A cashless payment system aids in fighting economic crimes but will Kenya go this way?
By BERNARD M. KATOBU
Reports from the Ethics and Anti-corruption commission and National treasury indicate that the country loses about a third of the national budget in corruption. Earlier this year Transparency International produced reports indicating worsening corruption levels in Kenya. The report ranked Kenya at position 144 out 180 countries in the world with a score of 27 out of 100 dropping from the 2017 score of 28 out of 100.
Corruption is however not the only vice bedevilling our country. Money laundering, terrorist attacks, tax evasion and drug trafficking are getting worse by day. These activities sometimes conducted by well-coordinated and connected groups of criminals generally pose a big threat to the existence of a people. Governments continue looking for means to curb their rise, with the continued advancement and acceleration of technology giving more options.
One of the ways the authorities in the global economy are turning to is cashless payment systems. This comes with the realisation that criminals like making cash payments that break the trail of their transactions and therefore conceal their sources and uses of cash. Countries such as Sweden, Denmark, Norway and UK are leading the world of cashless payments through mobile and credit card payments. In Sweden only about 15 per cent of all transactions is done in cash.
The Eurozone cases
The Eurozone is driving into a fully cashless society and as the euro turns 20 this year, there is a phenomenal occurrence marking these two decades of its existence: the scrapping of the 500-euro denomination. Following the terrorist attack in Paris-France in 2015, there were concerns over the role of the large cash denomination in aiding the operations of the terrorists. In 2016, The president of European central bank signed a deal to stop further production and the circulation of euro 500 note. This decision was premised on the concerns that the note sometimes dubbed as Bin Laden has a very high value making it very attractive to drug lords, tax evaders, money launderers and for other illicit activities like corruption and terrorists financing. All the 19 countries of the euro zone have ceased the circulation of ‘Bin Laden’ except Germany and Austria who are expected to do so by April 17th, 2019. This move however received huge criticism amongst the Eurozone members especially in Germany where 75 per cent of all transactions done are in cash. The masses find the move as an attempt to deny them the independence from banks and technology that the paper cash give them.
Ken Roggoff a professor of economics at Harvard in his 2016 book the ‘curse of cash’, strongly advises on the withdrawal of all the huge bill notes including USD100 and USD50 notes, and says that in the long run, the aim should be to completely do away with cash. In his argument, he says that cash is a very good way to hide crimes such as tax evasion. He adds that there is an overwhelming evidence of cash aiding illegal immigration and all sorts of evil.
Kenya’s potential in mobile payment
Closer home, Kenya is globally lauded as a leader in mobile payments. It was recently voted as the best country that has achieved financial inclusion and therefore has a greater opportunity for going purely cashless. As at January 2019 the data from the Central Bank of Kenya indicated the existence of about KSh40 million mobile money payments accounts that transacted about KSh368 billion during the month. In 2018, the same reports indicated that transactions valued at about half the country’s GDP were moved through mobile. There are however several reasons why many countries including Kenya with efficient and safe non-cash payment systems will not opt to do away with their cash notes and coins.
Why going cashless will take time
A fundamental reason is the benefits that government reaps from the minting of notes and coins. This is referred to as seignorage and refers to the difference between the face value of a currency and the cost of minting it. Governments make fortunes out of it. But these profits are nothing compared to what is lost in form of taxes dodged.
According to Peter Sands the former CEO of Standard Chartered Bank, argues that making payments in cash does not rely on other factors such as Wifi, electricity and cellular signals. He advocates for the developing economies to hold longer before they think of going cashless.
Every day, cases of corruption are unearthed, the execution of such huge deals involves movement of huge cash amounts in sacks. Reports from the Central Bank indicate that the regulator has injected into the circulation of up to KSh120.15 million pieces of KSh1000 notes alone in 8 years to June 2018. The number is slightly higher than any of the other denominations indicating that the KSh.1000 note is the most popular in the circulation. This is a clear evidence that the country is not contemplating going cashless soon.
Bernard Katobu is an economist working as a Treasury Foreign Exchange and Money Market dealer at National Bank. Email: firstname.lastname@example.org