The cash limits proposed by the Central Bank of Nige-ria (CBN) has the potential to improve monetary policy transmission and boost competition in the banking industry, says Razia Khan of Standard Chartered Bank Group.

“If the changes succeed in attracting more money to the banking sector, Nigeria’s monetary policy transmission mechanism is likely to improve”, said Khan, who is the Regional Head of Research, Africa, Global Research for the bank.

Citing evidence from other countries, she said that despite criticism of the proposed limits, it would encourage the development of other means of payment

In a publication titled, Nigeria – Into the 21st Century, she said, “Critics of CBN’s proposal contend that the reforms are unlikely to work in the Nigerian setting.

Poor availability of power, the generally low density of points of sale (POS) systems and ATMs, a reluctance to engage in cheque transactions because of fraud-related fears, poor literacy levels in parts of the country, and a lack of IT access – are all put forward as counter-arguments.

It is feared that constraints on cash transactions, with few readily available substitutes, will ultimately have negative consequences for the economy.

Concerns are particularly focused on SMEs that transact considerable cash volumes.

“While existing infrastructure is expected to be a hurdle, preparations are underway to phase in the necessary systems by June 2012.”