The Impact Of Cashless Policy On The Economic Growth Of Nigeria

Project and Seminar Material for Economics

The Impact Of Cashless Policy On The Economic Growth Of Nigeria


The Nigerian payment systems are largely cashed based. Though the country is left behind compared to other industrial countries, its use of electronic payment system is gradually gaining prominence. The emergence of cashless policy, the systems where transactions function and operate without the use of coins or banknotes, has increased the extent of economic activities in Nigeria. This study examined the impact of cashless policy on economic growth in Nigeria, over the period of 2010 to 2012. Based on the findings, the study recommended that banks should invest more in information communication technology (ICT) to enhance the efficiency of e-payment systems as this will enhance the revenue of banks in the long-run and improve economic growth in Nigeria. The Central Bank of Nigeria (CBN) should also embark on public enlightenment to educate the populace more on the nitty-gritty of the cashless system particularly in terms of web payment and cheque transactions. This is expected to raise the level of public awareness and reduce possible resistance by the banking public so that the economy will be well positioned to reap the benefits of cashless policy.

Chapter One


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).

1.3 Objectives of the Study

The main objective of the study is to examine the impact of the cashless policy on the economy of Nigeria and how it affects economic growth. Specific objectives of the study include:

  1. To examine the impact of the cashless policy on economic growth of Nigeria.
  2. To examine the various challenges associated with the implementation of the cashless policy/banking.
  3. To proffer suggestions on how cashless policy and other monetary policies can be managed for better contribution
  4. To the economic growth and development of Nigeria.

1.4 Research Hypothesis

  1. Ho: Cashless policy has no significant impact on the reduction of inflation in Nigeria
    Hi: Cashless policy has significant impact on the reduction of inflation in Nigeria.
  2. Ho: Cashless policy has no significant impact on economic growth of Nigeria
    Hi: Cashless policy has significant impact on the economic growth of Nigeria.

1.5 Significance of the Study

The study will give various insights into the various implications the introduction of the cashless policy will have on the economy of Nigeria. Through examining various economic indicators such as the gross domestic product (GDP) and inflation, the study will examine and compare growth trends and changes to determine whether the cashless policy introduced by the CBN has a negative or positive effect on the economy of Nigeria.

Various challenges and prospects identified in the study will also enable various stakeholders to tackle these challenges effectively by making policies that will address them and boost the economy of Nigeria.

1.6 Scope of the Study

In pursuance of the objective of the study; attention shall be focused on electronic banking among other electronic commerce implementation. In order to conduct an empirical investigation into the adoption of Electronic banking in Nigeria and will also examine the nature of electronic banking operations from the CBN bulletin from2010-2012.

1.9 Definition of Terms

Access Products

Products that allow consumers to access traditional payment instrument electronically, generally from remote locations.

ATM Card

An ATM card (also known as a bank card, client card, key card, or cash card) is a payment card provided by a financial institution to its customers which enables the customer to use an automated teller machine (ATM) for transactions such as: deposits, cash withdrawals, obtaining account information, and other types of banking transactions, often through interbank networks.


Central Bank of Nigeria.

Chip Card

Also known as an integrated circuit (IC) Card. A card containing one or more computers chips or integrated circuits for identification, data storage or special purpose processing used to validate personal identification numbers, authorize purchases, verify account balances and store personal records.

Electronic Data Interchange (EDI)

The transfer of information between organizations in machine readable form.

Electronic Money

Monetary value measured in currency units stored in electronic form on an electronic device in the consumer’s possession. This electronic value can be purchased and held on the device until reduced through purchase or transfer.

Internet Banking

This is a product that enables the Bank leverage on the Internet

Banking System Module in-built on the new Banking Application (BANKS) implemented by the Bank to serve the Internet Banking needs of the Bank’s customers.

Mobile Banking

This is a product that offers Customers of a Bank to access services as you go. Customer can make their transactions anywhere such as account balance, transaction enquiries, stop checks, and other customer’s service instructions, Balance Inquiry, Account Verification, Bill Payment, Electronic fund transfer, Account Balances, updates and history, Customer service via mobile, Transfer between accounts etc.

Payment System

A financial system that establishes that means for transferring money between suppliers and of fund, usually by exchanging debits or Credits between financial institutions.

Point Of Sale (POS) Machine

A Point-of-Sale machine is the payment device that allows credit/debit cardholders make payments at sales/purchase outlets. It allowed customers to perform the following services Retail Payments, Cashless Payments, Cash Back Balance Inquiry, Airtime Vending, Loyalty Redemption, Printing mini statement etc.

Smart Card

A Card with a computer chip embedded, on which financial health, educational, and security information can be stored and processed.

Transaction Alert

Our customers carry out debit/credit transactions on their accounts and the need to keep track of these transactions prompted the creation of the alert system by the Bank to notify customers of those transactions. The alert system also serves as notification system to reach out to customers when necessary information need to be communicated.

Western Union Money Transfer (WUMT)

Western union Money transfer is a product that allowed people with relatives in Diaspora who may be remitting money home for family up-keep, Project financing, School fees etc. Nigerian Communities known for having their siblings gainfully employed in other parts of the world are idle markets for Western Union Money Transfer.

Chapter Five

Conclusions and Recommendation

5.1 Conclusions

Empirical studies have shown that cashless policy is linked to economic growth. Following the objectives, the study estimated the real GDP as a function of Automated Teller Machines, Online web payments, Point of sale operations and Cheque payments in Nigeria. The findings of the study showed that the value of cheque payments and point of sales operations have a positive relationship with economic growth in Nigeria. On the other hand, the values of transactions on automated teller machines, and online web payments have a negative relationship with economic growth in Nigeria.

The implications of these results are that since there is negative and significant impact of ATM transactions on economic growth in Nigeria, further regulatory framework that will check electronic banking fraud should be put in place by the government to enlighten bank customers who make use of ATMs on the dangers inherent in the transactions. The commercial banks as well as the CBN should embark on public enlightenment campaign to educate the populace on the nitty-gritty of the cashless system especially as it relates to web payment and cheque transactions. This will raise the level of awareness and reduce possible resistance by the banking public so that the economy will reap the benefits of cashless policy

The cashless policy serves as a good tool in influencing economic growth especially as it relates to the value of cheque and POS payment patterns.

5.2 Recommendations

  1. Government should provide uninterrupted power supply and adequate communication link while shortfall should be covered by banks through back-up arrangement to power standby generator in case of power outage; 2. Government should also support banks in the aspect of financing the payment system which requires a lot of capital to maintain;
  2. Government and the CBN should create awareness on the benefits derivable from cashless policy for the improvement of businesses and economic development;
  3. Skilled manpower and computer experts should be employed by every bank to prevent fraud and hacking of banks’ data to steal customers’ fund; 5. Electronic payment system is capital intensive, therefore banks are encouraged to collaborate to finance some of the infrastructures needed for the smooth implementation of the policy by sharing cost to reduce the initial cost of setting up electronic banking;
  4. Government should provide adequate security so as to create safe environment that will make people to imbibe the policy.

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