Why CBN Should Enforce Cashless Policy across All States

In banking, the concept of demand for money identifies three reasons why money needs to be kept: individual and corporate need to keep cash near to meet their daily purchase of goods and services.

The second reason for keeping cash is unforeseen circumstances like payment for hospital bill when somebody falls sick suddenly, or for an organisation to take advantage of any unexpected business opportunity. Thirdly, people keep money to secure profit from better knowledge than the market about what the future will bring forth; for example, money kept for pool betting or to make speculative gain by investing in bond (financial securities).

Apart from the above generally acceptable needs to keep cash, there are some other notable reasons but peculiar only to Nigeria and other nations that share the same attribute of corruption with Nigeria. They are: to keep ill-gotten money from the sight and control of the monetary regulatory institutions (CBN, EFCC); to beat the stipulations of the CBN cashless policy; poor banking habits of some Nigerians; loss of confidence in the banking sector because of the incessant bank failures, among others.

There is a need to make it clear here that the reasons discussed above are why we need to keep  money in raw cash or any other financial instruments that can be turned to cash between 24 hours and with little or no stress. While the first three reasons for keeping money is generally acceptable all over the world, any other reasons to keep money at home should not be encouraged, in order for us to move our economy forward.

Keeping money at home for unnecessary and unacceptable reasons, especially in the magnitude of the sums being reported by the media, are great leakages from the banking sector and  a disservice to the nation. The effects far reaching and have almost run this economy aground. It has to be nipped in the bud if we must bring the economy back on the right part and at a full scale.

The liquidity squeeze presently being experienced is mainly caused by this heavy cash locked up outside the banking industry but in the hands of a few individuals. The monies with these people are on the record of the CBN as part of the money supply in circulation but are not made available for transactions and investments purposes. Imagine an individual who was forced to deposit N1 billion to EFCC in order for him to regain his freedom as reported in the newspaper recently.

The foreign currencies in the economy are supposed to be the receipts from all our export activities which ordinarily should be channeled back into the economy for another round of productive activities. Unfortunately, some powerful people have hijacked these receipts along the distribution chain, not from their productive activities but their alleged corrupt tendencies. For this reason , they can afford to keep the monies  anywhere as long as they feel and release it to the economy in trickles and at the time they feel they are safe to do so .This implies that the proportion of  foreign currencies available for  legitimate investment purposes in circulation is nothing to write home about when compared to that in the stock of individuals buried  away in suck-away and the likes i.e. demand for foreign currencies is far in excess of effective ‘supply’ hence the upward movement of the value of these major currencies against the Naira

The following solutions are identified or suggested: The introduction of the Cashless policy of the CBN with its attendant objectives is  a move in the right direction, but its religious and undiscriminating implementations are imperative because till now cash still move freely  in the economy unnecessarily despite the penalties attached to excess withdrawals. It is a known fact that the major source of cash spillages into the economy is settlement of debts of governments at all levels and corporate entities.

The suppliers of goods and services always insist on cash settlements irrespective of the magnitude of the  amount involved and they will have their ways .As a matter of fact, some of these people demand settlement in foreign currencies which will never happen in the developed countries our people are usually   quick to make reference to. The moment they get the cash, they will go and  stock the cash in their choice funny location  (pits dug in farmlands and warehouses, to  mention a few.

All this is at the detriment of the  nation’s economy. Henceforth,governments and corporate entities are advised to  stop the idea of cash settlement to whoever may be involved as a matter of policy with stiff penalties/ sanctions for its breach, by insisting in paying through a bank account for their suppliers of goods and services;

Recall that one of the reasons that the CBN gave for the introduction of cashless policy was that 90 per cent of the cash transactions in the economy is by only 10 per cent of banks’ customers and some high-net worth individuals that have access to the raw cash. The implication of this is that the heavy amounts of expenses incurred in managing the cash through printing/minting, movements, storing by CBN and banks is bored for these individuals which is not fair to Nigeria and Nigerians. Such money can be used forbetter purposes in the economy.

The recent efforts of EFCC, DSS to trace cash lodged in different funny locations outside banking industry are needed. It is said that drastic problems need drastic solutions .The only thing I advise  is that these monies that are recovered should be  timely released to the economy so as to bring it back on course, provided there are no legal bottlenecks that  will impede their release .

‘Sesi Adebiyi, a banker sent this from Ibadan

 


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