Introduction
It is no surprise that the physical transportation of cash can be problematic. This is due to reasons, such as weight, hygiene and most importantly, personal security. These issues have coaxed the central bank to introduce a new systemic approach tagged “cashless policy.” The Central Bank introduced this policy to minimize money laundering, terrorist financing, and other economic and financial crimes in Nigeria. More importantly, the policy aims to reduce the amount of physical cash in circulation and encourage more electronic-based transactions.
The Central Bank is traditionally the apex bank of a nation. In Nigeria, the Central Bank has the mandate to perform the following duties: proper management of the financial system, ensuring monetary and price stability, issuing legal tender currency, and maintenance of external reserves.
What is cashless policy all about?
Cashless policy is a regulated system in which traditional monetary assets, in the form of physical banknotes and coins, are not accepted in any financial transaction. Instead, people and businesses transfer money to one another digitally via credit or debit cards, cryptocurrency and mobile payment services. Although no existing society is cashless, many economists believe that consumer preferences, competitive pressures and government policies are critical factors that could influence society to lean towards cashless policy.
What is the purpose of cashless policy in Nigeria?
The Nigerian cashless policy is a government initiative to reduce the use of physical cash in transactions and promote digital payments. Introduced in 2012 by the then-CBN governor Sanusi Lamido, it was established to increase financial inclusion, reduce corruption and improve the efficiency of the economic system. The policy requires that individuals and businesses carry out transactions through electronic means, such as mobile money, Point of Sale (POS) terminals, and online banking.
The CBN has introduced several measures to encourage digital payment, for example, joining forces with fintech startups. One of them is Remita, a prominent CBN-licensed fintech organization that offers a wide range financial services to increase the reach of mobile money and reduce transaction costs.
What are the problems of cashless policy in Nigeria?
The move towards a cashless economy in Nigeria has potential implications and challenges. One of the main concerns is the digital divide, as individuals and businesses need access to digital technology or the internet to be included in the shift towards digital payments. This is particularly important in Nigeria, where most of the population lives in rural areas with limited access to technology.
Another significant implication of the move towards a cashless economy is the potential for data breaches and cyberattacks. These threats can compromise the security of personal and financial information. As digital payments become more prevalent, it is crucial for the government and regulatory bodies to ensure the implementation of robust security measures to safeguard individuals and businesses from such risks.
Moreover, the transition to a cashless economy could significantly disrupt traditional payment methods, leading to social and economic implications. For instance, small business owners and street vendors who rely on cash transactions may face the challenge of adapting to the new system, potentially leading to increased costs and reduced profits. Eliminating physical currency could also alter how people save their wealth.
Cashless policy, is this truly thriving in Nigeria?
The adoption of cashless policy in Nigeria has increased significantly in recent years, primarily due to the government’s push towards a cashless economy. According to the Central Bank of Nigeria (CBN), the volume of digital transactions has increased dramatically, with mobile money transactions accounting for most digital payments.
Point-of-sale (POS) terminals have also risen significantly, especially in urban areas. In response to the growing demand for digital payments, several commercial banks have stepped up by launching mobile banking services.
Despite the growth in digital payments, cash is still widely used in Nigeria, particularly in rural areas. The government and regulatory bodies will need to continue encouraging the adoption of digital payments and provide support for individuals and businesses to transition to the new system.
Impact of cashless policy in Nigeria
Implementing the cashless policy has brought about multiple advantages to individuals and the Nigerian economy at large.
- Reduced cost: A cash-based economy is usually associated with the high cost of transactions along the value chain from the CBN and the banks to corporations and individuals; everyone bears the high costs associated with volume cash handling. A shift towards a cashless economy will alleviate these problems.
- Reduced risk: Physical cash encourages cash-related crimes like armed robberies and burglaries. It can also lead to financial losses in the case of fire outbreaks. However, a cashless economy will minimize such negative consequences.
- Reduced corruption: A cash-based economy enables corruption and fraudulent practices. The same is the case in a cashless economy, but the added advantage of Know Your Customer (KYC) in the cashless economy holds the personal details of individuals, thereby linking them to financial malpractices.
- Convenience and security: Physical cash can be stressful to carry around and pose a security risk if one has large amounts. Nowadays, with the emergence of a cashless policy, you need a debit/credit card to engage in financial transactions.
Conclusion
This article has examined the benefits and the challenges of the CBN’s cashless policy. The cashless policy in Nigeria is a significant step towards a digital economy, it has the potential to bring several benefits, including financial inclusion, reduced cost and increased transparency in financial transactions.
However, the shift to a cashless economy also presents some challenges. The government and regulatory bodies must work together to mitigate these issues and ensure that the transition to digital payments is successful and sustainable. Individuals and businesses should be aware of the cashless policy and take steps to adjust to the new system. This may involve opening a digital bank account or using a mobile wallet, which could be achieved using the Remita payment platform.
