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We are used now to playing with plastic, yet we still hold cash. The fact is that there are still plenty of occasion where only cash can be used for transactions, either because the amount is very small, or because for some reason the merchant does not want to accept plastic. Not infrequently, it is because of the fear of a paper trail, or rather an electronic trail, or because of some tax avoidance. The fact that plastic money discourages the latter should be seen as beneficial, right?
Victor Olajide thinks that is not necessarily the case when the informal sector is substantial. Taking the example of Nigeria, he points out that if the informal sector cannot use cash anymore, then this could have strong implications for banking, as reserve requirements rely on deposits, and those could go missing. That does not seem to be a major problem to me, as reserve requirements can be changed or redefined. I find more problematic that the Central Bank of Nigeria is pushing for a cashless economy while many of the market participants simply do not have the means to tool up for it. I think there are more important issues to tackle in Nigeria than going cashless.
Wednesday, June 6, 2012
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6 comments:
in addition to the view that the very nature of less developed economies may hamper the success of the so called cashless economic paradigm - considering the high composition of the informal sector - it can also be argued that the goal of the cashless policy, which involves ensuring that cash does not leave the banks, thus shoring up bank liquidity, may result in the very same problems that greeted the completion stage of the Charles Soludo 25 billion capitalisation. Soludo's reforms increased bank liquidity but due to the adverse business environment in Nigeria banks and the presence of information asymmetry - which is occassioned by the presence of Moral Hazard and Adverse Selection - banks expanded lending to the financial investors at high interest rates and this was evident by the booming Nigerian stock market of the time, but with the advent of the crisis - an exogenous shock that is more often than not a inevitable reality - bank liquidity levels dropped as Non performing loans soared. This is the same path Sanusi, the present CBN governor is following. If the Nigerian business environment is not conducive for enterprise, no amount of economic experimentation, including the so called cashless economic paradigm, will be functional in improving the lot of the Nigerian economy.
In the words of Joan Robinson (1952),"where enterprise leads, finance follows".
Hello, I'm glad to find a discussion right on the topic I'm trying to put in a public consideration.
I have proposed a while ago the transition not towards a "cashless" but towards a "banknoteless" economy!
I 've posted this at gobanknoteless.wordpress.com (Greek and English text ). I explain how abolishing only banknotes results to all beneficial outcomes of cashless society without the back-draws of making difficult every day life or arousing Church's confrontation etc.
Please visit the blog and let me know of your opinion on it.
Thanks
Georges
Well, bitcoin is not working out to well, doesn't it?
Oh, please DO NOT misunderstand. It's totally different. Bitcoin is something digital. I' m speaking of keeping today's physical coins in use just for buying bread or a newspaper or giving to a beggar or buying the believer'σ caddle in the church! Simply, for anything bigger than that, missing the banknotes, you will be forced to do any transaction, payment etc via internet or mobile payment. That's all. Please REread my proposition and feeel it. It's more simple that somebody can imagine at first sight. But it's real.
I wait your opinion on what it really is.
Thank you again.
Georges
Well, bitcoin is electronic money that cannot be used for small transactions. Same difference.
Hello again. But the point is these two characteristics going together:
a. Having coins for small transactions.
b. NOT having banknotes, thus doing necessarily all other transactions electronically.
The difference from the implementation of "bitcoin" up to now is that it was not in a banknoteless environment. It would be totally different other-ways. Anyway even a few years ago it could not be implemented, missing the widespread of mobile communications reaching a total coverage for the developed countries.
After all the above, I 'd like to have your comments upon the essence of the proposed system. Do you also find that this would be the solution for European economy? Do you share my estimation that this way, common violent crime will be out of business?
Is there any other observation?
Thanks again
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