Question

PAYMENTS IN A NEW DEMOCRACY A country in Africa has recently undergone a revolution and is now governed by a popular democracy. In the past, all economic activity was undertaken by the autocratic leadership and their facilities, which no longer exist. The population of the country only survived in the past via various forms of barter, but now have to understand and establish modern functioning payment facilities. Start the process of understanding by describing some of the basics of payment in a letter to the revolutionary council

Suggest possible payment systems that the government should consider (1 typed page)

Answer 1

Modern functioning payment facilities comprises of two major transaction channels. First channel is the buying of goods and services using physical legitimate notes, coins etc. For production of such legitimate notes we need to establish a central bank for the country. This bank would be given responsibility of minting coins, printing notes and make sure that there is proper circulation channels setup for distribution of money throughout the country.

Second channel is the buying of goods and services through online payment processing channels using debit, credit and virtual cards. Again central bank needs to make sure that there is robust framework provided throughout the country for secured transactions using such cards. There should be proper infrastructure for authorization of such online transactions. Different authorization requirements are like eligibility of card holder, validity of card specific details like pin number, cvv number etc.Apart from authorization there should be a strong backend settlement system providing quick resolution to disputed transaction, imposing additional checks on cross border and large transactions etc. Also KYC norms before issuing such cards to public should be strictly followed.

Possible payment methods government can consider is legitimate notes and coins to start with. Once a proper distribution channel of the currency is set up, government should proceed towards setting up of online payment channels. Government should facilitate issuing of legitimate credit, debit and virtual cards through retail banks to public once the necessary KYC details of individual customers are complete. Other online payment systems could be e-wallets for e commerce websites like Amazon. Other applicable physical modes of payments could be demand draft, money order, cheque, bank notes etc.