Current and Emerging issues in finance

The issue with Cashless policy

The Central Bank of Nigeria (CBN) last year introduced a new policy on cash-based transactions which stipulates a ‘cash handling charge’ on daily cash withdrawals or cash deposits that exceed N500, 000 for Individuals and N3, 000,000 for corporate bodies. The new policy on cash-based transactions in banks, aims at reducing and not limiting the amount of physical cash circulating in the economy, and encouraging more electronic-based transactions.

The new cash policy, which is one of the reasons why the introduction of the five thousand Naira note did not succeed was introduced for a number of key reasons, including:

  1. To reduce the cost of banking services (including cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach.
  2. To drive development and modernization of our payment system in line with Nigeria’s vision 2020 goal of being amongst the top 20 economies by the year 2020. An efficient and modern payment system is positively correlated with economic development, and is a key enabler for economic growth.
  3. To improve the effectiveness of monetary policy in managing inflation and driving economic growth.

In addition, the cashless policy aims to curb some of the negative consequences associated with the high usage of physical cash in the economy, including:

Content of the Cash policy

The following aspects of the policy shall apply from January 1st 2012 in Lagos State (“tagged Cash-less Lagos”):

The service charges/fees will not apply until March 30th, 2012, in order to give people time to migrate to electronic channels and experience the infrastructure that has been put in place. Therefore, banks should continue to encourage their customers to migrate to available electronic channels, and where possible demonstrate the costs that will accrue to those that continue to transact high volumes of cash from March 30th, 2012 in Lagos State.

In addition, below are some detailed context and pertinent clarifications on the policy:

The policy will eventually be rolled out to other regions across the country from January 1st 2013. Please note that the policy does not prohibit withdrawals or deposits above the stipulated amounts, but that such transactions will be subject to cash handling charge.

Expected Benefits of the New Cash Policy

A variety of benefits are expected to be derived by various stakeholders from an increased utilization of e-payment systems. These include:

Current Awareness/Engagement Status

The CBN has been running a set of targeted stakeholder engagement sessions as a first stage of its planned communication campaign. These have targeted key groups that will be most impacted by the cash policy, with the objective of creating awareness and providing an opportunity for them to raise issues and concerns. The stakeholders so far have included markets, associations, professional bodies, etc. These stakeholder sessions were concluded in November 2011. We are now implementing the phase 2 of the communication strategy, which is the Mass communication campaign, leveraging the inputs derived during the stakeholder sessions.

Fiscal policy challenges

THE Central Bank of Nigeria (CBN) is achieving its core mandate but the greater challenge of the economy is the fiscal policy challenges, a member of Finance Market Dealers Association of Nigeria (FMDAN), Mr. Wale Abe has said.

He declared that the CBN has been trying in terms of trying to control inflation growth rate and the foreign exchange, noting that the fiscal policy has been the major drawback that has made the monetary policy not felt by the people.

He stressed that the fiscal dominance and growth will keep the inflation battle tough to win, saying as the apex bank mops up funds from the economy to control inflation, there would be an upward pressure on the cost of money as interest rates would continually soar, making it hard for the real sector to get the funding that they need.

Also, speaking at the Finance Correspondence Association of Nigeria (FICAN), Round Table meeting with Financial experts, Mr. Bade-Ajidahun, Oludahun  projected that the nation’s currency will depreciated further to N170 to a dollar before the end this year.

He doubted the possibility of the local currency appreciating to N120 to a dollar, saying, “The excessive demand pressure at the foreign exchange market remained unabated in 2011 even into 2012, causing the value of the Naira to slide against the US dollar.”

Bade-Ajidahun noted that the trend so far in the  Nigerian foreign exchange market has been quite  disappointing. This according to him was caused  largely  by the poor  economic performance of the country, insecurity issues,  and  poorly implemented economic policy.

He said that current situation has driven the exchange rate in the parallel market  to over  N164 to a dollar. He said that for the Central Bank of Nigeria CBN to ensure stability in this market, it employed some measures both conventional and unconventional.

Some of the measures include, Increase in the sale of foreign exchange,  at the expense of foreign reserves, removal of limit of dollars sold to Bureau De Change (BDCs), target audit of the authorized dealers to prevent speculative demand for dollar, lifting of restriction on the holding period in government securities by foreign investors ,the reduction in net open limits of banks shareholders funds  and devaluation in the value of the Naira.

He said although the country has one promising reforms going on in the country, but the effect may be seen much more later, probably 2013/2014.

 

Current Financial Issues: the decline of US’s superpower status

Before the global financial crisis took hold, some commentators were writing that the US was in decline, evidenced by its challenges in Iraq and Afghanistan, and its declining image in Europe, Asia and elsewhere. According to Paul Reynolds, in US superpower status is shaken, he stated thus: The financial crisis is likely to diminish the status of the United States as the world’s only superpower. On the practical level, the US is already stretched militarily, in Afghanistan and Iraq, and is now stretched financially. On the philosophical level, it will be harder for it to argue in favor of its free market ideas, if its own markets have collapsed.

… Some see this as a pivotal moment.

The political philosopher John Gray, who recently retired as a professor at the London School of Economics, wrote in the London paper The Observer: “Here is a historic geopolitical shift, in which the balance of power in the world is being altered irrevocably.

“The era of American global leadership, reaching back to the Second World War, is over… The American free-market creed has self-destructed while countries that retained overall control of markets have been vindicated.”

… “How symbolic those Chinese astronauts take a spacewalk while the US Treasury Secretary is on his knees.”

Yet, others argue that it may be too early to write of the US, Paul Reynolds, also stated in US superpower status is shaken that The director of a leading British think-tank Chatham House, Dr Robin Niblett … argues that we should wait a bit before coming to a judgment and that structurally the United States is still strong.

“America is still immensely attractive to skilled immigrants and is still capable of producing a Microsoft or a Google,” he went on. “Even its debt can be overcome. It has enormous resilience economically at a local and entrepreneurial level.

“And one must ask, decline relative to whom? China is in a desperate race for growth to feed its population and avert unrest in 15 to 20 years. Russia is not exactly a paper tiger but it is stretching its own limits with a new strategy built on a flimsy base. India has huge internal contradictions. Europe has usually proved unable to jump out of the doldrums as dynamically as the US.

“But the US must regain its financial footing and the extent to which it does so will also determine its military capacity. If it has less money, it will have fewer forces.”

Conclusion

The concentration of this paper was mainly on the Cashless Policy System and the Central Bank of Nigeria Fiscal Policy challenges and the decline of US’s superpower status which is seen as current and emerging issues in the economy, as regards emerging issues in finance. Hence, the Cashless Policy will not be a success if some distractions like, the introduction of new Five Thousand Naira note and others are not well taken care of.

Reference

Washington, D.C. 2005. “The Standards and Codes Initiative: Is It Effective? And How Can It Be Improved?” Washington, D.C.

Lane, P., and S. Schmukler. 2006. “The International Financial Integration of China and India.” In L. A. Winters, and S. Yusuf eds., Dancing with Giants. Singapore: Institute for Policy Studies.

CBN (2011). The cashless policy and advantages

Financial Contracts for Emerging Economies.” International Finance 7(3):349–90 2006. Emerging Capital Markets and Globalization: The Latin American Experience. Palo Alto: Stanford


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