A CRITICAL APPRAISAL OF THE IMPACT OF CASHLESS POLICY ON THE NIGERIAN FINANCIAL SYSTEM

(A CASE STUDY OF SELECTED COMMERCIAL BANKS IN ETHIOPE, DELTA STATE)

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

A cashless system is one in which transactions are carried out without the use of cash as a medium of exchange, instead relying on credit card or debit card transfers. Several academics have attempted to analyze this approach, but only a handful have provided a detailed assessment of its consequences in developed countries. A German economist, Bruno Hildebrand, used a historical approach to investigate the stages of monetary evolution, arguing that a country must progress from barter to monetary trade before reaching its highest level of union in a credit economy.

In virtually every field of human enterprise, the twenty-first century has seen immense scientific innovation. The most visible is the information and communication technology (ICT) infrastructure, which has demystified computers and transformed the planet into a multicultural village where citizens of various nationalities, cultures, and social backgrounds can easily communicate (Adeya, 2001). In a system where the world is going completely internet based, the best option for the Nigerian financial system would be to indulge in electronic payment or cashless policy.

According to Agba (2010), electronic payment is a way of transferring funds from one party to another using a device without the need for manual interference other than inputting payment data. Since only manually entered payment data is used, this scheme encourages confidentiality and integrity while also lowering the incidence of dishonest financial activities. This viewpoint was backed up by Ogedebe and Jacob (2012), who said that e-payment reduced interactions between government officials and contractors, reducing opportunities for corruption.

The Central Bank of Nigeria (CBN) often states that when the cashless policy is fully implemented in Nigeria, it will reduce the cost of maintaining a cash-based economy by 90%. However, there are unacceptable delays in the payment of government contractors in Nigeria, and a high level of corruption still exists in the public sector due to interactions between government officials (Ogedebe & Jacob, 2012). Another concern, according to Akhalumeh and Ohiokha (2012), is the state of Nigeria's infrastructural collapse, as the goal of a cashless economy can only be completely realized until Nigeria's institutions are on par with those of developing countries. Cashless policy aims to curb some of the negative consequences associated with the high usage of physical cash in the economy, including high cost of cash, high risk of using cash, high subsidy , informal economy, inefficiency and corruption. Hence, this study seeks to critically appraise the impact of cashless policy on the Nigerian financial system.

1.2       STATEMENT OF RESEARCH PROBLEM

Contrary to popular belief, the term "cashless economy or policy" does not imply a complete disappearance of cash transactions in the economy, but rather one in which cash-based transactions are held to a bare minimum. It is a type of economic mechanism in which purchases are not primarily made in exchange for currency. It is not, however, an economic mechanism in which products and services are traded for goods and services (as in the barter system), but rather one in which goods and services are purchased and paid for using electronic media. Due to the advancements in technology, and also the increase in the rate of insecurity in the country, it is very crucial for the Nigerian financial system to see the need to switch from a cash based system to a cashless system.

1.3       OBJECTIVES OF THE STUDY

This study seeks:

1.        To assess the impact of the cashless policy on the use of mobile banking.

2.        To determine the advantages and consequences of a cashless policy on the Nigerian financial system.

3.        To compare the difference between the traditional system and the cashless based system.

1.4       RESEARCH QUESTIONS

The following questions guide this study:

1.        Does cashless policy have any impact on the use of mobile banking?

2.        What are the advantages and consequences of a cashless policy on the Nigerian financial system?

3.        Is there and difference between the traditional system and the cashless based system?

1.5       SIGNIFICANCE OF THE STUDY

This study will be helpful to the necessary bodies in the Nigerian financial system and create an awareness and understanding of the impact of the cashless policy when fully implemented into the Nigerian financial system. This study will also be of immense benefit to the general public to see the need to adopt this system in the banking mode following its stress-free operation. This study will also be added to existing literature of this study domain and serve as a helpful reference material to other researchers who seek to investigate deeper into the cashless policy and how it can affect states independently.

1.6       SCOPE OF THE STUDY

This study will only cover the impact of the cashless policy on the Nigerian financial system.  This study will also look into the benefits and risks attached to the implementation of such a system to the Nigerian economy. This study will further compare the already existing system to the cashless based system. This study will be delimited to selected commercial banks in Ethiope, Delta State as enrolled participants.

1.7       LIMITATIONS OF THE STUDY

The researcher was faced with the challenge of time and funds. Not enough time and funds to delve deeper into the cashless policy and the Nigerian financial system on a broader scale.

1.8       OPERATIONAL DEFINITION OF TERMS

CASHLESS POLICY: The term "cashless policy" refers to the ability to conduct financial transactions without using banknotes. In financial transactions, the Cashless Policy mandates the use of a debit or credit card, as well as electronic payment.

FINANCIAL SYSTEM: A 'financial system' is a structure that helps financial market players such as lenders, owners, and borrowers to exchange funds at both the national and global levels. For the purpose of this research, the Nigerian financial system is what will be referred to.