Cash-Less Policy

Experts believe the cash-less Policy would curb corruption but may increase price level in the short – term
By Goke Awoyemi The Managing Director of Financial Derivatives Company Limited, Mr. Bismark Rewane, has said that the cash-less policy the central Bank of Nigeria will increase price level in the short term. The policy commenced in Lagos last month.

There has been debate by different observers of Nigeria’s financial system over the effects the cash-less policy and fuel subsidy removal will have on inflation. While some observers have argued that inflation rate will shoot up to an average of 20 per cent in 2012, others have said the rise in inflation rate will only exist in the short term.

Rewane said in a report entitled, “Fuel Subsidy Saga,” delivered at the Lagos Business School, that one of the macro-economic effects of the cash-less policy is that price level would increase in the short-run, adding that, “inflation could average 12 to 14 per cent in 2012 due to subsidy impact.”
He said, “Short-run effect is that money supply will decline by 50 per cent to N2.5tn and broad money supply (M2) will increase to N18.5tn. Velocity of circulation will increase due to transaction settlement speed. Bank float levels will reduce correspondingly.”

Rewane pointed out that some global issues would affect Nigeria, saying that, “African currencies including the naira will come under increasing pressure. The recession will reduce aid and Diaspora flows. If the CFA is delinked from the Euro what happens? Opportunity and threat for the region, but more opportunities for Nigeria.”

The FDC boss noted that global foreign direct investment inflow grew by 17 per cent in 2011 to over $1.5tn surpassing pre- crisis average. According to him, FDI to Nigeria grew by 12 per cent from $6.1bn in 2010 to $6.8bn in 2011.

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