THE IMPACT OF CASHLESS POLICY ON THE ECONOMIC GROWTH OF NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The introduction of electronic banking, online transactions and mobile banking in Nigeria has paved way for a new era of development where the use and demand for physical cash is gradually declining. These recent evolution of technology in the Nigerian financial institutions posses interesting questions for economist, financial institutions, business analyst and the government regarding the current economical status, logistics, and availability of instruments to guarantee economic growth and stability, efficiency and effectiveness of the cashless policy.

Since the inception of humanity, various payment methods have been used to purchase goods and services starting with the trade by barter. The trade by barter method of transaction has been the foundation for the introduction of money and coins to solve the problem of double coincidence of wants and divisibility faced by trade by barter. The use of money/coins was introduced after the use of trade by barter method, and it has solved various challenges associated with trade by barter, but the use of money as an exchange medium has its own challenges and dis-advantages and can still be replaced with a better payment system-the cashless policy/banking.

Various advantages enjoyed by more developed nations such as the US has prompted the Central Bank of Nigeria (CBN) to adopt the cashless policy. At the end of the 1980s the use of cash for purchasing consumption goods in the US has constantly dropped with inflation (Humphrey, 2004). Nigeria’s aim to be among the biggest economy by 2020 has driven her to gradually move from a pure cash economy to a cashless policy. Since Nigeria gained her independence in1960, there have been different constitutional reforms, change in economic and banking policies mainly aimed at stabilizing the economy, enhancing social welfare and enhancing economic growth and development.

In view of being one of the best and biggest economies in 2020, the CBN has started implementing the cashless policy/banking in some major states/cities in Nigeria such as Lagos, Kano, Port-Harcourt and Onitsha. The CBN and Pro cashless policy activists have asserted reduction in crime rates, minimized risk associated with carrying huge sums of money, reduction in political corruption, reduction in banking cost, improvement on monetary policy in management of inflation and the overall growth and development of the economy of Nigeria as advantages associated with the implementation of the cashless policy.

1.2 STATEMENT OF THE PROBLEM

Monetary policy as a technique of economic management to bring about sustainable economic growth and development through cashless policy and banking introduced by the Central bank of Nigeria (CBN) is not fully operational due to high rate of illiteracy, in-adequate sensitization/education of the benefits of the cashless policy, and in-adequate logistics (such as the provision of internet connections in commercial areas, computers and Point on Sale (POS) machines).

Apart from the physical challenges, economic data and indicators are not fully available and reliable. There is a great challenge in attempting to analyze the true impact of the cashless policy on the economy of Nigeria as only few monetary and macroeconomic indicators can be traced with relation to the subject matter. Several scholars have attempted to analyze the cashless system or e-banking. However, it becomes clear that few studies present a comprehensive evaluation of cash-less banking implications in developing countries. Most ignore its economic benefits of the equation while some do incomplete examination of its negative implications. This is often due to unreliable panel data for monetary and macroeconomic indicators. Although, this study focuses on Nigeria, it is difficult to translate cashless studies from one country to another. Even payments instruments that look similar across countries on the surface may be different due to historical and legal variations (Daniel et al, 2004).