Cashless policy can best be described as a financial function operated or performed without using coins or banknotes for money transactions but instead using credit cards or electronic transfer of funds.
With cashless policy, financial transactions are handled by means of credit cards, bank transfers, and checks, with no bills or coins handed from one person to another.
Through the help of the cashless policy, financial transactions are initiated and completed without the need for cash. A cashless economy is an environment in which money is spent without being physically carried from one person to the other. The first issue in the cashless economy is the issue of electronic purse.
This is electronic information transmitted to a device which reveals the information about how much a person has stored in the bank and how much he can spend.
The adoption of a cashless policy in an economy forces people and companies to convert their paper money to bank deposits, the hope is 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 modernise the payment system, while also curbing the criminality usually associated with travelling 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 financial loss in the case of fire and flooding incidents.
High cash usage also results in a lot of money outside the formal economy, thus limiting the effectiveness of monetary policy in managing inflation and encouraging economic growth. High cash usage enables corruption, leakages and money laundering, among other cash-related fraudulent activities.
Some of the prospects and problems of a cashless policy are as follows:
Prospects of Cashless Policy in Nigeria:
1. It’s comfortable. No more delving your pocket in search of money. With cashless policy, most people would have their cellphones more readily available than their wallets.
2. Reduced handling and transport costs. If all monetary transactions were electronic, there would be no need to move around large sums in expensive high-level security vehicles. This would produce savings for both public and private entities.
3. Increased personal security. Imagine carrying no cash in your pockets. Goodbye pickpocketing. Imagine cash registers void of any physical money. Goodbye armed robberies.
4. Enhance the tax base, as most/all transactions in the economy could now be traced by the government.
5. Substantially constrain the parallel economy, particularly in illicit activities.
6. Force people to convert their savings into consumption and/or investment, thereby providing a boost to GDP and employment.
7. Enable the adoption of new wireless/cashless technologies.
Problems of cashless policy in Nigeria.
1. Cashless policy could often be affected by physical challenges such as high rate of illiteracy, inadequate sensitization/education of the benefits of cashless policy, and inadequate logistics (such as the provision of internet connections in commercial areas, computers and Point On Sale (POS) machines).
2. Apart from the physical challenges, economic data and indicators useful in the analysis of the true impact of cashless policy on the economy are not fully available and reliable.
3. The government loses an important alternative to pay for its debts, namely by printing true-to-the-letter paper money.
4. 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 currency backed by your local bank.
5. 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.
6. 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.
7. 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.
8. 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.
Recommendations to make cashless policy succeed in Nigeria:
1. Periodic review of the policy to iron out grey 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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