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What about a cashless economy

BY: Arku Jasmine

• Some stakeholders in a panel discussion on cashless economyA cashless economy is one in which the purchase of goods and services and the payment of debts and remittances are done through electronic money media, either through credit and debit cards, direct transfers from one account to another, smart cards, mobile payment systems, and other technologies.
Centuries ago, we began with a cashless society based mainly on barter, gift economics and debt, and then evolved to the use of money.

Unlike other countries, Ghana has not been forthcoming in introducing this concept to enable the people and the economy in general derives the full benefits of a cashless economy.

Other countries have succeeded and the evidence is abundant.

For instance, in their piece titled “Mobile Banking: The Impact of M-Pesa in Kenya” published on its website, the National Bureau of Economic Research, Isaac Mbiti and David N. Weil, wrote that the M-Pesa is a mobile phone-based money transfer system in Kenya which grew at a blistering pace following its introduction in 2007.

They examined how M-Pesa is used as well as its economic impact. In analysing data from two waves of individual data on financial access in Kenya, they find that increased use of M-Pesa lowers the propensity of people to use informal savings mechanisms but raises the probability of their being banked.

Using aggregate data, they calculated the velocity of M-Pesa at between 11.0 and 14.6 person-to-person transfers per month. In addition, they found that M-Pesa causes decreases in the prices of competing money transfer services such as Western Union.

The Central Bank of Nigeria (CBN) last year announced a new cash policy with the objective of reducing cash payments and encouraging electronic payments. The new policy stipulates that going forward, there will be a charge on cash withdrawals or deposits that are above N150, 000 for individuals or N1 million for corporate entities.

Trends and advantages

What seem like a cashless system began with the famous Sika card by then Social Secuirty Bank, now Soceitte General; Visa Horizon on the Stanchart platform, deployment of ATMs cards by banks eCard (TTB, Cal Bank, Ecobank) –

The advantages of this trend were:  there was a reduction in the cost of printing currency notes; cost of transporting cash along the value chain from the central bank to banks and businesses and consumers was reduced. According to Nigerian Central Bank Governor, Sanusi Lamido Sanusi, direct cost of cash management to the Nigerian banking industry is estimated to be N192b (approximately US$1.9b by 2012)

Cashless economy also results in the reduction in the risks associated with transporting currency notes, both for banks and individuals (robbery, loss from fire or flood, among other things.

It is estimated that four in every 10 Ghanaians carry cash, which is more risky; six in 10 during travel and one in every 10 Ghanaians using informal services had money stolen.

It helps to formalise informal transactions and because it is a transparent process it helps combat crime and corruption while helping with record keeping to reduce room for tax avoidance.

Challenges and way forward

In spite of the advantages, there are also some challenges that require an address.

Policy– The country requires clear policies that would allow the players to follow a structured advance towards achieving the full benefits of a cashless economy, including a national policy that encourages more electronic-based transactions, while discouraging physical cash usage and circulation.

Neighbouring Nigeria set an example when the Central Bank instituted a cashless economy policy to, among other things, drive development and modernisation of Nigeria’s payment system in line with the country’s vision 2020 goal of being amongst the top 20 economies by the year 2020.

While we are by no means prescribing the details of the Nigerian policy and its implementation process as a silver bullet (given the inherent problems), we believe a policy that prescribes a structured approach is a step in the right direction to a well thought-out, properly sequenced cashless economy implementation.

Infrastructure – While awaiting the policy direction to drive the process, there is the need for the players to expand their present infrastructure and systems to the point where they are ready for a cashless economy, and electronic transactions are truly ubiquitous and sustainable; so that everyone – retailer, service provider, consumer or business – can have the option to transact electronically regardless of location, or even time.

Security – In cultures where a cashless economy is well advanced, there is evidence that some of the pitfalls included inadequate security.  The need to have secure systems that allow citizens to transact without worry of identity theft or other cyber fraud is critical.

The value propositions of a cashless economy are clear and unambiguous because in terms of convenience it is clear that sending and receiving money instantly can be instant and the recharge of prepaid credits is done whenever and wherever one wishes.

The seminars and rhetoric about this cash economy implementation are too much. The time has come for the authorities to iron out the challenges and roll the concept.GB

By Charles Benoni Okine/Graphic Business/Ghana

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