cashless module in financing and payments.

It is pertinent to note that the policy was introduced for a number of reasons all geared towards opening up the economy to the level of international best practices.

The main aim of the policy which was to drive development and modernize the nation’s payment system in line with Nigeria’s vision 2020 goal of being amongst the top 20 economies by the year 2020 has largely been actualized as most Nigerians across the social strata have come to accept it as a policy that has the potential to improve not just the business environment but also the wellbeing of the rural folks who had remained outside the financial loop for a long time.

Overtime, it has become an efficient and modern payment system that is positively correlated with economic development. Even more significantly, it is becoming a key enabler for economic growth. For those already within the banking circle, the policy is serving to reduce the cost of banking services (including cost of credit). It is important to note that it is aggressively driving financial inclusion by providing more efficient transaction options and greater reach.

For the authorities saddled with the responsibility of managing the economy, the policy has helped in more ways than one in improving the effectiveness of monetary policy directed at managing inflation and driving economic growth.

In addition, the policy had as one of its aims, the desire to curb some of the negative consequences associated with the high usage of physical cash in the economy. Before its introduction, the high cost of cash was palpable as it weighed heavily on the cost of doing business. It needs no explanation that before the policy, there was a high cost of cash along the value chain – from the CBN and the banks, to corporations and traders; everyone bears the high costs associated with handling humongous volumes of cash that had to be handled during economic activities. All that is becoming history to the point that financial transfers have become so fashionable.

Even worse than the high cost of cash was the high risk of using cash. Bullion vans on highways put ideas into minds bent by crime and incidences of robberies and other cash-related misdemeanours were rife. Related to this are instances where financial losses occur in the case of fire and flooding incidents.

It needs to be realized that Emefiele, before his career path led him to the apex bank, was a deposit money bank (DMB) chief executive. Versed in banking operations, he is aware of the high subsidy involved daily in banking transactions. In enunciating this policy, he encouraged the CBN to carry out an analysis of subsidy relations as it affects daily transactions. The result showed that only 10 percent of daily banking transactions are above N150,000. Intriguingly, as the analysis indicated, the 10 percent account for majority of the high value transactions. This, invariably, suggested that the entire banking population subsidizes the costs that the tiny minority of 10 percent incur in terms of high cash usage.  The apex bank chief felt that this was not only wrong, it is also unacceptable. Hence the compelling need to do something about it and the urgency in the drive to bring it to life.

Perhaps, the sector of the economy that added verve to the thinking around the policy was the goings on in the informal economy. Unarguably, high cash usage results in a lot of money outside the formal economy, thus limiting the effectiveness of monetary policy in managing inflation and encouraging economic growth.

Emefiele must have been influenced to throw his weight behind this policy as part of measures to reduce inefficiency in the system as well as bring down the level of corruption that was eating deep into the public system. Without gainsaying it, high cash usage enables corruption, leakages and money laundering, amongst other cash-related fraudulent activities.

As to the question suggested by the caption above, the policy has proved to be the proverbial game changer. An idea which time was long overdue. If sustained after Emefiele’s tenure at the Bank, there is every possibility that it will render physical cash transactions unattractive. And the economy as a whole and Nigerians in particular will be the better for it.

Iwu is a financial analyst based in Enugu