Introduction
In the past, cashless society used to make
transactions among them through a system called bartering where people
exchanged livestock to agricultural products, for example, goat to the maze,
camel to water or manufactured products, etc. Bartering system wasn’t
convenient due to the lack of a common medium of exchange. Thereafter, precious
metals, coins, and paper currency were adopted. Later on, cheques and bills of
exchanges came to the existence that was used as cash.
Today, some of the developed countries, citizens
use electronic transactions instead of cash on hands. They rely on
E-transactions than traditional currency. Technological advances, electronic
instruments and internet popularity paved the way that hard currency to
disappear. The main implications of cashless transactions are realized by many
countries and it’s still staring in the eyes of public figures. This exists in
many countries in the world. Sweden, Denmark, and Norway are top countries that
have adopted cashless payments.
In Africa, there has been traditionally a heavy
dependence on cash, 95% of retail businesses were conducting
financial transactions using cash. South-Africa and Nigeria are the
main countries that partially adopted cashless policies despite that purely cashless
transactions don’t exist in Africa. Some experts predicted that many countries
in Africa will adopt cashless mechanisms and e-payment will become popular
soon. However, the true existence of cashless transactions and its effects is
less concern in Somalia, so in this brief context I will talk about:
- What cashless transactions are?
- Brief history of cashless transactions?
- Does it exist in Somalia? Particularly where?
- What caused these cashless transactions?
- Possible problems and advantages of cashless transactions?
Cashless transactions
Approximately 100 years
ago, people used to make business transactions using gold, silver or currency
papers. However, the concept of cashless transactions is completely new in
today’s world. So basically, what does it mean cashless transaction?
Cashless transaction simply means all financial transactions
(buying and selling) are done through electronic transfers such as cards or
digital means without using paper currency. Businesses use cheques,
digital cards, and other electronic instruments that are free from cash to
facilitate their business transactions all over the world.
How and when cashless transactions begin?
The History of cashless transactions dates back to 19Th century where electronic banking emerged and made the use of non-cash transactions popular among the society of some technologically developed countries. E-payments and online tools became well established in many countries in 2010. PayPal, NFC payments by smartphones or electronics cards helped people make transactions without cash. Being of cash-free has become a global change over the years and blocked traditional financial framework and some experts predicted that so many countries will adopt a cashless policy for the coming years.
Do cashless transactions exist in Somalia? Particularly where?
In Somalia, Somali shilling has been eradicating so far since the collapse of the central government in 1990. Printing money became difficulty while money in the circulation was insufficient to the use of civil society. the were some disputes against civil society in which some fake money-printing industries embezzled a lot of funds from the society. This created financial crises in the country, specifically those disputes damaged the financial ability of business retailers, families and even the whole society. The overall transactions in the market were only cash to cash. E-payments, bank services (such as cheques and digital cards) were minimal and didn’t exist completely.
Later on, some privately-held companies joined the markets and offered for variety of products and services to the market in late 2007. The companies brought a new financial platform which helped the society to recover the problems of cash, which is called EVC Plus (free money depositing and transfer platform) came on to the markets and reshaped the whole financial transactions of businesses. Followed by some new local banks, which have been established by Somali businessmen. These banks brought new financial products such as checking or current accounts, investment accounts, cheques and debit cards. Mobile banking was also one of the main innovative services that have joined in the market. These products and services have changed the market and the way that businesses do their business transactions. However, there have been some challenges that these private firms couldn’t solve and cashless transactions exist in a number of regions in Somalia such Galmudug and parts of Hirshabelle.
Causes of cashless transactions in Galmudug and parts of Hirshabelle
In the late of 2015, the majority of the businesses in Galmudug and Hirshabelle, specifically (Beledweyne), rejected to use Somali shilling for their business transactions. Due to this, the single medium of exchange has become dollar currency by using some electronic platforms such as (EVC Plus and eDahab). This made the hard currency to completely stop circulating in those regions so far. According to some responses I have received from civil society members both in Adado and Dhusamareb indicated that the main reasons could be the following:
· Lack of credibility of
S. shilling caused by some disputes that local people have experienced
previously.
·
Businessmen’s monopoly
over the circulation of money in the market
·
Newly adopted mechanisms
of mobile transactions such as EVC Plus
·
Lack of sufficient cash
in the hands of society.
·
Lack of trust in S.
shilling longevity, due to the businesses concerns related to money laundry.
Possible problems of cashless transactions
Due to the reasons mentioned above, Businesses in Galmudug region - particularly in Galgadud and parties in Hirshabelle region - currently use EVC-Plus for business transactions, which made the S. shilling to stop circulating completely. People have now adapted these e-transactions and mainly depend on that for their whole daily life. Besides that, these mobile money services are less reliable according to the customers' prospective and the indication that those platforms such as EVC Plus can shut down the whole economy of Somalia if the network stops working for only 5 hours.
As this shows, it can pose a threat to the economy, specifically to the businesses in those regions and can result in economic collapse without financial regulations and policies put in place. More on that, the biggest challenge is that USD (dollar) is the base curreny for these systems and recently, the whole economy of the world was deteriorating day after day, particularly, in the United States due to the business war between China, Iran, and America. This can directly affect the economy of our country since the main currency is the dollar.
Furthermore, the Federal government of Somalia has been struggling to implement deep financial reforms in terms of financial policies and enhancing national budget to meet debt relief targets. The government has also been making a lot of efforts to cover the government's expenditure and pay employees salaries. This requires millions of dollars and strict financial measures to bring lasting financial stability. Although the country is heavily indebted and the economy is weak, the provision of budget support from the international communities to the federal government and federal member states is one of these efforts that are currently a backbone to the government's budget. Equally, to stablize the financial conditions of the country, the government is aiming to print new hard currency to improve the financial circulation of the country and enhance the public trust towards S. Shilling.
Hence, the adoption of cashless transactions in the private business can hinder the process of financial reforms such as printing currency. it will be difficult to circulate the new currency to the market in affordable way and the public trust will also is a major issue that can hamper the government's target to smoothly introduce new currency to the market due to the electronic cash that is in their hands.
Possible advantages of cashless transactions
The biggest advantages of cashless transactions can bring include:
·
No longer the need to carry wads of cash
·
Queue up for ATM or business account
withdrawals
·
Safer and good spending method if user
protection and privacy policies implemented.
·
Circulation of liquid money is reduced or
less money.
·
Corruption can be prevented or minimized
through easy monitoring e-transactions
Future of paper currency
A study from Moneymailme addressed that cashless financial transactions will potentially penetrate markets, indicating that 48% of teenagers believe that on hand papers will disappear and will no longer exist in the markets within 20 years. This is definitely possible due to that digital transactions are more convenient, secure and cheaper than handling paper money but such strange changes are slow to occur. Being of cash-free has become a global change over the years and blocked traditional financial framework and some experts predicted that so many countries will adopt a cashless policy for the coming years. However, these favourable indications can turn into severe blows to the economy if proper financial policies are not put in place and leave this at the hands of the private sector.
Conclusion
Cashless economy is growing throughout the world and its impact is tangible. Technological change and human development are concurrent which makes that the old systems of business transactions to be replaced by new ones. Doing business transactions through using e-instruments is currently popular in many countries of the world. In Somalia, unbacked-government business transactions and financial disputes lead to the current problems in Galmudug and parts of Hirshabelle where S. shilling almost stopped circulating. E-transactions without financial policies and regulations can cause so many social problems and finally can shut down the whole economy of the country.
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