Business News of 2014-01-15

Comment: The Bank of Ghana and traders

A couple of weeks ago, the central bank issued a directive to all banks in the country to honour only cheques with face value up to GH¢5,000 to third parties. This is 50 per cent down from the GH¢10,000 limit the central bank issued in July 2013.

In its explanation, the Bank of Ghana said the tightening of the third party over-the-counter threshold was to reduce the incidence of fraud and also to "limit the scope for abuse of the banking system by criminals." (See front page story).

A third party to a cheque transaction is when the one withdrawing the money at the counter is not the same person who drew (signed) the cheque or owns the account. This means if Kofi draws a cheque (drawer) for Ama, she becomes the third party with the bank remaining the second party to the transaction. The drawer is the first party.

The BoG directive is also expected to hasten the quest to ensure a cashless society in the country.

Fair as the intention may be, traders in some parts of the country, particularly those at Okaishie, a busy market place within the central business district of Accra, and Abossey Okai, the vehicle spare parts hub, have vehemently kicked against the directive, describing it as a measure that could stifle their daily business operations and also discourage savings.

After examining both arguments, it is clear that both have genuine standpoints.

For instance, in the case of the traders, it is clear that they use thousands of cedis in cash to run their operations on a daily basis. Payments are made at the point of sale, while they in turn make other transactions in similar fashion. Therefore, limiting the third party withdrawal to as low as GH¢5,000 could be a bother to such traders.

On the other hand, it is this same cash-based transactions that the Bank of Ghana seeks to correct. The cash in circulation more often become the source of demand-pull inflation that distorts the fundamentals of the economy. Indeed, a cashless regime, which also occasions a bustling credit regime, is the way to go.

However, the Graphic Business is of the view that the Bank of Ghana needed to have applied a graduated scalable approach by reducing the value of third-party withdrawal gradually, in view of the manner traders conduct their businesses.

In Nigeria, for instance, where a similar policy is in place, individuals withdraw less than companies, no matter their sizes. This means that traders who have registered their companies can take advantage and do business without stress. This can even help move such trading activities from the informal to the formal economy.

It is also imperative for the central bank to ensure that the issue of dud cheques is punished heavily to discourage people from issuing such cheques. Through that, the loss of confidence in the cheque system would be restored so it can be effectively used as a means of payment in brisk business areas as those markets named above.

It is also clear that most of the e-payment systems have not been perfected, neither are they easily available in centres such as where traders normally carry out their trade, to ensure their usage.

The paper believes that the central bank can work on these before limiting the third party withdrawals to levels as low as has been announced. It is also high time traders consciously appreciated the e-payment systems and used them because this is the way to the future and it will be in their interest. Lastly, commercial banks can improve their systems to ensure effective payments either by cash or electronic cards.