Government policies that could reduce cash

Cash is bad. This is the case for everybody involved with money. Managing cash is complex and expensive for consumers. Retailers have big overheads to secure cash and to reconcile payments with purchases. Governments lose tax because of grey transactions and banks have big overheads in dealing with cash. If this is the case, should governments not do more to make cash transactions less attractive?

The Central Bank of Nigeria has been extremely active in promulgating rules to reduce cash usage (especially in Lagos). Much can be read about the philosophies ans actions to create a "cashless Lagos". (For instance read this report). The approach of placing limits on cash-transactions may not have the desired effect as the right eco-system may not exist to support a cash-less economy. Other central banks use the usual levers to try and change cash-transactional behaviour. These banks use interest rates, money supply and penalties to change cash-usage behaviour. This light touch, while probably the text-book approach may not have good traction fast.

I am a big proponent of taxing bad behaviour. Not only will tax generate revenue, but it will discourage consumers to change their behaviour. One should ask which actions taken by consumers will trigger more cash usage and one should then tax this (withdrawing cash from a bank or ATM, cashing in a check, doing a retail transaction in cash). On the other hand, one should look at behaviour that one would like to encourage and then reduce (or eliminate) tax of these activities (electronic payments, depositing cash into an account etc.). Unfortunately, because the latter is digital, traceable and known, these transactions are often taxed and the former not.