The Impact of CBN Cashless Policy on the Development of the Banking Sector in Nigeria


This study is on the impact of CBN’s cashless policy on the development of the banking sector of Nigeria. The total population for the study is 200 staff of CBN in Enugu State. The researcher used questionnaires as the instrument for the data collection. A descriptive Survey research design was adopted for this study. A total of 133 respondents, made up of human resource managers, accountants, customer care officers and junior staff, were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies.



Background of the study

The recent evolution of technology for financial transactions poses interesting questions for policymakers and financial institutions regarding the suitability of current institutional arrangements and the availability of instruments to guarantee financial stability, efficiency and effectiveness of the monetary policy. Over the course of history, different forms of payment systems have been in existence. Initially, ‘trade by barter’ was common; however, the problems of barter, such as the double coincidence of wants, necessitated the introduction of various forms of money (Swartz et al., 2004). Nevertheless, analysts have been predicting the complete demise of study instruments and the emergence of potentially superior substitutes for cash or monetary exchanges, that is, a ‘cashless society’. Unlike the barter system, which involves the exchange of one good for another, a cashless environment refers to one in which transactions are carried out with a minimal exchange of physical cash. It implies that the payment instrument is not physical cash but other instruments such as cheques, electronic transfers, e-payment, etc. The rapid advancement in electronic distribution channels has produced tremendous changes in the financial industry in recent years, with an increasing rate of change in technology, competition among players and consumer needs, as argued (Hughes, 2001). Since Nigeria‘s Independence in 1960, there have been different governments, constitutional reforms, changes in economic policies and banking reforms, mainly directed at enhancing social welfare and achieving developmental goals. Still, there has been no substantial positive change in Nigeria‘s Human Development Indicators. This also calls to question the effectiveness of the cash-less policy of the Central Bank of Nigeria (CBN). At the end of the 1980s, the use of cash for purchasing consumption goods in the US constantly declined (Humphrey, 2004). Hence, most LDCs (Less Developed Countries) like Nigeria are on the transition from a pure cash economy to a cash-less ‘one for developmental purposes’. Little wonder why the Central Bank of Nigeria recently introduced a cashless policy. Thus, as part of its regulatory functions, the Central Bank of Nigeria issued a circular dated April 20, 2011, in which it conveyed to operators and the banking public its decision to introduce a cashless banking policy into the Nigerian financial system with effect from January 1, 2012, using Lagos as the pilot programme that is the policy kick-starts from Lagos and eventually all over the other states in the nation. To enforce the implementation, the Central Bank had, in a circular in April last year, declared that “commencing from June 1, 2012, a daily cumulative limit of N150,000 and N1,000,000 on free cash withdrawals and lodgements by individuals and corporate customers respectively with deposits money banks shall be imposed.” Following public outcry, the daily cash withdrawal and deposit limit was raised to N500,000 and from N1,000,000 to N3,000,000 for corporate accounts. According to CBN, the new cashless policy was introduced for a number of key reasons, including, To drive the development and modernization of our payment system in line with Nigeria‘s vision 2020 goal of being among the top 20 economies by the year 2020. An efficient and modern payment system positively correlates with economic development and is a key enabler for economic growth.

To reduce the cost of banking services (including the cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach and improving monetary policy’s effectiveness in managing inflation and driving economic growth. In addition, the cash policy aims to curb some of the negative consequences associated with the high usage of physical cash in the economy, including the high cost of cash: high risk of using cash, high subsidy, informal economy and inefficiency & corruption (CBN, Website, 2011). Regarding this context, the study seeks to examine the cashless economy by exploring its impact on the Nigerian economy.


As more payment systems have been introduced, pundits have been predicting the emergence of a ‘cash less society’. Today, we still pay with cash and checks, but several other payment instruments, such as credit and debit cards, are widely used. The use of paper money is declining but at a rather slow pace. As it were, Nigeria is a country heavily dominated by cash, and some factors negatively affect the choice of cash over non-cash instruments; some of these include time spent counting and verifying cash, susceptibility to loss, time spent in the banking halls, amongst others (Nnanwobu et al., 2011). A cash-based economy is one which is characterized by the psychology of physically holding and touching cash, a culture informed by ignorance, illiteracy, and lack of security consciousness and appreciation of the merit of digital payment (Ovia, 2002). Cash, as a payment system, attracts lots of negative consequences, such as the high cost of handling cash and risks of using cash and keeping them in houses which eventually lead to high rates of robbery and financial loss in the case of fire and flooding incidents. High cash usage results in lots of money outside the formal economy, thus limiting the effectiveness of monetary policy in managing inflation and encouraging economic growth. Also, high cash usage enables corruption, leakages, money laundering, counterfeiting, mismanagement, mutilation and depreciation in value if not invested. Some or most of these factors are ones which exist in the Nigerian economy today, thus creating a gap for this current study. In Nigeria today, infrastructure is a major problem that hinders the money deposit banks from attaining their full potential in terms of certain policy implementations and their impact on financial transactions in the banking industry. The infrastructure in Nigeria over the years hasnt been reputable and thus has given way to ineffectiveness to the sincerity in financial transactions in the banks. The level of technology in the nation is rather poor and increasing at a slow pace. As such, hasn’t given room for major development and policy implementations that may have risen. The technology available for carrying out banking transactions is not as effective as it ought to be therefore leaving people with no other choice than to keep cash in their houses in order to avoid having to spend lots of time in the banking halls due to low servers, interrupted power supply, bad internet services. Illiteracy and the low level of education of people do nothing else than leave people in the dark and therefore result in the inability to understand when developments are being put into place. Many people do not see the need to keep their money in the banks or invest them due to the lack of understanding they have, and also insufficient publicity and awareness measures are what has being in existence, which, if dealt with, would at least reduce the lack of understanding of many and make them see viable reasons why they should keep their money in the banks and invest them other than keep them in their houses as a route to the safety of many lives and better growth of the economy and as such increase the standard of living. This, of course, is the motivation behind this study.   As a matter of fact, the demand for money is being taken in terms of demand deposits in banks. Liquid assets outside the banks, which is the average willingness of people to either hold money in cash or keep it as demand deposits in the banks, affect the activities of commercial banks in controlling the amount of money in circulation, which in turn determines the hold of the CBN on the economy in terms of monetary policy implementations. The analysis of banking innovations and the response of the public towards them would help determine the hold of the Central Bank of Nigeria (CBN) on the extent to which they have been able to foster financial transactions in money deposit banks across the nation. The introduction of E-commerce has made room for various tools in transacting business, although not all of these tools have been fully utilised. The new policy has been adopted to affect the whole economy and use all of these tools, including the monetary and fiscal policies, which will maximise the effort of e-commerce innovation.


The broad objective of this study is to establish the relationship between CBN’s Cashless policy and the development of the financial sector and the Nigerian economy. This broad objective is broken down into the following specific objectives which are;

  1. To ascertain the relationship between the Cashless policy and accessibility to customers’ accounts.
  2. To investigate the relationship between the Cashless policy and queue-ups in banking halls.
  3. Ascertain the relationship between a Cashless policy and the promptness of bank-related transactions.


For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H0: No significant relationship exists between accessibility to customers ‘accounts and the cashless policy.

H1: A significant relationship exists between accessibility to customers ‘accounts and the cashless policy.

H02: There is no significant relationship between queue-ups in banking halls and the cashless policy.

H2: There is a significant relationship between queue-ups in banking halls and the cashless policy.


The following are the significance of this study:

  1. The findings from this study will form a useful guide for the government of Nigeria as they will have first-hand information about the pains and the gains of the CBN’s cashless policy on the Nigerian populace and make necessary reforms and amendments.
  2. This research will contribute to the body of literature on the effect of personality traits on students’ academic performance, constituting the empirical literature for future research in the subject area.


This study examined CBN cashless policy by exploring its impact on the Nigerian economy. Since the cashless policy is a recent economic policy with no previous data and more so, the study seeks the opinion of the people by examining the impact analysis of the policy. For this study, primary and secondary data sources were used in carrying out this research. For the primary data, a survey would be carried out within the Lagos State metropolis as the only state where the policy is being implemented. At the same time, the secondary data focuses on every available from the Central Bank of Nigeria (CBN) within reach and various paper publications. The researcher encounters some constrain which limited the scope of the study;

a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study.

b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary information concerning the activities.


CASHLESS POLICY: Cash-less Nigeria is a policy established in 2012 by the Central Bank of Nigeria to curb excesses in handling cash in the Nigerian federation. … The policy was enforced not to eliminate the use of cash but to reduce the volume of cash in circulation.

BANKING SECTOR: The banking sector is the section of the economy devoted to holding financial assets for others, investing those financial assets as leverage to create more wealth and regulating those activities by government agencies.

CBN: The Central Bank of Nigeria is Nigeria’s central and apex monetary authority, established by the CBN Act of 1958 and commenced operations on July 1, 1959.


This research work is organized into five chapters for easy understanding, as follows;

Chapter one is concerned with the introduction, which consists of the (overview of the study), historical background, statement of the problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, the definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives a summary, conclusion, and recommendations made of the study.


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The Impact of Cbn Cashless Policy on the Development of the Banking Sector in Nigeria

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