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CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Over the decades, professionals in the financial system such as Accountants, Bankers,

Technology experts, Business owners and other key players in the system have advocated the

replacement of physical cash with the introduction of more flexible, efficient and cost-

effective retail payment solutions in line with global trends. To that effect, the Bank for

International Settlement, (2005) has observed that many seminars and conferences have been

held at various times to discuss the concepts and innovation of “cashless” and “chequeless”

society. Automation is gaining grounds on daily basis in the world business circle especially

in Nigeria after post-consolidation and recapitalization process of the financial institutions in

2005. According to Ovidiu-Constantin (2009), accounting is heavily involved in the process

of regionalization and globalization, through adjustment and transformation of systems of

national accounts into a uniform system. The current turbulence that occurs in the capital

market requires rapid decisions based on transparent accounting information that is available

quickly and as needed. Moreso, the imperatives of cashless economy becomes more pertinent

for Nigeria as a participant in international trade since most of the developed world have

gradually transited into cashless economy over the years.

This informed and necessitated the need for the Central Bank of Nigeria to make a proposal

for the adoption of a cashless policy in 2012, as a veritable tool for fast-tracking the Nigerian

economy so as to be among the first 20 world economies by 2020 as touted in the Millennium

Development Goals (MDGs) of the government of Nigeria. So far, Lagos State, being a

major financial hub of the country has taken off with this policy in April, 2012, as a pilot test-

run, while the rest of the states of the federation are expected to take off fully by December ,

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2012. The reason given for the introduction of this cashless policy by the Central Bank of

Nigeria (CBN) was among others, to reduce the cost of banking services, provide more

efficient transaction options, improve the effectiveness of monetary policy in managing

inflation and promote economic growth. Also to minimize high cost of cash, high risk of

using cash, expansion of the informal sector of the economy as well as reduce inefficiency

and corruption.

The payment system plays a crucial role in any economy, being the channel through which

financial resources flow from one segment of the economy to the other. It, therefore,

represents the major foundation of the modern market economy. Globally, payment systems

have passed through a lot of ages. Prior to the introduction of cowries, barter remained the

only medium of exchange. With the introduction of coins and bank notes however, the era of

cash as payment system emerged. The introduction of notes and coins was later followed by

the use of cheque as written instructions to transfer payment from one holder to another.

Other written instructions such as postal orders, money orders, and travellers’ cheques have

also been used. The next great age of payment system that followed paper instructions has

been electronic payments. Some payments are now being automated and absolute volumes of

cash transactions have declined under the impact of electronic transaction brought about by

the adoption of Information and Communication Technology (ICT) to the payment system in

both developed and developing nations.

David (1982), confirms that there has been a very modest move away from cash. Patrick

(1985), also contends that the advantages of cash diminish as the value of transactions

increases. Consequently, the use of non-cash payments rises with increasing value. All these

have been made possible by the advancement in ICT in recent times. ICT has streamlined the

processes for cash lodgements (deposits) and withdrawals locally and internationally. A visit

to commercial banks in Nigeria this days has shown that tellers have been equipped to issue

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receipts (deposit slips) for cash deposit. Also, the service of ordering bank drafts or certified

cheques made payable to third parties, according to Irechukwu (2000), has also been

increasingly automated.

The cashless policy was designed by the CBN to provide mobile payment services, it is also

designed to breakdown the traditional barriers hindering financial inclusions of millions of

Nigerians, and facilitate payments of bills, person to person transaction and remittances in

different forms which form part of the cashless economy drive.

Under the cashless payment system, customers can do their normal basic transaction on daily

basis by making payment for goods and services or by engaging in person to person transfer

on their mobile phones. For instance, payment can be made through mobile phones after

purchases have been made at a supermarket through an electronically devised payment

system.

However, the question agitating the minds and begging for answers are legion. Such as what

is the CBN Cash-less policy?; why is the CBN introducing the policy?; Does the cashless

policy implies that there will not be cash in circulation or people will not be allowed to use

cash in Nigeria?;what are the benefits of cash-less policy?;Are we adequately prepared

especially in the areas of infrastructure? What will happen to the illiterate and the semi-

illiterate as well as the unbanked segment of the populace which current figures put at about

70 million Nigerians. These segments of the populace are used to carrying wads of notes to

buy and sell. As such, there is a need for further investigation in order to add to literature and

provide empirical evidences in the Nigeria context. Furthermore, it is worthy to examine the

attitude and perception of the greater populace especially in Lagos where the cashless policy

has already taken off.

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1.2 STATEMENT OF THE RESEARCH PROBLEM

So much have been said about the anticipated gains attendant to the adoption of a cashless

economy, but in concrete terms, people have not been convinced that the agenda is for the

good of all. This scepticism of the greater percentage of the people is informed by

experiences of various policy summersaults of the government especially CBN’s policy

summersaults in the financial system since post-recapitalization. Recapitalisation was put

forward by CBN as the panacea for a strong, virile financial system. But the liquidation of

some banks few years after recapitalisation leaves many wondering and sceptical of this

cashless policy if it would not be a journey in futility.

Nigeria is a country that is seldom stable with any policy. So has this policy come to stay or

is it another of such numerous policies that is no sooner implemented than is jettisoned? In

buttressing this assertion, the Central Bank of Nigeria (CBN) in a major policy reversal, has

altered its initial targets on the “cashless” policy. Under the policy rolled by the apex bank

last year, daily cash withdrawals for individuals and corporate bodies were initially pegged at

N150,000 and N1 million respectively. It also fixed take-off date of the policy, nationwide,

for June last year. But, all of that has changed remarkably. In a recent re-assessment of the

policy, cash withdrawal and deposit limits have been raised considerably. Now, daily

cumulative cash withdrawal/deposit ceiling for individual accounts has been increased to

N500,000 from N150,000, while that of corporate accounts has also been raised to N3million

from the earlier N1 million. In a similar vein, the CBN has also adjusted the applicable

charges, with individual accounts attracting three percent and five percent for corporate

bodies above the N3 million threshold. Clearly, to the common man, it seems like the

“cashless” policy is a system that was rushed through.

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Another question is the level of awareness and perception of this cashless scheme before its

take-off. Is there a necessary awareness campaign? If there is, what is the level of

understanding? Was the awareness campaign well digested before its implementation? Is our

economy and its citizenry prepared for this policy? Is there enough awareness or adequate

enlightenment?

While some have expressed doubt about the effectiveness of the sensitisation campaign

exercise, as well as protecting the interests of merchants and people in the informal sector,

other have cited the need for the apex bank to be proactive in addressing the security and

technological challenges associated with e-transactions.

Analysts believe that the CBN policy is one in the right direction, especially to mitigate the

pangs of corruption in the country. But they expressed fears over its success, citing many

challenges to its realisation. The implementation of any new policy, especially those that

demand attitudinal change from the public, is an inherently complex endeavour that involves

multiple players and multiple systems. Only a discrete body of decision makers adopt most

policies, but they are implemented by a much wider group of actors. Although, the ultimate

end of the apex bank’s policy has been identified in the realm of tackling corruption in the

long run, the ripple effect of the move is yet to simmer down with the common man who

perceives such move as a threat to social and financial practices.

Bankers believe that electronic banking increases the chance of government access to public

data, increases the chance of fraud since there is lack of information security.

The concern and the need for this study have arisen out of the numerous rounds of these

issues the “cashless” policy has sparked off in all the sectors of the economy, from banking to

telecommunications, even the manufacturing sectors are not left out. According to financial

experts, the move is said to be too idealistic in a country such as Nigeria, with larger

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percentages of the population residing in the informal sector. The belief however, is that as

much as the apex bank hopes to enhance the country’s payment system, it needs to

understand that the failure of past regimes to achieve this objective is not as a result of the

inadequacy in their plans or policies, but their inability to effectively locate the relationships

in the system as one holistic entity.

While we may point to such economies as those of the developed world, we must be very

ready to accept the fact that these are economies with functional institutions which cannot

also be said about Nigeria with much conviction. Apart from the institutions, one fear that has

been expressed is the state of infrastructural decay in Nigeria. What is the impact of

infrastructure on the successful implementation of a cashless policy? The “cashless” policy

may be a fine piece of monetary policy to ease the current pressure on the increasing

dominance of cash transaction in the economy, but the question is, is there in place, the

necessary infrastructural platforms? Chief among the infrastructural platforms necessary is

power supply. The CBN ought to put into consideration majorly, the power supply situation

in Nigeria before coming up with a policy that is chiefly power-reliant.

Still on infrastructure-readiness, one of the reasons why “cashless” economy may look

gloomy is that for remote payment to work there is a need for a huge base of infrastructure,

which needs to be put in place in the form of magnetic card readers, Automated Teller

Machines (ATM), Point of Sale Terminal (POS) e.t.c. and the technology that makes them

work

Nigeria is a largely cash-backed economy with the greater percentage of funds residing

outside the banking sector as against the economies of the developed world where money in

circulation is less than 10%, whereas the cash-based economy is characterized by the

psychology to physically hold and touch cash, a culture informed by ignorance and illiteracy

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as well as lack of security consciousness and appreciation of the merit of the cashless

payment (Ovia 2002). Inspite of the gains inherent in cashless payments, most of the payment

tools still failed to gain sufficient supports from online merchants (Hsieh 2001). Few studies

exist in this regards in Nigeria thus creating gaps for the current study.

The reason given for why there is still a large number of unbanked in the country is

communication problem and the issue of bank charges which are not properly communicated

to the customer during the account opening process. For the policy to work there is the need

to reduce the large number of the unbanked in the country. What is the apex bank doing at the

moment to address this challenge is another one of the numerous questions this study seeks to

find answers to in its appraisal of the cashless policy.

Other risks associated with cashless banking are job losses, lack of opportunities to socialize

(little or no bank customer relationship) and the development of a lazy society.

1.3 RESEARCH QUESTIONS

This research study seeks to appraise the cashless policy of the CBN. In the light of this,

certain questions have arisen which this study seeks to provide answers to. The following are

some of the questions:

1. Is the Nigerian infrastructure adequate for a cashless economy?

2. Is the literacy level of the Nigerian masses adequate to enable them key into a

cashless economy?

3. What are the modes of operation of a cashless economy, especially

for the sellers that have accounts, and how are they who sell in the open market,

expected to use the Point-of Sale (POS) terminals that the banks are expected to issue

to traders in the cashless system?

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4. What are the pitfalls in a cashless economy and how can they be mitigated in a

country such as Nigeria?

5. How can the perception of the average bank worker be mitigated seeing cashless

policy implementation as imminent downsizing in workforce?

6. What is the regulatory authority doing in ensuring that the banking system is extended

to the informal and unbanked segment of the economy?

1.4 OBJECTIVES OF THE RESEARCH STUDY

Arising from the foregoing problems, the broad objective of this study therefore, is to take a

holistic review of the adoption of the cashless policy in Nigeria, the envisaged challenges and

what we feel should be done or put in place to ensure a smooth and successful

implementation of cashless Nigeria. The specific objectives include:

1. To critically evaluate the availability of infrastructural platform needed for the

performance of the cashless policy.

2. To investigate the level of awareness of the populace created for the smooth take-off

of the cashless policy.

3. To critically examine the issue of perception of the populace as it concerns cashless

policy implementation

4. To ascertain the measures put in place by government and other players of the

cashless policy in integrating the unbanked sellers and buyers of the Nigerian society

into the mainstream of this policy.

5. To ascertain some of the possible challenges that militate against effective

implementation of the cash-less Nigeria, and how they could be mitigated.

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1.5 SCOPE AND LIMITATIONS OF THIS STUDY

The study is restricted to the financial system of the economy, especially Lagos State where

the policy has already taken off since April, 2012. A random sampling procedure shall be

undertaken where 2 representative local government areas which are perceived to be the most

commercial hub of the state are chosen. Also sample from 2 non commercial local

government are selected to determine the level of awareness campaign. Areas were

delineated for the study in each of the three local governments areas chosen in terms of high

concentration of commercial activity and financial institutions such as banks. The study seeks

to restrict the period of study from the inception of the cashless policy in Lagos to date. Also

some areas in Benin City will be represented as a control experiment to find out the level of

awareness and state of preparedness of other states yet to take off with the policy.

1.6 SIGNIFICANCE OF THE RESEARCH STUDY.

The Central Bank of Nigeria (CBN) has already rolled out final operational guidelines for the

implementation of the cashless policy which it seeks to fully make operational by January,

2013. But a lot of scepticism have trailed this policy as with other policies of this government

arising out of ignorance and first time experience syndrome. This study seeks to make

available results of an appraisal of the cashless policy through investigation that would

benefit both the government as to how to properly go about the sensitization process and

putting necessary structures in place to effect the smooth implementation of the policy to

bring about the positive benefits inherent in the system as well as the citizenry in helping to

properly see the policy for what it truly is and what they stand to benefit as well as

implications.

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Consequently, the study will add to the scarce body of literature existing in this field of

academia and thus helps to broaden the frontiers of knowledge.

1.7 ORGANIZATION OF THE STUDY.

This study is therefore organized into five chapters. Chapter one is the introduction and the

problem is adequately stated. The research questions and objectives are also well stated. The

scope and significance of the study are touched upon. Chapter two is the literature review.

Chapter three contains the methodology. The method of data collection and analysis are

described and the hypotheses tested are listed. In chapter four, the results are presented and

discussed. Chapter five concludes the study and contains some recommendations.

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CHAPTER TWO

LITERATURE REVIEW

2.1 Implications of cash –less system

In examining the implications of cash-less system, it is necessary to review how conventional

money has evolved over time. Money performs a number of roles in economic activity; it is a

unit of account, store of value, medium of exchange and means of deferred payment. Also,

money has evolved over the centuries to minimize the friction of transaction costs that are

involved in mediating exchange. In fact, the process can be observed from the development

of the very first monetary products. For instance, conducting economic transactions in barter

economies involved high transaction costs as considerable time and effort was required in

finding suitable partner.

Subsequently, another facet in the evolution of money was the need for fungibility and

divisibility. Hence, the advent of study money (notes and coins) made the process less costly

by allowing people specialize in production based on their strengths and by enabling the

monetary authorities to mint coins in convenient denominations, thereby creating divisibility

(Baddeley, 2004).

However, there has been drift towards electronic money, which is quite difficult to define

because it blends technological and economic characteristics (Basel Committee, 1998; BIS,

1996). According to ECB (1998), electronic money is broadly defined as an electronic store

of monetary value on a technical device that may be widely used for making payments to

undertaking other than the issuer without necessarily involving bank accounts in the

transactions, but acting as a prepaid bearer instrument. Analogous to this definition is that of

cashless economy wherein there exist no notes and coins issued by central banks but by

private financial institutions (Costa and De Grauwe, 2001).

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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).

On theoretical side, early studies in this regard attempted to explain the root cause of price

indeterminacy, some of which are Fisher (1896) and Patinkin (1965). It established the

following basic result: for any given real demand for money, there are infinitely many

combinations of money stock and price levels that will do the job of bringing about money

market equilibrium. In other words, economic agents do not care whether additional money

desires are realized by increases in money stock or declines in price level.

Also, Humphrey and Berger (1990) present one of the earliest attempts to comprehensively

estimate the private and social costs for nine separate payment instruments- cash, cheques,

credit cards, money orders, point of sale (POS), Automated Clearing House Transfers (ACH),

ATM bill payments, travelers‘ cheques and wire transfers. They found that from a social cost

perspective, cash is the cheapest payment instrument, followed by ACH, POS and ATM bill

payment. From a private perspective however, cheques emerge as the cheapest payment

method followed by cash, ACH and POS bill payments. However, the influence of

government intervention was prematurely considered as there was no calculation of net

benefits of such payments instruments (Daniel et al, 2004). In recent times, there is a

consensus that central banks have the capacity to control the price level. One of the

approaches is through controlling money supply (advocated by monetarists) and has led many

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central banks to implement money-supply-targeting procedures (Claudia, 2001). Another

approach is the Taylor-principle, which is, adjusting short-term interest rate in response to

movements in expected inflation and state of economic activity, (See Taylor,1993, Clarida et

al ,1997 and Woodford ,2003).

Looking at empirical issues, however, in a cashless economy, money demand equation can be

derived without influencing output and inflation (Gali, 2008). In this case, money plays the

role of a unit of account and the amount of real money balances follows residually after

output, inflation and interest rate have been determined. In examining the cost implications of

cashless banking instruments, Gresvik and Owre (2002) studied how much it costs

Norwegian banks to process various payment instruments. They found that payment cards

used for cash withdrawals at ATMs cost considerably more since the transactions involved

cash replenishment, maintenance and security costs. In addition, the cost of using cheques for

cash withdrawals was found to be three times more expensive than cash withdrawals at

ATMs.

Cross country studies such as Humphrey et al (1996) analyzed patterns in the use of cash and

other e-payment instruments in 14 developed countries, including the US. Whilst treating

payment instruments as if they were traditional goods, the authors constructed measures of

the cost (analogous to prices) of various payment methods in order to study whether

differences in cashless instrument usage across countries can be explained by differences in

the relative prices of such instruments. The result showed that such price differences failed to

determine the usage of e-banking instruments. In other words, the convenience that is not

measured may outweigh the price differences that users face (Carrow and Staten, 2000).

In another study comparing costs across nations, De Grauwe et al (2000) examined the costs

of cash and payment cards in Iceland and Belgium. These countries were selected because

they provided a clear contrast as Iceland has one of the lowest rate of cash usage while

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Belgium is at the other extreme. For the cash payment system in Iceland, the study estimated

the cash production and distribution costs incurred by Central Bank and then subtracted the

revenues obtained through interest foregone on cash in circulation, whereas for the card-

based system, they examine the card companies, commercial and savings banks, cardholders

and merchants.

From a social perspective, it was concluded that a card-based system is considerably more

efficient than a cash-based system for two reasons. First, diseconomies of scale in cash

supply rises as cards displace cash, while economies of scale improve for cards. Secondly,

the displacement relegates cash to smaller transactions because smaller transactions must

cover the fixed costs of the cash system.

Recent empirical studies such as Kriwoluzky and Stoltenberg (2010) attempted to estimate

the cashless and monetary economy in US by employing Bayesian estimation techniques.

The data set, which was split into two parts, ranged from first quarter 1964 to third quarter

2009, as done in Lubik and Schorheide (2004); Clarida et al (2000). Whilst treating GDP

deflator, output per capita and real wages as observable, its findings suggest that interest rate

policy was passive in the monetary but active in the cashless economy. According to Gali and

Gambetti (2009), volatilities in output and inflation declined due to observed loss in the

predictive power of money in a monetary economy. A similar conclusion was also reached by

Stock and Watson (2002) , Kim and Nelson (1999).

In assessing the role of central bank in a cashless society, Claudia and De Grauwe (2001)

stressed that central banks gradually loose their monopoly position in the provision of

liquidity combined with its subsequent small size which makes it hard to control the short-

term interest rates. On the contrary, Marco and Bandiera (2004) argue that increased usage of

cashless banking instruments strengthens monetary policy effectiveness and that the current

level of e-money usage does not pose a threat to the stability of the financial system.

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However, they did conclude that central banks can lose control over monetary policy if the

government does not run a responsible fiscal policy.

2.2. Analysis of CBN Cash System

Nigeria can be regarded as a cash-based economy because majority of retail and commercial

payments are made in cash. According to a recent CBN survey, cash-related transactions

account for 99 percent of customer activity in Nigerian banks today. In addition, it discovered

that cash transactions above N150,000 was largest in terms of value (N1469billion) and

second smallest in terms of number or volume (10 percent).

For the purpose of achieving the aforementioned objectives of the study, this research study

employs descriptive analysis with the aid of graphs, tables, charts and trend analysis of cash

system in Nigeria. The study improves on previous literature by explicitly stating both the

potential positive and negative consequences for policy makers in Nigeria. The data

employed in this study was from secondary sources and the major results are three-fold.

Firstly, the Nigerian economy is highly dependent on cash usage and monetary policies of the

CBN over the years have proven to be relatively effective. Secondly, the base money of

Nigeria has been highly volatile. Thirdly, the cashless policy has possible implication of cost

savings in the financial sector but does not necessarily imply real sector growth.

Table 1 below shows that "only 10 per cent of banks' cash transactions are above N150, 000,

but they make up 71 per cent of the value of cash transactions. About 90 per cent of

Nigerians carry out transactions below N150, 000. If there is reduced cash in the system,

banks would be able to compete favourably. There are so many alternative payment systems

in Nigeria which are even more convenient and safe, but people are not using them.

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Table 1: Cash

Withdrawal/Lodgment

band

Transactions

Volumeof Transactions

(%)

Value of Transactions

(N’Bn)

0-N100,000 86% 491

N100,001-N150,000 4% 115

Above N150,000 10% 1469

TOTAL 100% 2076

Source: CBN Website, 2011

With the improvement in communication in the country, there have been a lot of

improvements in the payment system. However, the above cash withdrawal/lodgment limit

has been reviewed upwards (as noted in Table 1). Thus, it can be deduced that new limit of

N500,000 for individual customers would possibly account for the largest in terms of value

and smallest in terms of transaction volume.

Nigeria is cash based economy with retail and commercial payments primarily made in cash.

Cash related transactions represent over 99% of customer activity in Nigerian Banks today. A

cursory look at Table 2 and Fig 1 indicates that, withdrawals through ATM channels accounts

for the largest percentage, followed by OTC cash withdrawals. This implies that cashless

banking instruments, particularly ATMs, are attracting high level of patronage and

acceptability among Nigerians (CBN Website, 2011).

Table 2: Cash Related Transaction

Channels of Payment Transaction Volume Percentage of Transaction

ATM Withdrawals 109,592,646 50.96%

Cash withdrawals (Over- 72,499,812 33.7%

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The-Counter)

POS (Point of Sale)

Terminals

29,159,960 13.56%

Cheques 1,059,960 0.49%

WEB 2,703,516 1.26%

Source: CBN Website, 2011

Figure 1: Cash Related Transaction

Source: CBN website, 2011

In comparism, about 85 to 90 percent of the total volume of transactions in Australia is cash-

based, while a further 5 to 7.5 percent is done through electronic media, and the remainder is

conducted via cheques and other study-based methods.Also, cash-based transactions are

believed to account for 10 percent of total value of transactions in Australia each year

(Walters, 1994). Notwithstanding, several developed and emerging economies have well-

developed electronic payment systems. They include, but are not limited to the following:

England, France, Germany, USA, Brazil, China, Taiwan, India and South Africa.

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2.3 Overview of Central Bank of Nigeria Policies

In this sub-section, the study evaluates the performance of the CBN, particularly as regards

its policy-making functions. The Central Bank of Nigeria was established on July 1st, 1959

with the general aim of regulating the banking industry. The role of banks in the mobilization

of resources is considered important to the direction and pace of economic growth and

development. There is, perhaps no other industry that is as regulated as the banking industry

(Ajayi and Ojo, 2006).

Though many, the regulatory functions of the central bank are directed at the main objective

of promoting and maintaining monetary and price stability in the economy. To perform this

role, the CBN formulates policies aimed at controlling the amount of money in circulation

and controls banks as well as other major financial players in the system. It controls the

extent to which banks can grant credits and hence, the money supply in the economy. The

CBN also performs traditional functions (issue of legal tender, act as banker and financial

adviser to the government, serves as banker to other banks, lender of last resort, management

of the country‘s accounts and debts) and developmental functions.

However, it is important to note the distinctions between the role of central banks in Nigeria

and developed countries. Unlike the central banks in the developed world (e.g Federal

Reserves of US and Bank of England), CBN faces many limitations such as the large size of

the informal sector, which may have serious implications.

In many developing countries like Nigeria, cash is the main mode of payments and a large

percentage of the populations are unbanked. The personal demerits of carrying cash on the

growth of financial deepening are enormous. Also in Nigeria and most developing countries,

there exist short run changes in the volume of money which reflect the fiscal action of the

government thereby causing the central banks to have little or no control over the money

volume. This is rarely the case in developed countries. In the developed world, the money

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and capital markets are well developed in its depth and breath. However, this is not the case

in Nigeria. For all central banks, it is becoming increasingly clear that the maintenance of

monetary stability is central to economic policy. Hence, the major task of central banks is to

sustain a non-inflationary environment. However, several inferences emerge from existing

studies ( such as IMF, 1996), that there exist a negative relationship between inflation and

economic growth.

2.3.1 Exchange Rate Policy of the Central Bank of Nigeria (CBN)

CBN is charged with the responsibility of for maintaining external reserves in order to

safeguard the international value of the Naira. In this line, CBN is the custodian and manager

of the country‘s gold and foreign exchange reserves. More so, it receives all foreign exchange

earnings and in turn meets the foreign exchange requirements of all banks. To evaluate this

policy-making role, this study examines the trend in Nigeria‘s foreign exchange reserves, as

illustrated below in Fig 2.

In Fig 3 below, it can be seen that Nigeria‘s external reserves recorded rising pattern

particularly between year 2003 and 2008, before plunging till year 2010. However, it

recorded an average increase between February 2011 and February 2012. Thus, CBN‘s role

of external reserves maintenance has been quite commendable but no trickle-down effect has

been felt.

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Figure 2: External Reserve: 1 – Year Horizon

Source: CBN Website, 2011

Figure 3: External Reserves: 11-Years Horizon

Source: CBN website, 2012

2.3.2 Monetary Policy Function of CBN

The effectiveness of any central bank in executing its functions is crucially dependent on its

ability to promote price stability, whose achievement depends on effective formulation and

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implementation of monetary policy. Thus, the study examines the trend of monetary policy

variables.

Figure 4: Monetary Policy versus Inflation Rate

Source: CBN Statistical Bulletin, 2012

From the Figure 4 above, it can be seen that MPR (Monetary Policy Rate) trend moved far

away from that of inflation rate between August 2009 and August 2011. This implies that

MPR could not control the rate of inflation effectively during that period, but was more

effective between September 2011 and February 2012. In fact, CBN raised MPR six times in

year 2011 for inflation-targeting purpose.

Nevertheless, there exist other monetary policy tools such as CRR (Cash Reserve

Requirement), Liquidity Ratio, OMO (Open Market Operations), moral suasion and special

directives for the purpose of liquidity management and price stability. As at the last MPC

(Monetary Policy Communique) meeting (March 19 and 20th, 2012), the MPR, CRR and

Liquidity Ratio was maintained at 12, 8 and 30 percent respectively.

Figure 5: Selected Money and Credit Statistics (M1)

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Source: CBN Statistical Bulletin, 2012

Figure 6: Selected Money and Credit Statistics (M2)

Source: CBN Statistical Bulletin, 2012

Figure 7: Selected Money and Credit Statistics Base Money

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Source: CBN Statistical Bulletin, 2012

As observed in Figures 5 - 7 above, virtually all the money and credit variables (M1, M2 and

Base Money components) has been on the rise since February 2006, with the exception of

currency outside banks and currency in circulation which were quite stable initially but

indicated downward patterns since January 2012.

Another notable observation is the Base Money, also called High-Powered Money (the liquid

money stock in an economy) whose trend was relatively volatile between February 2006 and

February 2012. However, this volatility was largely due to the unstable portfolio behavior of

the bank (Bank Reserves) compared to that of the non-bank public (Currency in Circulation).

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CHAPTER THREE

RESEARCH METHODOLOGY

3.1 DESK STUDY

The study, stated with a desk study especially a detailed literature review and the collection

of relevant publications .The desk study also included the design of questionnaire and other

data gathering instruments.

3.2 Research Design

The research design for this study is survey research method which involves the use of

questionnaires to elicit essential information from the members of the public of interest. The

questionnaires was used to seek opinions from a cross-section of members of the public

which include bank employees as well as bank customers, traders, business people, students

and university staffs as well as employees in other sectors of the economy of varying ages

and socio-economic backgrounds in some selected parts of Lagos State (being the first and

only state in Nigeria to take off with the cashless policy programme of CBN) and Benin City

representative of the rest of the states of Nigeria who are yet to fully take off with the policy.

The entire country is the population of this study. Since it was not be possible for us to cover

the entire population, for the purpose of this study, Lagos State is chosen being the first state

in the federation to take off with this policy of cashless economy. Also, Benin City was

selected as a control experiment to ascertain the level of awareness and state of preparedness

of other states yet to take off with the cashless policy.

For the survey, four local governments namely Epe, Lagos Island, Ikeja and Ikorodu local

governments in Lagos State were chosen for this study. Two of the local governments (Epe

and Ikorodu) were chosen as catchment zones for prospective respondents of low literacy

25

level and economic activity compared to the rest of the local government areas in Lagos

state.

Lagos Island and Ikeja local governments are major centres of huge economic and financial

activities and comprising of enlightened civil servants. These two local government areas

were chosen due to higher concentration of high to medium level literate personnel and

presence of large commercial and business activities. Within these 2 local governments, we

sampled enumerators in Broad Street, Adeola Odeku,, Obalende, Allen Avenue, Moshood

Abiola Way and Alausa secretariat.

Benin City was chosen as representative of the rest of the States in the country yet to fully

embrace the cashless policy. For Benin City, the questionnaires were administered in areas

like, Aduwawa, and Ugbowo areas. The Universities (University of Benin and Benson

Idahosa University) were also administered questionnaires, to sample the students, and the

academic as well as the non-academic staff.

Three banks were chosen for this study in order to get responses from bank employees on

their perception about the cashless policy. The banks chosen were First Bank of Nigeria and

Zenith. The banks were chosen based on their perceived high-end financial net worth in terms

of liquidity. A third bank Wema was chosen based on its perceived weakness.

3.3 Data Collection

A total of 300 structured questionnaires were administered. 67% of these questionnaires were

administered in Lagos State for the same reason that it is the first state out of the whole state

of the federation to take off with the cashless policy. The rest of the questionnaires (33%)

were administered in Benin City as control representative of all other states yet to fully and

formally embrace the cashless policy as stated in the foregoing. In this study, the variables to

26

be considered are level of awareness, perception, level of literacy, payment preference,

ATM/POS literacy/use skill. The copy of the questionnaire is presented in Appendix I.

Primary data collected using structured questionnaire was targeted to:

Literate and semi-literate Nigerians including business men and women, and market

people.

Employees in the financial system (especially the banking sector) in Nigeria

University students, academic and non-academic staff.

Secondary data was also sourced mainly from various publications of regulatory/supervisory

agencies in the Nigerian financial services industries, The Central Bank of Nigeria (CBN)

and Nigerian Deposit Insurance Corporation (NDIC). Some of the publications will include:

• Published Annual reports and statistical bulletins of the (CBN)

Central Bank of Nigeria (2011), Money Market Indicators & Money and Credit Statistics,

CBN Statistical Bulletin, CBN Publications

3.4 Data Analysis

The data from the administered questionnaires were analysed by means of the Statistical

Package for Social Scientists (SPSS Version 16). The data was coded according to the

variables and stored in an Excel File. They were later imported Into SPSS and cross tabulated

as well as analysed using graphs and charts routines of SPSS.

The analysis were mainly,

(A) Descriptive statistics

Bar charts

27

Means and Percentages

(B) Chi- square Analysis

3.5 CHI SQUARE

The responses from the respondents in form of data gathered were statistically analysed using

the Chi-square. The Chi-Square is a non-parametric test that can be used whenever we wish

to examine whether the frequencies which have been empirically obtained through sampling,

differ significantly from those which would be expected under a certain set of theoretical

assumption. The chi-square helps to know whether the observed frequencies (data samples)

differ significantly from the expected or theoretical frequencies. The Chi-Square is an

inferential statistic which enable us to make certain inferences from our study analysis.

3.5.1 HYPOTHESES TESTING

The following hypotheses shall be tested in the course of this research study using Chi-square

method.

1. H0: There is no significant relationship between the people’s perception and profession

2. H0: There is no significant relationship between level of awareness of the cashless policy

and educational qualification

3. H0: There is no significant relationship between level of awareness of the cashless policy

and knowledge of POS(point of sale terminal)

4. H0: There is no significant relationship between the peoples level of education and

payment system preference with cash withdrawal preference.

The expected frequencies were computed on the basis of these hypotheses. Under each of

these hypotheses the computed values of chi-square is given by the equation:

28

n

χ2 = ∑ (Oi - Ei)/Ei

i =1

Where Oi = Observed frequency

Ei = Expected Frequency

n = Number of Cells in the contingency table with the number of degrees of freedom,

v, given by

(1). v = k – 1 if the expected frequencies can be computed without having to estimate the

population parameters from the sample statistics. (note that 1 is subtracted from k because of

constraint condition which states that if we know k-1 of the expected frequencies, the

remaining frequency can be determined.

(2). v = k-1 – m if the expected frequencies can be computed only by estimating m

population parameters from sample statistics.

If the computed value of chi-square is greater than the critical value (such as χ2.95 or χ2

.99,

which are critical values of the 0.05 and 0.01 significance levels, respectively), we would

conclude that the observed frequencies differ significantly from the expected frequencies and

would reject H0 at the corresponding level of significance; otherwise, we would accept it (or

at least not reject it).

29

CHAPTER FOUR

4.1 PRESENTATION AND DISCUSSION OF RESULT

There was a 100% response rate, meaning all 300 questionnaires (201 in Lagos state and 99

in Benin city) administered were retrieved. This shows an encouraging response owing to the

engaging interest demonstrated by respondents.

4.2 DEMOGRAPHIC ANALYSIS.

This section seeks to analyse the sex, educational qualification and profession of the

respondent

THE RESPONDENTS OF THE SURVEY ARE PRESENTED IN TABLE 4.1

TABLE 4.1: CLASSIFICATION OF RESPONDENTS BY GENDER

Gender Lagos State

Frequency

Percentage (%) Benin City

Frequency

Percentage (%)

Male 98 49 42 42

Female 103 51 57 58

Total 201 100 99 100

Source: Field work by Ofulue Joan, 2013

As evidenced in table 4.1 the majority of the respondents are female having 51%in lagos and

Benin City (58%) compared to the male respondents (49% in Lagos State and 42% in Benin

City, Edo State). This may be explained in terms of past findings that more women than men

in the overall, are usually engaged in the informal trading sector in Lagos State (David,

1982). This particular segment of the sampled respondents was responsible for the increase in

the number of female respondents.

30

THE RESPONDENTS EDUCATIONAL QUALIFICATION

Source: Field work by Ofulue Joan, 2013.

Fig. 4.1: Bar Chart showing the frequency distribution of Educational Qualifications of

Respondents in Lagos State and Benin City, Edo State respectively

Figure 4.1 shows the educational qualifications in Lagos State and Benin City respectively.

The figure shows Lagos State and Benin City, respectively, primary school leavers (30.35%,

34.34%); Secondary school leavers (21.39%, 19.19%); graduates (23.4%, 28.28%); post

graduate(4.48%,13.13%); professionals(2.99%, 3.03%); none (17.41%, 2.02).

From this result, we can group those with little or no education by finding the sum total of

those with primary school, secondary school and no qualification .In lagos state, we have

69.15% and Benin city 55.55% to the which agrees to the fact that the illiteracy level in

Nigeria is very high as earlier stated. This is a big limitation to the implementation of this

policy.

The respondents of the survey are presented in table 4.2 and figure 4.2

30.35%

34.34%

21.39%19.19%

23.40%

28.28%

4.48%

13.13%

2.99% 3.03%

17.41%

2.02%

Lagos State Benin City, Edo State

Primary School Secondary School Graduate Post Graduate Professional None

31

TABLE 4.2: THE RESPONDENTS PROFESSION

Profession Lagos State

Frequency

Percentage (%) Benin City

Frequency

Percentage (%)

Civil service 50 24.88 23 23.23

Business

(formal)

46 22.89 13 13.13

Business

(informal)

60 29.85 23 23.23

Financial sector 30 14.92 15 15.15

Student 15 7.46 25 25.26

Total 201 100 99 100

Source: Field work by Ofulue Joan, 2013

A Pie Chart illustrating the Profession of the Respondents in Lagos State.

A Pie Chart illustrating the Profession of the Repondents in Benin City

LAGOS STATE

CIVIL SERVICE

FORMAL BUSINESS

INFORMAL BUSINESS

FINANCIAL SECTOR

STUDENT

32

Figs. 4.2: Pie chart showing Frequency Distribution of Profession of Respondents in

Lagos State and Benin City, Edo State respectively.

Fig 4.2 shows the percentage frequency distribution of the profession of respondents in

Lagos State and Benin City respectively. A brief look at the result from respondent in Lagos

state and Benin city show that people belong to the informal sector of business than the

formal sector and this informal sector most of whom have little or no education and so, the

government still has so much work to do in integrating them into this cashless policy .

4.3 CLASSIFICATION OF RESPONDENT ACCORDING TO THERE RESPONSE

ON THE POLICY PROPER.

TABLE 4.3: THE LEVEL OF AWARENESS BY THE RESPONDENTS

Awareness Lagos state

Frequency

Percentage (%) Benin City

Frequency

Percentage (%)

Yes 111 55.22 57 57.58

No 90 44.78 42 42.42

Total 201 100 99 100

Source: Fieldwork by Ofulue Joan, 2013.

BENIN CITY

CIVIL SERVICE

FORMAL BUSINESS

INFORMAL BUSINESS

FINANCIAL SECTOR

STUDENT

33

Table 4.3 shows a higher percentage of awareness in both Lagos State (55.22%) and Benin

City (57.78%) compared to non-awareness of the cashless policy (44.78% for Lagos State

and 42.42% for Benin City). However, it is too early to make an inference at this stage if this

figure is significant enough to accept. A further statistical analysis of this hypothesized

assumption will reveal whether this awareness figure is significant or not.

THE RELATIONSHIP BETWEEN LEVEL OF AWARENESS AND

EDUCATIONAL QUALIFICATION

Fig. 4.3: Bar Chart showing the cross tabulation of the level of awareness with

educational qualification in Benin city.

From fig 4.3 it is vividly shown that the more educated respondents are aware of this policy,

this can be explained by the fact that, they are actively involved in financial activities than

the less educated respondents.

34

TABLE 4.4: CLASSIFICATION OF RESPONDENT ACCORDING TO THEIR

PERCEPTION/PREPAREDNESS OF THIS POLICY

Preparedness Lagos State

Frequency

Percentage (%) Benin City

Frequency

Percentage (%)

Yes 66 32.84 22 22.22

No 135 67.16 77 77.78

Total 201 100 99 100

Source: Fieldwork by Ofulue Joan, 2013.

A BAR CHART SHOWING THE RELATIONSHIP BETWEEN THE PEOPLES

PROFESSION AND PERCEPTION IN BENIN CITY

Fig. 4.4: The graph above shows the relationship between the peoples perception and

profession in Benin city

35

It is shown above that majority of the respondent believe that Nigeria is not ready to go

cashless, this can be explained by the various challenges faced by account owners in the

operation of there accounts.

TABLE 4.5: ATM USE SKILL BY RESPONDENT

Use skill of

ATM

Lagos State

frequency

Percentage (%) Benin City,

frequency

Percentage (%)

Yes 169 84.08 79 65.66

No 32 15.92 20 34.34

Total 201 100 99 100

Source: Fieldwork by Ofulue Joan, 2013

From the result above it is evident that a great number of people can use the ATM effectively

without help. Therefore the policymakers should concern themselves on how to improve the

services of the ATM

TABLE 4.6: THE RESPONDENTS CASH WITHDRAWAL PREFERENCE

Cash

withdrawal

preference

Lagos State

Frequency

Percentage (%) Benin City

Fequency

Percentage (%)

ATM 188 93.53 92 92.92

Over the counter 13 6.47 7 7.08

Total 201 100 99 100

Source: Fieldwork by Ofulue Joan, 2013

36

THE PEOPLES WITHDRAWAL PREFERENCE AND EDUCATIONAL

QUALIFICATION

The fig 4.5 shows the relationship between peoples withdrawal preference and educational

qualification in Lagos

The need or reason why education is a major variable is because of the importance it plays in

integrating every citizen into this policy.

It is vivdly shown that the bulk of respondents prefer to withdraw using the ATM. The only

persons who prefer over the counter withdrawal do not have any education. This is why the

policy makers should improve their sensitization program to the less educated.

37

THE RELATIONSHIP BETWEEN AWARENESS OF THE POLICY AND

KNOWLEDGE OF POS

FIGURE 4.6: cross tabulation of peoples knowledge of pos and awareness of this policy

in benin city

Figure 4.6 shows how a large portion of the respondent in Benin know about this policy and

yet they do not know what the POS is all about. A lot of work still has to be done in this

other states who have not begun with the policy as regards the issue of POS and other forms

of infrastructure.

38

Table 4.7: RESPONDENTS PAYMENT PREFERENCE

Preferred

Payment option

Lagos State

Frequency

Percentage (%) Benin City

Frequency

Percentage (%)

Cash 104 51.74 67 67.68

Cheque 21 10.45 29 29.29

PoS 76 37.81 3 3.03

Total 201 100 99 100

Source: Fieldwork by Ofulue Joan, 2013.

Table 4.7 shows that in Lagos state,51.74%(104) prefer cash as a payment option while

37.81%(76) prefer POS and 10.45%(21) cheque. In Benin City,67.68%(67) prefer cash as a

means of payment,29.29%(29) prefer cheque and 3.03%(3) prefer POS.

Both in Lagos and Benin everyone prefers cash as a means of payment followed by POS.But

in a cashless society, the main aim is to reduce the use of cash. So why is cash preferred over

POS? This is due to several reasons such as power failure which needs to network failure,

trust issues etc

TABLE 4.9 CLASSIFICATION OF REPONDENTS ACCORDING TO THEIR

RESPONSE ON SECURITY OF THIS CASHLESS POLICY.

Security of

Cashless system

Lagos State

Frequency

Percentage (%) Benin City

Frequency

Percentage (%)

Yes 51 25.37 49 49.49

No 150 74.63 50 50.51

Total 201 100 99 100

Source: Fieldwork by Ofulue Joan, 2013.

39

.

Source: Fieldwork by Ofulue Joan, 2013.

Fig. 4.7:A bar chart showing respondents response on security of this cashless policy

Table 4.9 and figure 4.7 shows that in Lagos 74.36 %believe the policy wont be secured in

Nigeria and also 50.51% in Benin city follow suit.

4.4 IMPLICATIONS OF RESULT

From previous study the table below shows the percentage of perceived problems of the

cashless economy

25.37%

49.49%

74.63%

50.51%

Lagos State Benin City, Edo State

Response on Security of Cashless System

Yes No

40

TABLE 4.8 Perceived Problems of the Cashless Economy

Number Percentage

Internet fraud 165 34.0%

Limited POS/ATM 75 15.5%

illiteracy 95 19.6%

none 150 30.9%

total 485 100%

Source: Akhalumeh Paul, B, “Nigeria’s Cashless Economy” :The Imperatives, Vol 2,

Issue 2, April-June 2012

This table justifies why majority of the respondent think the cashless policy is not a

secured policy in table 4.9 above

In general, it can be concluded that much has been done about the ATM which is even

evident from the literature review that ATM withdrawals account for about 50.96% of total

transactions in the nation followed by over the counter transactions(cash

withdrawals)33.7%,POS 13.56% and cheques 0.49% but work still need to be done on POS

and the use of cheque. Cheques have low patronage due to issues of trust encountered over

the years in Nigeria .

From the Central Bank of Nigeria Website (2011,2012,2013), ―New Cash Policy, Presentation for the

Interactive Engagement Session with Stakeholders on Cash-Less Lagos, it was discovered that 85% of

POS transactions and 66% cheque transactions were done in Lagos State. This is a large percentage,

which means this policy has fully been absorbed in Lagos compared to other states where it has not

kicked off. Also the issue of illiteracy/poor awareness which need to be tackled has also been

identified

41

4.5 RESULT FROM TESTED HYPOTHESIS.

As stated in previous chapter (Chapter three), the hypotheses to be tested in this chapter are :

1.0 HO: There is no significant relationship between the people’s perception and profession

2.0 HO: There is no significant relationship between level of awareness of the cashless policy

and educational qualification

3.0 HO: There is no significant relationship between mass awareness campaign and

knowledge of POS(point of sale terminal).

4.0 HO: There is no significant relationship between the peoples level of education and

payment preference and cash withdrawal

5.0 HO: There is no significant relationship between the peoples level of education and cash

withdrawal preference

4.6 VIVID DESCRIPTION OF THE TESTED RESULTS AND ITS

IMPLICATIONS

HYPOTHESIS 1;There is no significant relationship between the people’s perception and

profession

The result of the first hypothesis indicated below shows that there is a correlation between

peoples perception and their profession in Lagos State and Benin City. This indicates that

those that are more professional feel this policy should be implemented and the other group

of people don’t think Nigeria is ready to go cashless. Chi square is significant at 5% level of

significance and 4 degrees of freedom. So the null hypothesis is rejected.

42

Table 4.14.CHISQUARE RESULT

NULL

HYPOTHESIS

LOCATION

ᵡ2

df ASSYMPTOTIC

SIGNIFICANCE

SIGNIFICANCE

AT 5%

Peoples

perception-

profession

Lagos

state

62.430 4 0.000 significant

Benin city 26.186 4 0.000 significant

HYPOTHESIS 2;There is no significant relationship between level of awareness of the

cashless policy and educational qualification.

The result of the second hypothesis indicates that there is a correlation between the level of

awareness and educational qualification in Benin and Lagos state. We can conclude therefore

that those with higher education are more aware of this policy than those with less education .

Table 4.15.CHISQUARE RESULT

NULL

HYPOTHESIS

LOCATION

ᵡ2

df ASSYMPTOTIC

SIGNIFICANCE

SIGNIFICANCE

AT 5%

Level of awareness

- educational

qualification

Lagos

state

1.769 5 0.000 significant

Benin city 22.816 5 0.000 significant

Chi square is significant at 5% level of significance and 5 degrees of freedom. So the null

hypothesis is rejected.

43

HYPOTHESIS 3; There is no significant relationship between mass awareness campaign

and knowledge of POS(point of sale)

Table 4.16.CHISQUARE RESULT

NULL

HYPOTHESIS

LOCATION

ᵡ2

df ASSYMPTOTIC

SIGNIFICANCE

SIGNIFICANCE

AT 5%

Level of awareness-

knowledge of POS

Lagos

state

82.086 1 0.000 significant

Benin city 12.023 1 0.001 significant

In the third hypothesis, Chi square is significant at 5%level and 1 degree of freedom. The null

hypothesis can be rejected since there is a relationship between level of awareness and

knowledge of POS. This reveals that most people that know about the POS have heard about

the cashless policy in both Benin and Lagos state.

HYPOTHESIS 4; There is no significant relationship between the peoples level of education

and payment preference .

The result of the fourth hypothesis reveals that there is a relationship between the peoples

level of education and payment preference at 5% level of significance and 10 degree of

freedom. The more educated a person is the more he prefers payment using POS, followed by

cash thereafter cheque in both States.

44

Table 4.17.CHISQUARE RESULT

NULL

HYPOTHESIS

LOCATION

ᵡ2

df ASSYMPTOTIC

SIGNIFICANCE

SIGNIFICANCE

AT 5%

Level of education-

payment preference

Lagos

State

2.268 10 0.000 significant

Benin city 30.138 10 0.000 significant

HYPOTHESIS 5; There is no significant relationship between the peoples level of education

and cash withdrawal preference .

Table 4.18.CHISQUARE RESULT

NULL

HYPOTHESIS

LOCATION

ᵡ2

df ASSYMPTOTIC

SIGNIFICANCE

SIGNIFICANCE

AT 5%

Level of education-

cash withdrawal

preference

Lagos

State

65.921 5 0.000 significant

Benin city 64.732 5

The result of the fifth hypothesis shows that at 5%level of significance and 5 degree of

freedom the null hypothesis is rejected .Most educated people prefer to withdraw cash using

the ATM than over the counter in both states. This means that there exist a relationship

between the peoples level of education and there cash withdrawal preference.

45

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION

This chapter presents summary and conclusion drawn on this study as well as

recommendations given in order for government and relevant stakeholders to

achieve the desired objective of the cashless policy.

5.1 SUMMARY

From the analysis in the previous chapter, it appears that much is yet to be done

in making the people aware of the cashless economy and that a sizeable

proportion of the people are actually not awaiting the introduction of the

cashless economy. It also appears that many people actually do not agree with

the government on the usefulness of the cashless economy. It is agreed that the

cashless system will be helpful in the fight against corruption and money

laundering. One most significant contribution of the cashless economy is that it

is expected to reduce the risk associated with carrying cash. Since most

transactions will now be settled electronically, people will have less need to

move around with cash and therefore, loss of cash, theft and armed robbery will

drastically reduce.

Among the major problem in the working of the cashless economy is internet

related fraud. Nigeria is a major hub of electronic fraud and this can only be

expected to increase as we march into the cashless economy. Illiteracy is also a

major factor. The level of illiteracy in Nigeria is still very high. The cashless

46

economy is effectively an e-economy and in any e-system there is almost no

place for the non-literate.

Findings show that the cashless policy is a system that was rushed through. It

was ill-digested before the implementation. Infrastructure such as ATM

machines and Point of Sale terminals needed for the effective implementation of

the policy are grossly inadequate. Power which is key is still epileptic causing

transactions through e-payment system almost impossible and frustrating

experience according to respondents. The state of the telecommunications

sector, another key infrastructure is still vulnerable to manipulations.

Findings also show that public reaction has been unfavourable from the outset

of the policy. Furthermore, the results showed that the citizens were ill-prepared

for such a policy, the obvious benefits notwithstanding. There was no adequate

enlightenment. Even bank staff during oral interview among the respondents

also expressed their fears that the policy could cost them their jobs. Such fears

may have been well-founded. The success of the cashless policy is hinged on

when it takes into cognizance the peculiar economic environment of the country

and the citizens’ response to the policy.

It is clear from the findings of this study that Nigeria is not yet prepared to

embrace the policy. It is not because the benefits are not attractive. It is largely

because our society does not yet have the necessary infrastructural backbone to

run a cashless economy. Therefore, the apex bank needs to go back to the

47

drawing board in terms of the modalities, the time frame and indeed the entire

concept and the practicability of the policy in Nigeria.

5.2 CONCLUSION

This study examined the prospects and challenges of the new cashless policy in

Nigeria with a view to ascertaining the policy implications as well as to evaluate

the policy of the Central Bank of Nigeria. It was motivated by a number of

considerations. There has been disagreement on what form of money should

guarantee the effectiveness of monetary policy. In order to achieve the

objectives of this study, the method of simple descriptive analysis and Chi-

Square was performed.

The study also presented a review of literature on the research topic by

ascertaining the strengths and criticisms of previous relevant studies. Here, most

researchers took a one-sided look by examining either the benefits or the costs

of cashless banking while the others did not examine comprehensively the

policy implications of cashless banking. However, this was able to fill that gap.

The development of innovative cashless policy has the potential to transform

economic activity and achieve developmental goals. If an effective cashless

banking system can be developed and the stated recommendations below are

carried out then it will have desired impact on the Nigerian economy.

This study concludes with a final observation about the central bank‘s role in

the development of the payments system as the study showed a very poor

awareness and use of the introduced PoS payment system. Over the next

48

decade, there would be progress towards a cashless society both in Nigeria and

other countries. In the presence of these trends, the responsibility of Central

Bank of Nigeria is to anticipate such change and channel it in such a way to

ensure the safety, efficiency and effectiveness of domestic and international

banking system.

5.3 POLICY RECOMMENDATION

To make for the smooth implementation of the cashless system in Nigeria, the

following measures are recommended:

1. There is the need to intensify the public enlightenment programme about

the cashless system so that every body will be acquainted with the system

before its introduction since it will affect everybody.

2. Since there is a high rate of illiteracy, and all people must be brought into

the system, the government should design special enlightenment

programmes for the non-literates, using probably signs and symbols to

educate this segment on how to operate the cashless system.

3. Nigeria should make concerted efforts to design an internet security

framework to check online fraud so that the public can be assured and

protected against cyber attack and fraud. There should be a careful study

of the system to determine the number of point of sales terminals that will

ensure its smooth running in Nigeria so as to prevent unnecessary friction

in the system.

49

4. There should be adequate legislation on all aspects of the operations of

the cashless system so that both the operators of the system and the public

can be adequately protected.

5. Adequate and well-functioning infrastructural facilities must be in place.

More specifically, issue of electricity should be tackled by the

government to facilitate the usage of electronic money.

6. Consistent and effective appraisal of cashless banking operations.

Basically, such appraisals should be quantitative and qualitative in nature.

This will make possible the plans for greater financial inclusion and

integration of financial services into the economy with its attendant

positive impact on economic development.

7. Effective regulatory measures should be continuously implemented at the

domestic and international level. In other words, legal, regulatory and

economic policy frameworks should evolve to cope with these new

cashless banking products.

8. The Central Bank of Nigeria should redesign its monetary policy

framework in such a way to recognize the effects of reduced production

of currency notes.

9. Individual and collective analysis should be made of the various e-

banking channels to determine relative impact on the economy through

feedback mechanism of customers’ experience of the services as well as

50

evaluating the volume of financial transactions as well as cost to

management.

10. The stakeholders (that is the consumers, corporations, banks and

government) as well as the law enforcement agencies should work co-

operatively to give life to the cashless banking policy‘. This is because

they have significant individual roles to play.

11. Fair competition should be allowed in order to prevent monopoly-like

behaviour by the licensed POS manufacturers.

12. The execution of cashless policy should be carried out in stages.

Alternatively, Nigeria can move first to cash-less society before migrating

to a pure cashless economy.

13. There must be clear-cut intention of pursuing either inflation-targeting

goals or economic growth and developmental goals. This is because

maintenance of monetary stability is central to economic growth. Hence,

the major task of central banks is to sustain a non-inflationary

environment. However, several inferences emerge from existing studies

(such as IMF, 1996), that there exist a negative relationship between

inflation and economic growth.

14. To encourage Nigerians to patronize such cashless banking channels, the

cost should not be too high as a larger percentage of the population

experience poverty.

51

REFERENCES

Ajayi, S. I. and O. O. Ojo (2006), ―Money and Banking: Analysis and Policy in the Nigerian

Context‖, Second Edition, University of Ibadan, Daily Graphics Nigeria Ltd.

Akhalumeh Paul, B, “Nigeria’s Cashless Economy” :The Imperatives, Vol 2, Issue 2, April-

June 2012

Alan Greenspan (2007), ―The Age of Turbulence‖, Adventures in a New World

Baddeley, M. (2004), ―Using E-Cash in the New Economy: An Economic Analysis of

Micropayment Systems‖, Journal of Electronic Commerce Research, Vol. 5, No.4,

UK, Cambridge.

Bank for International Settlements, (1996), ―Implications for Central Banks of the

Development of Electronic Money.

Basel Committee, (1998), ―Risk Management for Electronic Banking and Electronic Money

Activities‖, Basel Committee Publications, No. 35

Bayesian Approach Based On A Markov-Switching Model of the Business Cycle,‖ The

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54

APPENDIX I

NOTE:THIS QUESTIONNAIRE IS STRICTLY FOR ACADEMIC

PURPOSE.THEREFOR BE REST ASSURED THAT YOUR RESPONSE SHALL BE

STRICTLY CONFIDENTIAL

(PART A)

Please tick (√) in the appropriate column below as it applies to you.

(1). Sex: Male [ ] Female [ ]

(2). Nationality: Nigerian [ ] Non Nigerian [ ]

(3). Age; 18 – 30[ ], 31 – 60 [ ], 61 above [ ]

(4). Educational qualification: Primary Education [ ], Secondary Education [ ], Graduate

[ ], Post Graduate [ ], Professional Qualification [ ] None [ ]

(5). Profession: Civil service [ ], Finance [ ], Business…..Formal [ ] and informal [ ],

Student [ ]

PART B

(1). Have you heard about the cashless policy? Yes [ ] No [ ]

(2). If yes, how did you hear about it? Newspaper [ ] Television [ ] Radio [ ] Outdoor

billboard [ ] Word of mouth [ ]

(3). Do you know what the cashless economy means? Yes [ ] No [ ]

(4). If yes, do you support the idea of a cashless policy? Yes [ ] No [ ]

(5). Should cashless Economy be introduced now in Nigeria? Yes [ ] No [ ]

(6). Do you have a bank account? Yes [ ] No [ ]

(7). How often do you make bank transaction? Daily [ ] Weekly [ ] Monthly [ ] Never

[ ]

(8). Have you heard of the Automatic Teller Machine (ATM)? Yes [ ] No [ ]

55

(9). Do you have an ATM card? Yes [ ] No [ ]

(10). Can you use the ATM efficiently without needing assistance? Yes [ ] No [ ]

(11). which do you prefer in Withdrawing cash? Using the ATM [ ] over the counter

transactions [ ]

(12). Have you heard of a POS (Point of Sale Terminal)? Yes [ ] No [ ]

(13). How do you prefer to make payments? Cash [ ] POS [ ] Cheques [ ]

(14). Is the cashless policy going to be a secured system? Yes [ ] No [ ]

THANKS FOR YOUR RESPONSE.YOU SHALL RECEIVE FEEDBACK ON THE OUTCOME

OF THIS RESEARCHS