Monetary Policy in Nigeria: Lesson's from India's Demonetization and Cashless Policy

 In November 2016, the Indian government carried out a  demonetization policy which saw the banning if 500 and 1,000 rupee notes. The goals of this policy was to: curb black markets and set India on the path of being a cashless economy.  

The immediate results were encouraging, as digital payments increased between November 2016 and December 2016. However, this success was shortlived as digital payments dropped by 20% in February 2017. And a report by the Reserve Bank of India indicated that 99.3% of demonetized notes have returned to circulation in the India Economy. The factors that led to this are largely cultural/behavioural and  infrastructural. The factors are also present in Nigeria, where we are attempting the same policy. 

Literacy levels, established payment behaviours and informal nature of the greater part of our economy will dictate that cash is king and will remain king. 

The incessant failure of digital payment channels will prove that we are not even ready on the supply side. As we read this, 17million Nigerians with a mobile phone are waiting to be convinced to use digital payments. Yet, this is also a country where many SME's, drivers and other micro-level traders switched to Kuda because they wanted to avoid the charges of high street banks. Which means cost is also an issue. Why haven't we tried to arrest these issues before trying to enforce the cashless policy. 

If what happened in India is anything to go by, then we have probably wasted time, because we may not be able to boast that a greater part of our population migrated to digital payments. And even where they do, will the quality of experience be good enough to ensure that they keep up with usage? 

Meanwhile, the hype around the cashless policy is good to encourage innovation across the payments value chain and ecosystem, however it is being done in a manner that bedevils cash. In the United Kingdom, older people from 65 years and above still rely on cash. And there is agitation that the UK government should inject cash to ensure local and suburban economies thrive. 

In the vein above, why will Nigeria, with a branch network of 4.3 branches per 100,000 adults embark on such a policy. When South Africa with 8 branches per 100,000 adults has not done same. In addition, South Africa has recorded 85% of adult account ownership, while Nigeria has recorded just 45%. There is no sound basis for this policy. 

Financial Inclusion, digital payments and other forms of payment must follow the form of social policy and well-being. This policy has no social or developmental benefit. This policy is political. Yet, we agree that while payments has a political beginning, it has social implications. 

Nigeria needs to take it's people seriously. This policy has affected livelihoods and created uncertainty. We have India, UK, South Africa and Kenya to learn from. Whether we want to cashless or not, it must not be for the sake of it. It must be for the social protection of Nigerians, and it is obvious we don't have a viable socio-cultural and infrastructural capability to go cashless in a short time.