1.1 Introduction
Cashless policy is the process of designating of financial transactions handled by means of credit cards, bank transfers, and cheques, with no money handed from person to person. While cash and cheques are still prevalent in some parts of the world, electronic payment mechanisms and especially, mobile payments are gaining consumer acceptance in many economics due to the high penetration of mobile phone technology (Herzberg, 2003). In addition, the cash policy aims to curb some of the negative consequences associated with the high usage of physical cash in the economy. According to CBN, the new cashless policy was introduced for a number of key reasons. An efficient and modern payment system is positively correlated with economic development, and is a key enabler for economic growth.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
The recent evolution of technology for financial transactions poses interesting questions for policy makers and financial institutions regarding the suitability of current institutional arrangements and availability of instruments to guarantee financial stability, efficiency and effectiveness of monetary policy. Over the course of history, different forms of payment systems have been in existence. Initially, ‘trade by barter’ was common; however, the problems of barter such as the double coincidence of wants necessitated the introduction of various forms of money (Swartz et al, 2004). Nevertheless, analysts have been predicting the complete demise of study instruments and the emergence of potentially superior substitute for cash or monetary exchanges, that is, ‘cashless society’.
Unlike the barter system which involves the exchange of one good for another, a cashless environment refers to one in which transactions are carried out with minimal exchange of physical cash. It implies that the payment instrument is not physical cash but other instruments such as cheques, electronic transfers, e-payment and so on. The rapid advancement in electronic distribution channels has produced tremendous changes in the financial industry in recent years, with an increasing rate of change in technology, competition among players and consumer needs as argued (Hughes, 2001). Since Nigeria‘s Independence in 1960, there have been different governments, constitutional reforms, change in economic policies and banking reforms, mainly directed at enhancing social welfare and achieving developmental goals but there has been no substantial positive change in Nigeria‘s Human Development Indicators.
This also calls to question the effectiveness of the cash-less policy of the Central Bank of Nigeria (CBN). At the end of the 1980s, the use of cash for purchasing consumption goods in the US has constantly declined (Humphrey, 2004). Hence, most LDCs (Less Developed Countries) like Nigeria are on the transition from a pure cash economy to a cash-less ‘one for developmental purposes’. Little wonder why the Central Bank of Nigeria recently introduced a cashless policy. Thus, as part of its regulatory functions, the Central Bank of Nigeria, issued a circular dated April 20, 2011 in which it conveyed to operators and the banking public its decision to introduce a cashless banking policy into the Nigerian financial system with effect from January 1, 2012 using Lagos as the pilot programme that is the policy kick-starts from Lagos and eventually all over the other states in the nation.
To enforce the implementation, the Central Bank had, in a circular April last year, declared that “commencing from June 1, 2012, a daily cumulative limit of N150,000 and N1,000,000 on free cash withdrawals and lodgements by individuals and corporate customers respectively with deposits money banks shall be imposed.” Following public outcry, the daily cash withdrawal and deposit limit was raised to N500,000 and from N1,000,000 to N3,000,000 for corporate accounts.
According to CBN, the new cashless policy was introduced for a number of key reasons, including, To drive development and modernization of our payment system in line with Nigeria‘s vision 2020 goal of being amongst the top 20 economies by the year 2020. An efficient and modern payment system is positively correlated with economic development, and is a key enabler for economic growth. To reduce the cost of banking services (including cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach and to improve the effectiveness of monetary policy in managing inflation and driving economic growth. In addition, the cash policy aims to curb some of the negative consequences associated with the high usage of physical cash in the economy, including: high cost of cash: high risk of using cash, high subsidy, informal economy and inefficiency & corruption (CBN, Website, 2011). Regarding this context, the study seeks examine the cashless economy by exploring its impact on the Nigerian economy.
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Effect of Cashless Policy on the Nigerian Economy.
1.3 Statement of Problems
Investigation revealed that as more payment systems have been introduced, pundits have been predicting the emergence of a cashless society’. Today, we still pay with cash and checks, but several other payment instruments, such as credit and debit cards, are widely used. The use of paper money is more declining, but at a rather slow pace. As it were, Nigeria is a country heavily dominated by cash and there are some factors that negatively affect the choice of cash over non-cash instruments, some of these include time spent in counting and verifying cash, susceptibility to loss, time spent in the banking halls, amongst others (Nnanwobu et al, 2011).
A cash-based economy is one which is characterized by the psychology to physically hold and touch cash a culture informed by ignorance, illiteracy, and lack of security consciousness and appreciation of the merit of digital payment (Ovia, 2002).
Cash, as a payment system, attracts lots of negative consequences such as high cost of handling cash, risks of using cash and keeping them in houses which eventually lead to high rate robbery, financial loss in the case of fire and flooding incidents. High cash usage results in lots of money outside the formal economy, thus limiting the effectiveness of monetary policy in managing inflation and encouraging economic growth. Also high cash usage enables corruption, leakages, money laundering, counterfeiting, mismanagement, mutilation and depreciation in value if not invested. Some or most of these factors are one which exists in the Nigerian economy today thus creating gap for this current study.
1.4 Aim and Objectives of Study
The aim of the study is to investigate the Effect of Cashless Policy on the Nigerian Economy. In achieving this aim, the following specific objectives were laid out as follows:
- To determine the degree of the relationship between cashless policy and Nigerian economy; and
- To ascertain empirically the impact of cashless policy on Nigeria economic growth.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- To what degree does cashless policy relate to the Nigerian economy?
- To what extent does the policy effect the Nigeria economic growth?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: Cashless policy does not relate to the Nigerian economy.
- H1: Cashless policy relate to the Nigerian economy.
Hypothesis Two
- H0: Cashless policy has no significant effect on the Nigeria economic growth.
- H1: Cashless policy has significant effect on the Nigeria economic growth.
1.7 Significance of Study
This study will be of immense benefit to the following persons:
- It would add the new knowledge generated to the existing knowledge of the researcher.
- It will increase the volume of literature in the institution’s library. It will serve as a reference material to people who would want to carry out further research study on this topic in future.
- It will assist bankers, business analysts and policy makers on monetary policy formulation and effective decision making.
- It will also help the general public who may have time to go through the findings and recommendations of this study to gain knowledge as regard to the benefits and challenges of introducing the policy in Nigerian economy.
1.8 Scope of Study
The scope of the research is focused on the Effect of Cashless Policy on the Nigerian Economy. This study is geographically limited to Nigeria. It would have include both human and material resources drawn from banking sector for effective study due to large population involved, it is limited to Abakaliki metropolis in Ebonyi State, one of the 36 States of the federation.
However, the major constraints of this study are the attitudes of some respondents who deliberately and out of bias refuse to disclose some relevant information needed for successful completion of this study; there was insufficient fund to be able to gather enough data and materials needed for this study due to non-reliable source of income of the researcher and time given to carry out this empirical study was very short and therefore inadequate comparing to the nature of this empirical study. Despite that the researcher endeavoured to make effective use of the available resources at her disposal to ensure that this study became successful.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Definition of Terms
Cashless: Designating of financial transactions handled by means of credit cards, bank transfers, and cheques, with no money handed from person to person.
Access Products: Products that allow consumers to access traditional payment instrument electronically, generally from remote locations
