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Money outside banking system contributes to recession – Expert

HomeNewsMoney outside banking system contributes to recession – Expert
Money outside banking system contributes to recession – Expert
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Professor Uche Uwaleke of Nassarawa State University has said that money kept at home instead of the bank contributes to the economic recession.

Uwaleke, Head, Banking and Finance of the university, made this known in a survey conducted by the News Agency of Nigeria (NAN) on “Why prominent Nigerians keep money at home’’.

He said that in order to restart a general downturn in the business cycle, aggregate demand had to rise, and this would happen only when there was the circular flow of income.

The lecturer said that the effects of keeping money outside the banking system had made commercial banks which perform financial intermediation functions handicapped to perform this crucial function.

“Also, the capacity of banks to create money and stimulate the economy is constrained as the size of loanable funds is severely affected.

“Monetary policy is made more difficult for the Central Bank of Nigeria when it has little or no control over money circulating outside the banking system.’’

Uwaleke told NAN that people keep money at home to meet emergencies and precaution purposes.

According to him, in a cash-based economy like ours, little amount of money can be kept at home.

“People keep money at home to meet emergencies.

“Also, cash is the most liquid asset and so easy access to cash and convenience could be a motivation for keeping some cash at home rather than having it in electronic cards.

“Impulse buying behaviour displayed in traffics as well as roadside purchase of ‘penny goods’ like groundnuts, sweets etc are made possible with ready cash in hand.

“Interestingly, there are those who keep some money at home to have something to placate armed robbers who would maim or even kill if they met a man at home and found nothing on him.

“Again, a man with questionable means of livelihood would rather shun the banks and keep proceeds of crime in his home,” he said.

Uwaleke further explained that some people had apathy for putting money in the bank.

He said this was common if the savings rate was too low to compensate for the time and inconvenience associated with opening and operating a savings account.

He, however, said the practice or natural disposition of people keeping money at home could be discouraged by opening more bank branches and improving access and efficiency in banking transactions.

The economist said it could also be discouraged by embarking on public enlightenment on the dangers of home savings and inculcating money and finance studies in basic education.

“Improvement in power, telecom and other support infrastructure for electronic payment systems and plugging public sector leakages and avenues for corruption is another measure,” he said.


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