Introduction
Cashless policy is an economic strategy aimed at reducing the use of physical cash in financial transactions and promoting the use of electronic payment systems. This is a significant transition for most countries because, over time, value has always been exchanged for physical cash/payment, no matter the currency.
This change is driven by the need to enhance the efficiency and transparency of financial operations worldwide. Various countries have embraced cashless policies to different extents, using technology to create easy payment processes, reduce costs, and improve the economy overall.
The cashless policy transitions a country’s citizens from a very physical method of payment (cash notes, coins, etc.) to a digital method of payment, such that transactions can be carried out across every part of the country with the use of mobile phones, credit/debit cards, and effective payment systems.
In a cashless society, transactions are conducted through digital means such as credit and debit cards, mobile banking, online transfers, digital wallets, etc. This shift simplifies how money is handled and typically brings various population members into the formal financial system, thus enabling financial inclusion.
In Nigeria, the move towards a cashless economy began in 2012 with the introduction of the cashless policy by the Central Bank of Nigeria (CBN). The policy solved some of the problems a cash-based economy like Nigeria faces. Some of these challenges include:
- High transaction costs
- Security risks
- Mismanagement of public funds
The Nigerian government wanted to modernize its financial infrastructure, stimulate economic growth, and reduce corruption and money laundering by encouraging the use of electronic payment methods.
Since then, the Nigerian cashless policy has evolved through various phases and continues to be a critical component of the nation’s economic reform agenda. This article delves into the policy’s background, objectives, implementation, and impact, providing a comprehensive overview of how it is reshaping the country’s financial landscape and prospects for the future.
Background
The Nigerian cashless policy, initiated by the Central Bank of Nigeria (CBN), is part of a broader effort to modernize the country’s financial system, reduce the cost of banking services, and improve the efficiency of monetary policy. The policy marks a significant shift in Nigeria’s economic landscape as it aims to promote electronic payment systems over cash-based transactions.
The CBN’s cashless policy was introduced in response to the growing volume of cash transactions in the Nigerian economy, which presented various challenges, including high cash handling costs, risks associated with carrying cash, and inefficiencies in the payment system. Before the policy’s implementation, the Nigerian economy relied heavily on money, with about 90% of transactions conducted in cash. This reliance led to significant economic drawbacks, such as increased costs for cash management for both the banks and businesses. It heightened the risks of theft and other forms of financial crimes.
The initial rollout of the cashless policy began with a pilot phase in Lagos State in January 2012. Lagos, Nigeria’s commercial hub, was chosen as the testing ground to gauge the feasibility and challenges of implementing such a policy on a larger scale. The key components of the policy included setting limits on daily cash withdrawals and deposits, promoting the use of electronic payment channels, and enhancing the infrastructure for electronic banking.
As part of the policy, the CBN introduced charges on cash transactions above certain thresholds to discourage excessive cash use. Cash withdrawals and deposits above ₦500,000 attracted charges for individuals, while the threshold was set at ₦3 million for corporate entities. These measures were designed to incentivize using electronic payment methods such as point-of-sale (POS) systems, internet banking, mobile banking, and automated teller machines (ATMs).
Following the relative success of the pilot phase in Lagos, the policy was gradually extended to other states and eventually nationwide. By 2014, the cashless policy was implemented across the country, aiming to foster a more inclusive financial system, reduce corruption, and enhance the traceability of transactions.
Implementing the cashless policy also necessitated significant investments in banking infrastructure and technology. Financial institutions were encouraged to expand their electronic banking offerings and improve the security and reliability of their systems. Additionally, the CBN launched several initiatives to promote financial literacy and educate the public on the benefits of electronic transactions.
Despite initial resistance and challenges, including concerns over cybersecurity, inadequate infrastructure, and the digital divide between urban and rural areas, the cashless policy has gradually gained acceptance. The policy has evolved over the years, with continuous efforts to address these challenges and enhance the adoption of electronic payment systems.
Today, the cashless policy remains a cornerstone of Nigeria’s financial sector reforms, contributing to the country’s economic development and integration into the global financial system. The policy has transformed how Nigerians conduct transactions and paved the way for innovations in financial technology (fintech) and the emergence of a vibrant digital economy.
Goals of the Nigerian Cashless Policy
While aiming to reduce physical cash circulation, the Nigerian cashless policy has several goals, one of which is to improve the country’s economy. Below are some of such goals:
- Modernize and Develop the Payment System: The CBN envisioned a more efficient and technologically advanced payment infrastructure. This aligns with Nigeria’s aspirations to become a top global economy, where electronic transactions are the norm.
- Reduce Costs and Enhance Financial Inclusion: Cash handling is expensive. The policy aimed to lower banking service costs, potentially leading to cheaper credit and financial products. By promoting digital transactions, the CBN hoped to bring more Nigerians into the formal financial system, which was previously reliant on cash.
- Improve Monetary Policy Effectiveness: A cashless economy allows the CBN to track and manage money flow better. This can lead to more effective implementation of monetary policies aimed at controlling inflation and stimulating economic growth.
- Curb Crime and Corruption: Cash is often used in illicit activities. By reducing reliance on physical currency, the CBN hoped to make it more difficult for criminals to operate and for corruption to flourish.
- Increase Transparency and Efficiency: Electronic transactions offer a clear record of financial activity. This transparency can improve business practices, reduce errors, and streamline financial processes.
Benefits of the Cashless Policy in Nigeria
The Nigerian cashless policy aims to transition the country towards a more digital and efficient financial system. This policy offers several advantages for both Nigerians and the Nigerian economy.
For Nigerians:
- Increased Convenience: Cashless transactions are faster and more convenient than cash. Digital payments can be made electronically from anywhere with an internet connection, eliminating the need to carry large amounts of money or visit ATMs frequently.
- Improved Security: Cashless transactions reduce the risk of theft and loss associated with carrying cash. Digital transactions offer a more secure way to conduct financial activities.
- Enhanced Transparency: Electronic transactions leave a clear audit trail, promoting transparency and accountability in financial dealings. This can benefit budgeting, tracking expenses, and managing finances more effectively.
- Broader Financial Inclusion: The cashless policy encourages mobile banking and other digital financial services. This can bring financially excluded Nigerians, particularly those in rural areas, into the formal financial system, allowing them to access financial products and services previously unavailable.
- Potential for Rewards: Many digital payment platforms offer reward programs or cashback incentives for using their services. This can translate to savings and benefits for Nigerians actively participating in the cashless economy.
For the Nigerian Economy:
- Reduced Corruption: A cashless society makes it more challenging to engage in cash-based corruption. Electronic transactions leave a traceable record, which can deter corrupt practices and promote financial transparency.
- Increased Economic Efficiency: A more digital financial system can streamline financial processes and transactions, improving overall economic efficiency and contributing to economic growth.
- Boosted Tax Revenue: Electronic transactions provide a clearer picture of economic activity, potentially leading to improved tax collection and increased government revenue.
- Modernization and Innovation: The cashless policy encourages the development and adoption of new financial technologies (fintech) in Nigeria. This fosters innovation and positions the country at the forefront of the digital financial revolution.
Challenges of the Nigerian Cashless Policy
While the Nigerian cashless policy boasts numerous benefits, its implementation has faced significant challenges. Here are some major hurdles:
- Digital Literacy Gap: A significant portion of the Nigerian population, particularly in rural areas, lacks the digital literacy skills needed to navigate electronic transactions. This can hinder their ability to participate fully in the cashless economy.
- Limited Infrastructure: Reliable access to electricity and internet connectivity remains a significant hurdle in many parts of Nigeria. This lack of infrastructure makes using electronic payment systems easier, especially in remote locations.
- Security Concerns: Cybersecurity threats and concerns about fraud can deter some Nigerians from using cashless methods. Ensuring robust security measures and building trust in digital transactions is crucial for broader adoption.
- Cost of Digital Transactions: Transaction fees associated with cashless payments, particularly for mobile money or POS systems, can deter low-income individuals and small businesses. Reducing these costs can encourage broader participation.
- Access to Financial Services: Not everyone can access bank accounts or mobile banking services, which are essential for cashless transactions. Expanding financial inclusion efforts is necessary to bridge this gap.
- Cultural Preference for Cash: For many Nigerians, cash represents a tangible and familiar way to manage finances. Changing deeply ingrained habits and preferences takes time and education.
Conclusion
The introduction of the cashless policy also means the introduction and encouragement of online banking platforms in Nigeria. A large number of Nigerians now have access to a wide range of financial services from the comfort of their homes.
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