EFFECT OF CASHLESS POLICY ON THE NIGERIAN ECONOMY .
Need help with a related project topic or New topic? Send Us Your Topic
DOWNLOAD THE COMPLETE PROJECT MATERIAL
EFFECT OF CASHLESS POLICY ON THE NIGERIAN ECONOMY .
Chapter one
INTRODUCTION
1.1 Background of the Study
The recent evolution of technology for financial transactions raises important questions for policymakers and financial institutions about the suitability of current institutional arrangements and the availability of instruments to ensure financial stability, efficiency, and effectiveness of monetary policy.
Throughout history, various payment systems have existed. Initially, ‘trade by barter’ was common; however, barter problems such as the double coincidence of wants forced the introduction of various types of money (Swartz et al, 2004).
Nonetheless, analysts have predicted the full demise of research tools and the advent of a potentially superior substitute for currency or monetary exchanges, known as a “cashless society”.
Unlike a barter system, which includes the exchange of one good for another, a cashless environment is one in which transactions are carried out with the least amount of physical cash. It suggests that the payment instrument is not actual currency, but rather cheques, electronic transfers, e-payments, and so on.
The rapid expansion of electronic distribution channels has resulted in enormous changes in the financial industry in recent years, with an increasing rate of change in technology, player competition, and consumer needs, as suggested (Hughes, 2001).
Since Nigeria’s independence in 1960, there have been numerous governments, constitutional reforms, changes in economic policies, and banking reforms, all aimed at improving social welfare and achieving developmental goals, but there has been no significant improvement in Nigeria’s Human Development Indicators. This also puts into question the effectiveness of the Central Bank of Nigeria’s (CBN) cashless programme.
The use of cash for purchasing consumer items in the United States has steadily fallen since the late 1980s (Humphrey, 2004). As a result, most LDCs (Less Developed Countries), such as Nigeria, are transitioning from a pure cash economy to a cash-less ‘one for developmental purposes’.
It is hardly surprising that Nigeria’s Central Bank has implemented a cashless policy. Thus, as part of its regulatory functions, the Central Bank of Nigeria issued a circular on April 20, 2011, informing operators and the banking public of its decision to implement a cashless banking policy in the Nigerian financial system beginning January 1, 2012, with Lagos serving as the pilot programme, with the policy kicking off in Lagos and eventually spreading throughout the country.
To enforce the implementation, the Central Bank declared in an April circular last year 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 outrage, the daily cash withdrawal and deposit limit was increased to N500,000 for individual accounts and from N1,000,000 to N3,000,000 for corporate accounts.
According to the CBN, the new cashless policy was implemented for a variety of reasons, including to support the development and modernization of our payment system in accordance with Nigeria’s Vision 2020 goal of ranking among the top 20 economies by 2020.
An effective and contemporary payment system has a favourable correlation with economic development and is a fundamental driver of economic progress.
To lower the cost of banking services (including credit), increase financial inclusion by providing more efficient transaction options and greater reach, and improve monetary policy’s efficacy in regulating inflation and generating economic growth.
Furthermore, the cash policy seeks to mitigate some of the negative repercussions associated with the widespread use of physical cash in the economy, such as the high cost of cash, the high danger of using cash, the high subsidy, the informal economy, and inefficiency and corruption (CBN, Website, 2011). In this context, the study tries to investigate the cashless economy and its impact on the Nigerian economy.
1.2 Statement of the Problem
As additional payment technologies are deployed, pundits foresee the arrival of a ‘cashless society’. Today, we still pay with cash and checks, but credit and debit cards are also popular payment methods.
The use of paper money is reducing, albeit slowly. As it stands, Nigeria is a cash-dominated country, and there are some factors that influence the preference for cash over non-cash instruments, such as the time spent counting and verifying cash, the risk of loss, and the time spent in banking halls, among others (Nnanwobu et al, 2011).
A cash-based economy is defined by the psychology of physically holding and touching cash, as well as a culture inspired by ignorance, illiteracy, a lack of security awareness, and an appreciation for the benefits of digital payment (Ovia, 2002).
Cash, as a payment mechanism, has several negative repercussions, including the high cost of handling cash, the risks of using cash and storing it in the house, which can lead to high rates of robbery, and financial loss in the event of a fire or floods.
High cash usage generates a large amount of money outside the formal economy, reducing the effectiveness of monetary policy in regulating inflation and stimulating economic growth.
Furthermore, heavy cash consumption promotes corruption, leakages, money laundering, counterfeiting, mismanagement, mutilation, and value degradation if not invested. Some or all of these factors are present in the Nigerian economy now, resulting in a need for this current study.
In Nigeria today, infrastructure is a major issue that prevents money deposit banks from reaching their full potential in terms of policy execution and the impact on financial transactions in the banking system. Nigeria’s infrastructure has not been reputable over the years, resulting in ineffectiveness and sincerity un financial transactions in banks.
The nation’s technology level is quite low and growing slowly, leaving little room for big growth and policy implementations that may have arisen.
The technology available for carrying out banking transactions is not as effective as it should be, leaving people with no choice but to keep cash at home in order to avoid spending a lot of time in banking halls due to low servers, interrupted power supply, and poor internet service.
People who are illiterate or have a low level of knowledge are left in the dark, which results in their incapacity to understand when developments are implemented.
Many people do not see the need to keep their money in banks or invest it due to a lack of understanding they have, and insufficient publicity and awareness measures are what have been in existence
which if dealt with would at least reduce the lack of understanding of many and make them see viable reasons why they should keep their money in banks and invest it rather than keep it in their houses as a route to the safety of many lives and better growth. This, of course, is the motive for this investigation.
In fact, the demand for money is measured in terms of demand deposits in banks and liquid assets outside of banks, which means that the average willingness of people to hold money in cash or as demand deposits in banks influences commercial banks’ activities in controlling the amount of money in circulation, which in turn determines the CBN’s influence on the economy in terms of monetary policy implementations.
The analysis of banking innovations and the public’s reaction to them would assist assess the Central Bank of Nigeria’s (CBN) hold on the extent to which it has been able to stimulate financial transactions in money deposit banks across the country.
The arrival of E-commerce has created space for a variety of instruments for conducting business, albeit not all of these technologies have been effectively exploited.
The new strategy implemented has been designed to have an impact on the entire economy and to fully utilise all of these tools, which include monetary and fiscal policies, thereby maximising the effort of e-commerce innovation.
1.3 Objectives of the Study
The overall goal of this research was to investigate the influence of cashless policies on Nigerian economic growth. The precise aims were:
(i) Determine the strength of the association between cashless policy and the Nigerian economy.
(ii) To empirically assess the impact of cashless policies on Nigerian economic growth.
1.4 RESOURCE QUESTIONS
To conduct this study efficiently, the following research questions were developed:
(i) To what extent does cashless policy affect the Nigerian economy?
(ii) To what extent does the policy affect Nigeria’s economic growth?
1.5 Research Hypothesis
The following research hypotheses were developed and tested for this study:
Ho- The cashless strategy is unrelated to the Nigerian economy.
H1-Cashless policy affects the Nigerian economy.
Ho -The cashless policy has no influence on Nigeria’s economic progress.
H1-The cashless policy affects Nigeria’s economic growth.
1.6 Significance of the Study
This study will be extremely beneficial to the following people:
It would incorporate the newly created knowledge into the researcher’s current knowledge.
It will boost the amount of literature in the institution’s library. It will be useful as a reference material for anyone who want to conduct additional research on this topic in the future.
It will also help bankers, business analysts, and policymakers develop monetary policies and make informed decisions.
It would assist the general people, who may have the time to review the study’s results and suggestions, in learning about the benefits and obstacles of implementing the strategy in the Nigerian economy.
1.7 Scope and Limitations of the Study
This study is limited to Nigeria. It would have included both personnel and material resources from the banking sector for successful study, but due to the enormous population engaged, 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 the successful completion of this study;
there was insufficient funds to be able to gather enough data and materials needed for this study due to the researcher’s unreliable source of income;
and the time given to carry out this empirical study was very short and therefore inadequate compared to the nature of Despite this, the researcher worked hard to make the most use of the resources available to her to assure the success of her study.
1.8 Definition of Terms
Access Products – Products that enable consumers to use standard payment instruments electronically, typically from remote places.
ATM Card — An ATM (Automated Teller Machine) card, also known as a bank card, client card, key card, or cash card, is a payment card issued by a financial institution to its customers that allows them to use an automated teller machine (ATM) for transactions such as deposits, cash withdrawals, account information, and other types of banking transactions, often via interbank networks.
CBN stands for Central Bank of Nigeria.
Chip cards are also known as integrated circuit (IC) cards. A card having one or more computer chips or integrated circuits for identification, data storage, or special-purpose processing that is used to validate personal identification numbers, authorise purchases, verify account balances, and store personal information.
Electronic Data Interchange (EDI) is the movement of information between organisations in machine-readable form.
Electronic money is monetary value measured in currency units and stored electronically on an electronic device owned by the consumer. This electronic value can be purchased and stored on the device until diminished by purchase or transfer.
Internet Banking- This is a product that allows the Bank to leverage the Internet Banking System Module incorporated within the new Banking Application (BANKS) that the Bank has implemented to meet the Internet Banking needs of its customers.
Mobile Banking is a solution that allows bank customers to access services on-the-go. Customers can conduct transactions from any location, including account balance inquiries, stop checks, and other customer service instructions, balance inquiry, account verification, bill payment, electronic fund transfer, account balances, updates, and history, customer service via mobile, account transfers, and so on.
Payment System – A financial system that establishes a way of transferring money between suppliers and funds, typically through the exchange of debits or credits between financial organisations.
A point-of-sale (P05) machine is a payment device that enables credit/debit cardholders to make payments at sales/purchase locations. It enabled clients to execute the following services.
Retail payments, cashless payments, cash back balance inquiries, airtime vending, loyalty redemption, mini-statement printing, and so on.
Need help with a related project topic or New topic? Send Us Your Topic