Cashless Policy Will Cause Hiccups In The Beginning, But…

By Charles Jaja-Sackey

The way I see it, there are two paths we can take in any given situation: one is the path of avoiding pain in the moment, and the other is the more difficult path of delaying pleasure for a bigger purpose. More often than not, to make progress in life, it is the latter we’ll come across with.

This may surprise some but Naira is owned by the Central Bank of Nigeria (CBN). It is not owned by the government, or citizens, or deposit banks. The CBN is the owner and sole issuer of legal tender money throughout the Nigerian Federation. It controls the volume of money supplied in the economy in order to ensure monetary and price stability.

The primary goal of central banks is to provide their countries’ currencies with price stability by controlling inflation. It also acts as the regulatory authority of a country’s monetary policy and is the sole provider and printer of notes and coins in circulation. It is the monetary policies of the central bank that influences the fiscal policy of government. Don’t worry I’ll briefly explain the difference between both:

Monetary policy relates to the management of interest rates and the total supply of money in circulation. And because the money in circulation is owned by the central bank, monetary policies are carried out by central banks.

Fiscal policies relates to the taxing and spending actions of governments. So, because it is government that “spends” the country’s money, Nigeria’s fiscal policy is determined by the executive and legislative branches of the government.

Obviously, governments use their political tools to sometimes influence some decisions made by CBN (this is normal worldwide), but essentially, central banks are independent from government. Their overseeing of the monetary system for a nation means they are responsible for monetary policies, implementation of specific goals such as currency stability, low inflation, and full employment.

So, by virtue of these powers CBN work with high street banks to create monetary policies that overall helps the flow of money, and as usual these banks take advantage of the policies to make sure they’re in business. And one of the ways high street banks make money is mostly through efficiencies (which we can discuss later if required).

Now, we all know how challenging the value of naira and Nigeria’s inflation rate is. One of the ways that central banks control the value of their currency and manage inflation is by reducing the circulation of physical cash, and significantly calling in the ones already in supply.

In 2012 CBN introduced a new policy on cash-based transactions which stipulates a cash handling charge on daily cash withdrawals that exceed N500k for Individuals and N3 million for Corporate bodies. The new policy on cash-based transactions (withdrawals and deposits) in banks, is to reduce (NOT ELIMINATE) the amount of physical cash (coins and notes) circulating in the economy, and encouraging more electronic-based transactions (payments for goods, services, transfers, etc.)

For instance, if an individual withdraws N450k over the counter and N150k from the ATM on the same day, the total amount withdrawn by the customer is N600k. Therefore, the individual will pay a service charge of 3% (N3k) will apply on the N100k – the amount above the daily free limit. Similarly, for businesses, it will be 5% of the amount on top of N3 million.

It’s worth pointing out that this policy was announced in 2012, seven years ago. Then it was “test run” in 2014 mostly in Lagos, then Anambra, Abia, Kano, Ogun and Abuja. For most people who live in these cities, if you poll them you would see a net increase in the number of people who now have bank accounts, who have at least used card payments, and have carried out bank transfers – all facilities that are necessary to implement this policy from the viewpoint of the customer.

It is also worth mentioning that when results are reviewed on most monetary policies, it doesn’t mean EVERYONE is doing it, neither does it mean everyone has abandoned the previous status quo. It usually means that given the tools, the incentives and some “persuasive penalties”, you can low-key force people to change an attitude towards what you want them to do. This happens all the time.

Fast-forward to 2019 – 5 years after the “test phase”, CBN has decided to implement this monetary policy fully in the states they tested it, and plan to roll it out across the country by March 31st, 2020. Of course there will be hiccups and challenges, of course there will be inconveniences, of course there will be poor user experience initially. However eventually, this will be a net positive move.

Think about it like this: when a busy road is being repaired, the constructors might close one lane, leading to traffic which obviously is inconveniencing for road passengers. However once that repair work is complete, everyone knows that it would be beneficial. So, if you divide the negative and positive, there would be more positive left: this is what a net positive is.

Yes, this new policy will create inconveniences initially, this is inevitable. But this is why there are caveats all over this new policy:

  • daily limit of N500k. Let’s be honest, how many individuals deposit or withdraw over N500k per day, every day? Remember, individuals, not businesses; by the way any “petty trader” who makes over N500k in cash transactions every day is not a petty trader but a business, and they should be asking their bank to open a Business Account for them. Period!
  • if you’re a business, then your limit is N3m per day. If you’re moving N3m per day in physical cash, then you need to seriously review your business model, reduce the risk of being robbed by criminals or shady staff, and encourage cash-less transactions with your clients.

Look, at the end of the day, for things to become better, there’ll be inconveniences, but overall individuals and businesses will adapt, the monetary system in Nigeria will become more efficient, and the benefits will be obvious.

Jaja-Sackey wrote in from London

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