PAYMENT SYSTEMS DEVELOPMENT IN THE WEST AFRICAN...

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PAYMENT SYSTEMS DEVELOPMENT IN THE WEST

AFRICAN MONETARY ZONE (WAMZ)

BY TEMITOPE W. OSHIKOYA

DIRECTOR-GENERAL

WEST AFRICAN MONETARY INSTITUTE(WAMI)

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PRESENTATION OVERVIEW

1. Introduction- The WAMZ Programme.- Why the need for the development of

Payment Systems2. The state of Payments System

Development in the WAMZ3. The current development programme4. Our vision of the payments system in the

WAMZ

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THE WAMZ PROGRAMME

• The West African Monetary Institute (WAMI) was established in March, 2001, to administer the WAMZ programme by:- carrying out multi-lateral surveillance exercises to

ensure the attainment of set primary and secondary macro-economic convergence criteria; the structural and institutional benchmarks; and

- performing activities that will lead to the establishment of the:

West African Central Bank (WACB); West African Financial Supervisory Authority; andWest African Monetary Zone Secretariat

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THE WAMZ PROGRAMME- The introduction of a single currency

for the 5 member countries. • WAMI therefore has to ensure that

organs of the WAMZ Programme and member countries achieve harmonization in:- Statistical Data Compilation;- Financial Sector Regulatory Laws;- Business (Trade) Practices; and- Payment Systems components

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Objectives of the WAMZ Payment Systems Development

• Satisfy WACB requirements relating to the control of reserves and current account balances;

• Reduce float, speed up the circulation of funds and increase the efficiency of funds transmission;

• Enhance WACB management of monetary policy by supplying timely and accurate information on fund flows and settlement account balances;

• Expand flexibility to suit WAMZ conditions by allowing for planned expansion in terms of additional future services such as securities settlement transactions, as well as appropriate geographical expansion;

• Satisfy relevant international standards and principles for Systemically Important Payments Systems as promulgated by the Bank for International Settlement (BIS).

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Current Status of Payments System in the WAMZ

• Payment system development in the WAMZ member countries are at different levels.

• Ghana and Nigeria are ahead of the The Gambia, Guinea and Sierra Leone in terms of modernization and delivery channels of wholesale and retail payment system components.

• Cash intensity is generally high, in double digits, in the member countries.

• Telecommunication infrastructure cannot be taken for granted.

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Current Status of Payments System in the WAMZ

• Energy supply is deficient and electronic delivery channels cannot be guaranteed constantly.

• Paper-based instruments – cheques and drafts -are next in importance to cash.

• Settlement framework differs in the zone – with the member countries operating Automated Clearing Houses/Automated Cheque Processing having a shorter period of clearing cycle than those operating manual systems. Sierra Leone has improved the efficiency of the manual cheque clearing and settlement system by conducting two clearings in a day.

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Current Status of Payments System – The Gambia

S/N Components Level of development Planned action Remarks

1 Large value payments

Manual and paper based. The primary payment instrument is cheque.

Development of an RTGS system

The RTGS would be linked to the WACB central hub, when established.

2. Retail payment system ( Cheque clearing system)

Manual operation. The cheque clearing cycle is D +3 for local cheques and D + 7 for up countries cheques.

Development of an ACH

WAMZ cheque standards have adopted.

3. Securities Clearing and settlement (SSS)

Manual in operation Scriptless securities and settlement

Funds have been provided (US$0.8) has been provided by ADF for the system

4. Electronic payments (ATMS/POS)

Switch system and card based products

WAMZ e-banking guidelines have been adopted

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Cash intensity

(Dec 2008)

18.7%

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Current Status of Payments System – Ghana

Components Level of development

Planned action Remarks

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Large value payments

Implemented RTGS system.

Established RTGS system in 2002 to handle large value and time critical payments

2 Cheque clearing system

Implemented automated -centralized cheque clearing system in 1997

Decentralized automated system

Adopted the WAMZ cheque standard

3 Electronic payments (ACH, ATMs/POS)

A national switch has been implemented

An ACH under GHIPS Limited

Adopted the WAMZ e-banking guidelines

* Cash intensity (Dec, 2007)

22.7%

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Current Status of Payments System – Guinea

S/N Components Level of development

Planed action Remarks

1 High value payments

Manual operation as banks use certified cheques for sending inter-bank payments

RTGS system. The RTGS would be linked to the WACB central hub, when established.

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Cheque clearing system

Clearing cycle is D+ 1 for certified cheques and D + 2 for ordinary cheques.

Development of ACH

Adopted the WAMZ cheque standard

3. Securities clearing and settlement system

Manual operation SSS to be implemented

ADF Funding obtained

4. Electronic payments (ATMs and POS)

There are no switching services

ATM/POS to be implemented by 2011

Adopted the WAMZ e-banking guidelines

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Cash intensity (Dec, 2008)

34.6%

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Current Status of Payments System – Nigeria

Components Level of development

Planed action Remarks

1 Large value payments

Implemented RTGS system in 2006

To be SWIFT -enabled for value transfer

The RTGS would be linked to the WACB central hub, when established.

2 Cheque clearing system

Harmonized both up-country and local cheques to clearing cycle of D+2

Decentralized automated system in all the clearing zones

Adopted the WAMZ cheque standard

3 ACH Implemented an ACH

Adopted the WAMZ e-banking guidelines

Scriptless Securities Settlement System (SSS)

Scriptless securities settlement system in place

Implemented SSS which is interfaced with the RTGS system

* Cash intensity (Dec, 2008)

9.7%

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Current Status of Payments System –Sierra Leone

S/N Components Level of Development

Planned action Remarks

1 Large Value payments

Manual operation. Bank drafts and bankers payment are used for large value payments

Establishment of an RTGS system.

The RTGS would be linked to the WACB central hub, when established.

2. Cheque clearing system

Manual operation.. Clearing cycle is D+1 for local cheques and D+6 for up country cheques.

Establishment of an ACP and ACH

Adopted to the WAMZ cheque standard

3 Securities and settlement system (SSS)

Manual operation. The primary market for government T. bills is in book entry

Establishment of SSS

ADF funding obtained

4 Electronic Payments (ATMS/POS)

Stand-alone systems Implementation of an ATM switch by 2011

Adopted the WAMZ e-banking guidelines

* Cash intensity (June, 2008)

31.34%

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Developmental Programmes in the WAMZ

• WAMZ member countries are cognizant of the need for a robust payment and settlement systems.

• Ghana and Nigeria have sustained the modernization of their payments systems to ensure the deepening of the financial system.

• Nigeria has successfully implemented a nation-wide automated cheque clearing system that has enabled the clearing cycle of cheques and paper-based instruments to be reduced to D+2 nation-wide.

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Developmental Programmes in the WAMZ

• Nigeria is implementing a scheme that will link all the switches unto a single platform to promote interoperability of the systems.

• In collaboration with the commercial banks, the Central Bank of Ghana has set up a national switch to promote the usage of Electronic purse system and network ATMs among the banks.

• Ghana is modernising the current cheque clearing system to a decentralised automated cheque clearing system, that aims at reducing the clearing cycle to D+2 nation-wide.

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Developmental Programmes in the WAMZ

The development of payments system components in The Gambia, Guinea and Sierra Leone received a boost in July, 2008, when the African Development Fund offered about US$23 million grant to develop payment system components in the three countries.

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Developmental Programmes in the WAMZ

Components earmarked for development in the 3 countries include:- RTGS systems- Automated Cheque Processing (ACP)

system- Automated Clearing House (ACH)- Central Banking Automation - Central Securities Depository/Scriptless

Securities Settlement system- Infrastructure upgrade (telecommunication

and energy) that will adequately support the modernization of the payment system.

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Developmental Programmes in the WAMZ

• WAMI will coordinate the development of the components in the 3 member countries. to.

• The strategy is designed to ensure international operability among the member countries.

• Ghana and Nigeria which are currently operating RTGS systems, ACHs and other electronic platforms, will be linked to the systems of the 3 other member countries.

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Developmental Programmes in the WAMZ

• The WACB hub will be the nucleus of inter-linking the systems of the member countries.

• SWIFT will play a central role in addressing the regional connectivity of the RTGS systems of the member countries.

• The WAMZ RTGS system will progress from a platform of system of systems to a unitary single shared platform.

• The strategy will encourage the gradual amortization of existing RTGS systems in the member countries.

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Developmental Programmes in the WAMZ

• The development of the WAMZ–wide payments system is taking place against the backdrop of harmonization of relevant laws and operational rules. Among others:- Payments System Statute of the WAMZ;- Banking Statute of the WAMZ- WAMZ Cheque Standards- WAMZ Standards for Automated Cheque

Processing

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Developmental Programmes in the WAMZ

• The payment system components being developed in the member countries will be multicurrency systems and initially operate in their current national currencies.

• The systems will switch to operate in Eco, upon its introduction.

• The WACB will be the owner and operator of the RTGS system that will interlink the member countries’ national central banks.

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THE VISION OF WAMI FOR THE WAMZ PAYMENTS SYSTEM

• Increase trade among the WAMZ/ECOWAS member countries.

• Reduce the currency systems in the sub-region from the current seven to two.

• Reduce transaction costs for the users of payment system components through effective elimination of exchange rate losses in the sub-region.

• Domesticate cross-border transactions within the WAMZ through the use of a single currency.

• Promote the economic and monetary integration of the West African sub-region.

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THE VISION OF WAMI FOR THE WAMZ PAYMENTS SYSTEM

• Develop safe, secure and efficient payments system components that conform to the Core Principles of Systemically Important Payment Systems (SIPS).

• Build a payment system that will facilitate monetary policy management for the WACB

• Develop a Payment System that makes adequate use of available liquidity

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THANK YOU