Guest views are now limited to 12 pages. If you get an "Error" message, just sign in! If you need to create an account, click here.

Jump to content
  • CRYPTO REWARDS!

    Full endorsement on this opportunity - but it's limited, so get in while you can!

Smart Cards / E-Payment Will Decrease Currency in Circulation


Recommended Posts

The trillion dollar question is: How can Iraq RV at a significant rate with all of the currency in circulation?

This may be oversimplified but I will do my best to provide facts, links, as well as a few examples of other countries that have started using "E-Payment" systems to reduce currency in circulation.

Smart Cards: Isn't this exactly what Iraq is moving towards? The "Smart Card" which will be used by both public and private institutions, as well as the government of Iraq.

http://econc10.bu.ed...livan_paper.htm

The above link is very detailed in explaining in detail what Smart Cards do when introduced to a country. It explains the pros and cons in detail. The following paragraph is an "excerpt" from the article.

"When electronic money is introduced, currency decreases and deposit money increases as the private propensity to retain cash goes down. Therefore, the currency ratio is reduced, the money multiplier becomes larger, and the volume of money supply created from the supply of fixed reserve money is amplified” (Tak 57). This shows that electronic money will directly affect the money multiplier through the currency ratio. Electronic money as well affects reserves. If reserve requirements are placed on electronic money balances, there is no change because it is assumed that currency will decrease by the same amount that electronic balances increase. However, this assumes that reserve requirements can be set on all electronic money balances. This is not the case when private institutions are liable for the smart cards and network money. If the central bank takes corrective action, it can limit the inflationary affects of increased money. Rahn feels that this will not be a problem as the changes will be slow and measurable, therefore allowing central banks to adjust appropriately (Rahn 4). If this assumption is overly optimistic about the central banks abilities it can be seen that the central bank could in fact lose control and inflation could result from increased use of privately issued electronic money."

Nigeria: http://allafrica.com...0903300876.html

E-Payment Will Reduce Currency in Circulation CBN

The Central Bank of Nigeria (CBN) has said in Kaduna that the electronic mode of payment adopted by the Federal Government will reduce the volume of currency circulating outside the banking system adding that this was necessary for the advent of a more effective monetary policy management regime.

Apart from this, the CBN further said that the introduction of the e-payment systems would drastically reduce money laundering and other financial crimes, like diversion and misappropriation of public funds...

http://www.thedailye...ashless-policy/

Implications Of CBN’s Planned Cashless Policy

1 commentPosted by The Daily Eagles in Editorial | 1 comment

Central_bank_nigeria-300x200.jpgRecently, the Central Bank of Nigeria, CBN, announced its intention to begin the implementation of its cashless banking policy from December 2012 with Lagos as a pilot state.

Rising from the 304th Bankers Committee meeting in Abuja, the Director, Banking Supervision of the apex bank, Mr. Samuel Oni, disclosed that before the date, CBN will flood the state with Point of Sales (POS) terminals, deploy about 40,000 Automated Teller Machines (ATMs) by December 2012 and by December of 2013, it will be increased to 150,000.

According to an April 28, 2011 CBN, circular entitled “Industry Policy on Retail Cash Collection and Lodgment.” the policy was adopted to reduce the high usage of cash and moderate the cost of cash management as well as encourage the use of electronic payment channels.

The CBN authorities believe that the cash economy is very costly as the cost of transportation, security and printing of the Nigerian currency cost the nation N200 billion annually.

Going by the directive of the Central Bank of Nigeria, Nigerians are to withdraw a maximum N150, 000 daily in cash.

The CBN arrived at the N150, 000 limits through a survey, where it was discovered that over 90 per cent cash transactions that take place in Nigeria today is below N150, 000.

Nonetheless, this has continued to attract divergent views from the public and stakeholders.

The Senate Committee on Banking and Currency in response, invited the CBN to a public hearing it held on the matter, where Mallam Sanusi Lamido Sanusi explained the reasons for the policy and what the banking system and the economy stand to gain from it. He also appealed for the understanding of all stakeholders and promised that the CBN and banks will soon embark on a massive enlightenment campaign while insisting that the CBN would go ahead to implement the policy with some adjustments if found necessary.

Meanwhile the quest for a cashless economy by the Central Bank of Nigeria (CBN) has received World Bank’s endorsement. This was revealed during the launching of a book titled “Achieving Nigeria’s Financial System Strategy 2020: Making Finance Work for Nigeria” by the World Bank in Abuja on Friday, June 4, 2011.

In the book that appraised Nigeria’s readiness to become one of the largest economies in the world by the year 2020, the World Bank stated that operating a cashless society in Nigeria is a key strategy to expedite growth in the nation’s financial sector. The World Bank further noted that getting access to finance and developing a vibrant market that would create more jobs require a solid and modern financial sector.

The World Bank observed that moving cash around is considered normal in Nigeria but warned that as the world increasingly moves towards a cashless society, continuing with the habit of moving around with cash takes the nation’s financial sector a step backward.

In addition, the Managing Director of Funds and Electronic Transfer Solution (FETS) Nigeria Limited, Mr. Oluwadare Owolabi, expressing support for the new CBN policy stated that an estimated 80 percent of Nigerians are un-banked.

In all sincerity, we fully appreciate the good intentions of the CBN Governor and the obvious gains of a cashless economy as espoused by both the World Bank and other individuals.

However, we are convinced that Nigeria is not yet ready for the so-called cashless economy because of the high level of illiteracy in the country, faulty technological framework and inefficiency of the banks.

The Automated Teller Machine, ATM, which was introduced some years ago, has always malfunctioned and this does not inspire confidence.

Moreover, we feel that the CBN should have held a public debate on the issue or even ask for submissions from the people before taking a decision on such a sensitive national issue unilaterally.

Instead of imposing electronic banking on the people, the CBN should encourage Nigerians to imbibe good banking habits.

We doubt if it matters to the CBN Governor that majority of Nigerians do not bank and this is because of the high rate of bank failure and their shoddy services to customers.

Currently, many bank chiefs are on trial because of financial crimes and abuse of office.

We suspect that the CBN through this policy intends to reduce the amount of money in circulation which in turn will enable it spend less on maintaining the local currency.

While this may be expedient for the apex bank in terms of cost, it may not be beneficial to many Nigerian bank users who are mostly illiterate, unskilled and not ready for electronic banking for now.

It is therefore our view that this policy though auspicious in principle yet may be difficult to implement because of bottlenecks emanating from the Nigerian realities.

Hence, it should be reconsidered.

In the above article you should note that the World Bank has endorsed the "Cashless Economy" plan! This was revealed during the launching of a book titled "Achieving Nigeria's Financial System Strategy 2020: Making Finance Work for Nigeria" by the World Bank in Abuja on Friday, June 4, 2011. In the book that appraised Nigeria's readiness to become one of the largest economies in the world by the year 2020, the World Bank stated that operating a cashless society in Nigeria is a key strategy to expedite growth in the nation's financial sector. The World Bank further noted that getting access to finance and developing a vibrant market that would create more jobs require a solid and modern financial sector.

Development of cashless economy: Is CBN really ahead of time?

Tuesday, 28 June 2011 17:50 administratoremailButton.pngprintButton.pngpdf_button.pngBy Mustapha Hussain Olarewaju

Long before now, Federal Government of Nigeria has made known its desire to operate a cashless economy free of paper money and coins so as to align with the financial system and mode of transactions that are changing rapidly all over the world. Also, as a result of exigency in reducing cost of cash management in the banking industry, the Central Bank of Nigeria (CBN) in collaboration with the Bankers’ Committee is adopting policies to reduce the high usage of cash, moderate the cost of cash management and encourage the use of electronic payment channels.

Starting from June 1, 2012, a daily cumulative limit of N150, 000 and N1, 000,000 on free cash withdrawals and lodgments by individual and corporate customers respectively with Deposit Money Banks (DMBs) shall be imposed. Individuals and corporate organizations that make cash transactions above the limits will be charged a penal fee of N100/thousand and N200/thousand respectively for amounts above the cumulative limits. Third party cheques above N150, 000 shall not be eligible for encashment over the counter. If a bank allows 3rd party cheque encashment, it shall be liable to a sanction of 10% of the face value of the cheque or N100, 000 which ever is higher.

Under this policy, Banks will cease cash in transit lodgment services rendered to merchants customers from June 1, 2012. In this regard, customers could engage the services of the CBN licensed cash in transit (CIT) companies to aid cash movement to and from their banks at mutually agreed terms and conditions.

To achieve inter-operability of local currency Point of Sales transactions (PoS), no card scheme, foreign or local, shall operate exclusive acquirer agreement or contract in Nigeria with effect from June 1, 2011. Any payment scheme, processor, switching company, service provider or bank that contravenes this policy may be suspended for a minimum of one (1) month by the CBN. This policy shall apply to both private and public sector transactions. All financial institutions including Deposit Money Banks, Savings and Loans, Mortgage and Microfinance Banks shall comply accordingly. Compliance with the policy shall be monitored by the Banking Supervision Department and the Other Financial Institutions Supervision Department of CBN with appropriate sanction applied to erring institutions.

Objective analysis of this policy is that rejection of the third party cheques above N150,000 may lead to delay in business activities especially with and within the players in the informal sector of the economy where majority of the players do not have active bank accounts. Also, banks ceasing cash in transit services will encourage outsourcing in the financial sector. CBN licensed cash in transit companies are expected to come alive, grow and become key players in the nation’s financial sector. Inter-operability of local currency Point of Sales (POS) transactions will immensely promote cashless economy. The pilot policy starting from Lagos before it becomes fully operational in other parts of Nigeria in June next year is a good development because Lagos is the economic hub of the country.

However, according to the stakeholders, the policy is riddled with many implications which may be positive or negative to banks and customers during the course of business activities and financial transactions.

As stated by the CBN, this policy will reduce cost of cash management in banks and encourage the use of electronic payment channels. This will bring the nation close to the Millennium Development Goals and join the league of developed countries with cashless economy.

This policy and the eventual cashless economy will reduce snatching of money from customers at gun point on the street and also reduce the incentive for robbery and employee theft. The nation’s economy will witness less money in circulation as huge of quasi money is expected to be in the vault. There will be reduction in the cost as well as frequency of printing and minting of money by the Central Bank of Nigeria. Recently, CBN stated that it incurs about N34 billion to print money annually. Use of electronic money, which may be the outcome of the policy, will reduce cost associated with storage, transportation and security of cash.

However, the policy will face the challenges of inadequate power supply, shortage of critical technological infrastructures, lack socio-cultural support and absence of regulatory framework that are required to operate seamless and effective electronic payment system in the country. As it is today many people have lost confidence in the security of our electronic payment system as ATM system is fraught with frauds and irregularities to the detriment of unsuspecting customers.

It is expected that the policy may lead to the “explosion” of mobile financial services companies in Nigeria therefore creating more employment opportunities for ICT knowledge workers. Potentials of Mobile banking in Nigeria According to the Enhancing Financial Innovation and Access (EFInA) report, 67 per cent of Nigeria’s population is unbanked and 78 per cent of the nation’s rural population is without a bank account. Nigeria’s unbanked population reflects Africa’s average, with only 20 per cent of African families having bank accounts. The mobile money remains the only and most available feasible means to provide mass market alternative to get more people banked in Nigeria. The internet has only a penetration rate of 6 percent in a population of more than140 million people but mobile technology is close to 50 percent penetration with huge prospects for growth. Introduction of mobile financial service companies and cash in transit outsourcing companies may affect those staff of the banks that are currently involved in cash management to either be redeployed to core banking activities or downsized.

The major loophole that may hinder the effectiveness of the policy is that there is no limit to number of bank accounts that can be operated in one or more banks by an individual or corporate entity as well as lack of central database to monitor daily cumulative lodgments into, or withdrawals from, more than one bank accounts by individual or entity. Hence, many members of the formal and informal sectors may decide to use/open more bank accounts to circumvent limit to cash they can withdraw at once so as to make up for their cash need per day. Or it would be that people would result to keeping cash in the house, which would increase M1 (money outside the banking system) and reduce M2, (money within the banking system) thereby reducing the velocity of circulation. Cash deposits in the banks would reduce, impacting on the ability of the bank to lend out money, and the money in circulation would slump.

The policy, if CBN is able to get it right, is one way to make increase in tax revenue feasible as it will make inroads into the extensive “underground economy.” Unreported cash transactions in the informal sector of Nigerian economy have been estimated at more than $50 billion a year. The value added and income tax losses are undoubtedly substantial. With the enhancement of security by use of a Tax Identification Number (TIN), the debit cards would have several beneficial effects; they would provide easier tracking of revenue for tax purposes.

It is important to note that the nation is not very ripe for a stringent policy on cashless economy as Nigerian economy is dominated by informal sector where use of banking services is highly limited. A survey by Gallup (A notable research firm in US) revealed that about 38 per cent of Nigerians have bank account while about 62 per cent of Nigerians have no relationship with the banking industry. Another report by EFInA Research Company stated that as at the year 2010, only 25.4 million Nigerians representing 30 per cent of the adult population have bank accounts. Based on this, there is need for a longer deadline as members of the informal sector may find the policy cumbersome at the beginning.

Definitely, there will be decline in operating expenses per customer in the financial sector. In the long run, there will be less traffic in the banking hall when many Nigerians would have adopted culture of e-transaction or keeping cash at home.

By and large, human habits and socio-cultural attachments to the traditional use of money in Africa may also be another hurdle that may be faced by the policy amongst many Nigerians. I wish to urge Central Bank of Nigeria (CBN) to encourage and intensify awareness among citizens, especially amongst the informal sector of the economy and put in place necessary measures to make the dream for cashless economy a success.

Mustapha Hussain Olarewaju (ACA, ACTI)

(BABAREKE) is Principal Consultant, MHOA Consulting, Abuja.

**It is interesting to note that 38% of Nigerians have bank accounts while 62% of Nigerians have no relationship with the banking industry. Iraq is in a similar situation, maybe not quite as many people use banks in Iraq, however, this does give room for more Iraqi's to transition over to "electronic" world of banking which in turn could drastically help reduce currency in circulation. So now you might ask yourself: Does "e-money" affect the monetary policy? Let's look into that now.

E-Money Products Affect the Monetary Policy:

http://lawyer.20m.co...les/e-money.htm

  1. Do e-money products affect the monetary policy? (this paragraph is a little more than half way down the page)

    The answer is obvious. The introduction of e-money could potentially have an effect on the demand for monetary aggregates and on the formulation of monetary policy. The effects of e-money on the implementation of monetary policy will depend upon whether its primary impact is on the demand for bank reserves or on the central bank’s capacity to supply these reserves.
    The most important development in connection with e-money is a reduction in the demand for cash. As cash circulation is a lever by which central banks can control the money and credit expansion of private banks and hence provide some more monetary stability, it is conceivable that a very extensive substitution could complicate the operating procedures used by central banks to set money market interest rates. However, since e-money is expected to substitute mostly for cash rather than deposits, operating techniques need not to be adjusted significantly. On the other hand, with e-money transaction, the whole process including clearing can be carried out in a matter of seconds. Such an acceleration in the circulation rate amounts to an increase in the quantity of money, and increased money circulation could lead to increased inflation.
    The effect on supply would result from the impact of e-money on the size of central bank balance sheets, which will depend on the extent that e-money substitutes for cash. Since cash is a large or the largest component of central bank liabilities in many countries, a very extensive spread of e-money could shrink central bank balance sheets significantly. Since banknotes in circulation represent non-interest-bearing central bank liabilities, a substitution of e-money for cash would lead to a corresponding decline in central bank asset holdings and the interest earned on these assets that constitutes central bank seigniorage revenue. And these revenues are large relative to central bank operating costs, as e-money developing, the revenues could be too small to cover the cost of central bank operations.
    In principle, central banks have several policy options to reduce the shrinkage of their balance sheets. Firstly, central banks could consider issuing e-money themselves, or issuing e-money without actually operating e-money schemes themselves thus to encourage competition and incentives to innovate.Secondly, central banks could expand the coverage of reserve requirements to cover e-money or other liabilities, and governments could grant the central banks the exclusive right to own and operate the electronic payments network. Thirdly, central banks could issue new liabilities, such as central bank bills, or pay interest on reserve balances in order to induce private banks to hold larger deposits at the central bank. Government entities might also be induced to increase their deposits at the central bank. Finally, as an alternative to these measures, central banks might rely on off-balance-sheet transactions and, in the case of large lender of last resort operations, use private banks as their agents. Furthermore, governments could levy transactions taxes on the use of e-money by charging a tax at the time of issue.

Folks, I hope this helps you better understand some of the possibilities that the CBI has access to in order to reduce their currency in circulation. I am going to list a few names of people who will tell you every way the RV can't happen but will never tell you one way it can happen. JMW, Dinarck, GT5Junkie, BlueOrchid, HopefulTxn, and a few more that I have probably left out. I am in no way bagging on them or trying to discredit them, just pointing out the fact that they will tell you every way it CAN'T happen but never a way that it is possible. Unless they "LOP" the zeroes off the currency by re-denominating which in turn takes the currency in circulation from about 27 trillion down to 27 billion.

That is a "simple" way to look at it, much easier to understand, and sure does get you folks a lot of attention, although negative attention from everybody here looking for and believing in the RV.

I challenge you all to look to find solutions to an RV. ***I don't mean the "LOP" solution. We all know where you stand, and in fact, I do know that it is a possibility. However, I am not going to waste my time telling myself over and over and over and over and over and over, well you get the picture. You are being redundant, your facts remain the same, and you obviously can't think outside the box.

Our possibilities / solutions will not be seen by the people "pulling the switch" but it would be interesting to see what our "simple minds" can think of. Heck, if we can think of other scenarios, don't you think some of the minds behind this can think of similar or maybe yet, better scenarios to choose from? Life is not about probabilities, it is about possibilities.

  • Upvote 8
Link to comment
Share on other sites

Well said, just hope they can realize the CBI is a Central Bank of the World Central Banks and will adhere to their fractional banking system as well as electronic banking.

The recent articles have been proving they have been "lifting" the large denoms out of local circulation and the Iraqis don't want to use the smalls.

I'm sticking with the RV small at first to start the economic boom in Iraq and then the other currency or RD will come later with the next larger RV. Still IMO.

  • Upvote 2
Link to comment
Share on other sites

Well said, just hope they can realize the CBI is a Central Bank of the World Central Banks and will adhere to their fractional banking system as well as electronic banking.

The recent articles have been proving they have been "lifting" the large denoms out of local circulation and the Iraqis don't want to use the smalls.

I'm sticking with the RV small at first to start the economic boom in Iraq and then the other currency or RD will come later with the next larger RV. Still IMO.

Right, the main thing that needs to happen in order for this to work is the Iraqi's need to have faith and trust in the banking system again. This will drastically help Iraq move from being so reliant on physical currency to an electronic banking system.

I would think that the right "campaigns" and education could be put together by the government just as easily as the campaigns on the "LOP" which would be equally necessary if that is the route they decide to take.

I am right there with you as far as a smaller RV initially. Hoping for $0.01 - $0.10 first! This is very realistic in my mind.

  • Upvote 3
Link to comment
Share on other sites

Beautiful...

I mean, that's all they need! Electronic transactions, smart cards, less cash, and fractional reserve banking, added to the potential monetizing of non-liquid assets and you have enough capital racked up to allow for at least a 0.50 revaluation, if not more. Add to it that they want to be closer to the USD, and eventually other oil-brother nations near them with their rate, and to go back to the old rate of $3+ and you have a perfect reason to believe they can RV without dividing the money supply "value" by 1000.

The only thing is...

This may be a very gradual change and process, as has been mentioned before by other board members and even banking and finance officials in Iraq. So, within the next couple of months we'll see the introduction of coins and smaller denominations, hopefully, after they start activating and spurring people to use the ATMs and opening and actually using bank accounts and e-payments. They may have incentives for using e-payments to get that process going of reducing the cash supply.

  • Upvote 1
Link to comment
Share on other sites

I am a strong supporter of Iraq getting into the e-banking game, as well as the issuing of smart cards and opening of bank accounts.

It will get a lot of cash off the street, and open the door for more economic opportunities.

They made a push on this around March or April, but the lack of constant electricity through out Iraq, and mistrust due to years of only relying on cash are some of the adversity they are facing before they get there.

  • Upvote 1
Link to comment
Share on other sites

  • 2 months later...

Well said, just hope they can realize the CBI is a Central Bank of the World Central Banks and will adhere to their fractional banking system as well as electronic banking.

The recent articles have been proving they have been "lifting" the large denoms out of local circulation and the Iraqis don't want to use the smalls.

I'm sticking with the RV small at first to start the economic boom in Iraq and then the other currency or RD will come later with the next larger RV. Still IMO.

Well, HELLO, Sirus! Good to see you again. I haven't seen you in a while, so I hope everything is ok with you. I may not agree with you on much, but I missed you anyway. :P:lol: So welcome back.

Link to comment
Share on other sites

Well, HELLO, Sirus! Good to see you again. I haven't seen you in a while, so I hope everything is ok with you. I may not agree with you on much, but I missed you anyway. :P:lol: So welcome back.

It is my understanding that Sirius has not been here for a while. This is an old thread that has come back, apparently. What you commented on was said back on August 7th. None of my business, really. Just didn't want you to be surprised if he "disappeared" again

Link to comment
Share on other sites

  • 4 weeks later...

It makes perfect sense, reduce thieves, tax accounting, paper less money transactions,no more wheel barrels full of money to buy a car.... Can you imagine if they didn't revalue their money, what a ATM machine would look like.. The picture above would be a ATM machine..IMO :D Always great to see your post..thanks..

Link to comment
Share on other sites

I am a strong supporter of Iraq getting into the e-banking game, as well as the issuing of smart cards and opening of bank accounts.

It will get a lot of cash off the street, and open the door for more economic opportunities.

They made a push on this around March or April, but the lack of constant electricity through out Iraq, and mistrust due to years of only relying on cash are some of the adversity they are facing before they get there.

You make a great point.....they have ALOT of hurdles to get through to get to a point of being able to push a project efficiently such as this....

While it surely will help in the long run, Im not 100% convinced that its something that will be put into action in the near future....I mean the last article I read about introducing visa debit cards was probly last year and I havent heard anything else since.....Seems to be a very slow process with them to get anything done!! laugh.gif

Link to comment
Share on other sites

I was looking at the ISX the other day and went to one of the banks that was showing the highest exchange. It was really neat seeing there logos and headlines on e banking and the little things we use every day. I hope this translates. If not, use Google translator for Mosul Bank. "E banking near-service is running" "The worlds cards in the palm of your hands" Second order for Mastercards... Etc....

http://translate.google.com/translate?hl=en&sl=ar&u=http://www.mosulbank.com/&ei=JUGwTtqhHMWesQL04LW_AQ&sa=X&oi=translate&ct=result&resnum=1&ved=0CCMQ7gEwAA&prev=/search%3Fq%3DMosul%2BBank%26hl%3Den%26client%3Dfirefox-a%26sa%3DX%26rls%3Dorg.mozilla:en-US:official%26biw%3D1280%26bih%3D617%26prmd%3Dimvns

Link to comment
Share on other sites

It is my understanding that Sirius has not been here for a while. This is an old thread that has come back, apparently. What you commented on was said back on August 7th. None of my business, really. Just didn't want you to be surprised if he "disappeared" again

Thank you, dhardage. I appreciate knowing that. :)

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
 Share

  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.