Cashless Economy @panditdeendayalpetroleumUniversityJEET AMRUTIYA & AKASH ANTALA
What is a Cashless Society?No paper money or coinsEverything is electronicPayment via E-walletsEFT- Electronic Funds TransferEPS Electronic Payment SystemMicrochips/Smart CardsFingerprintsRetinal scan
Major Drawbacks of CashAt an individual level, cash is inconvenient to carry and manage. It cannot be traced or insured as cash once lost or stolen cannot be recovered.Cash is expensive to print, inspect, move, store and guard.Counterfeiting is always going to be a problem as long as paper currency exists.Hand-to-hand currency is favoured by criminals as it does not leave a paper trail. Cash transactions are not trackable in nature, thus providing no transparency. This leads to corrupt practices and financial crimes such as excessive money laundering.Monitoring of tax compliance is difficult for the Government.
Possible Impacts of a full Cash Abandon
Banks are likely to be in favour of a cashless society as it saves them the cost of printing, inspecting, storing and guarding paper money. Costs also include the security and labour involved in processing and transporting cash, maintaining automated teller machines, and regulating the amount of cash in circulation. According to an estimate, European banks could save between 45bn and 90bn annually if they get rid of cash from their systems.Prohibition on the use of cash could restrict criminals such as drug dealers and people involved in possible unregistered activities like betting from doing business.Eliminating cash could also mark an end to bribery and other such corrupt motives as authorities would be able to track virtually all transactions. Tax crimes would also stop.According to a study by Wolman, countries could save about 1 % of their GDP annually by switching over to electronic currencies.
Few Challenges to Cashless SystemPeople still rely on the idea of money being physically realisable. For some psychological reason, paper money is revered more than plastic money or digital money. Cash keeps a check on peoples spending habits.Anything thats technological comes with a baggage of risks and security threats. A very high and unbreachable degree of security would be needed as a deterrent to hackers and cyber criminals.there would require some sort of digital awareness to understand the working of a society with no cash. People who have grown up and lived through times when a substitute for cash wasnt even thought of might face some difficulty in adjusting to a world without currency notes.
All the existing cash in the world cannot be removed or deemed abandoned at one go. Also, when it comes to money, reassurance is the thing that matters most. For a complete switch-over to the new monetary model, the voluminous amount of cash presently circulating in the market would have to be converted into an equivalent number of digital points.Developing economies have an added challenge in the form of high levels of illiteracy among the masses. For example, in India itself, there are large sections of rural population who havent seen a bank in their lifetimes, let alone owning a bank account. The only way they recognise money is through currency notes and coins.
How to remove all the cash from the economy?
There are many possible ways of going about this but an outright prohibition on the use of cash is certainly not going to work. Rather, the central bank or authority could tax the use of cash, leading to the value of the paper currency depreciate relative to the reserves, say by 10% annually. By managing the exchange rate between currency and reserves and pushing it further, the central bank could remove the zero lower bound and tax the use of currency, which would thus tax the criminal and anti-social enterprises that largely rely on currency.So a full restriction on the use of cash could be seen as a limiting version of mildly extreme policies that tax currency by allowing its value to depreciate relative to bank reserves.When the exchange rate between currency and reserves becomes large enough, cash in the economy would cease to exist.
Current Advancements Towards A Cashless Society
The first and the foremost pre-requisite for building an economy having no cash is to have every single entity, whether an individual or a small-scale or a large-scale firm, to be registered under unique IDs. This can be achieved biometrically, as has already been done in India with the advent of the Governments UID scheme named Aadhar. And already, nearly 40 million bank accounts in India have been linked with Aadhar. Such feasible and low cost biometric systems could easily support electronic payment systems which could replace the current hand-to-hand currency system.In Nigeria, another developing economy, the Central Bank has launched a Cashless Nigeria Project whose objective is to reduce the usage of cash in transactions as far as possible.
The use of EMV chip-cards is gaining momentum in Kenya and other countries in Eastern and Central Africa. When used with a PIN (Personal Identification Number), the chip verifies that the customer is producing his or her own card and only then authenticates the transaction. This has reduced incidences of credit/debit card fraud and helped in establishing faith in electronic payment systems among the masses. Just recently, Master Card and Equity Bank unveiled a joint partnership that plans to distribute 5 million EMV chips and PayPass enabled cards in Kenya over the next 18 months. Far away in Canada, the Royal Canada Mint is looking to the future with the MintChip, a new and innovative product that could become a digital replacement for coins.
The Biometric Monetary Card
The card could be electronic in nature wherein you feed the unique ID of anyone youre buying a good/service from and also key in the amount of points that you owe to him. That particular amount of points is then deducted from your balance and added to the service providers balance.To ensure that a card is being used only by its rightful owner, we could have passwords similar to the ATM pins that we have currently. An even less hassled authentication system could use the details of your biometric data- facial definitions, finger-prints, retinal scans and voice files to build your password. The latter will be more suitable for illiterate people to do transactions.
Cost of Printing cashAccording to RTI reply by RBI
Before demonetization, Indias 86% cash was in the form of 1000 and 500 notes.It cost the central bankRs. 3,917 croreto printRs. 500notes in circulation, and Rs. 2,000 crore to print the Rs. 1,000notes in circulation currently.
DenominationCost of printing(rs)20004.721000(Old)4.06500(Old)3.58501.80201.55.50
Cost on CoinsManufacturing of coins cost lot to RBI.
The Indian one rupee coin (the one with highest circulation) weighs4.85 gramsand is made ofFerritic stainless steel (FSS)and has a diameter of25 mm.
The value of metal will be70 paisawhen melted.
Even more care needs to be taken so that no one can make money by melting coins and selling metal in market.
Black money People intentionally do transaction in cash to save income tax.All illegal activates like money laundering, kidnapping, Bribe to government officers, terrorist activities consummate in cash payments. Indian companies are reportedly misusingNGO and public trustfor money laundering.Generally people convert their black money into Gold and real estate.Still 8% of total black money is in cash.Recent demonetization will help to reduce black money which is in a cash form.
Cashless economy boosted by Currency Demonetization.Aimed at combating corruption and black money, this move also came up with short-term pain and chaos for the working class, small businesses and nearly anybody who deals with cash on a daily basis.This move deeply impacts the working sections of society: drivers, maids, cooks, electricians, plumbers. Anybody who provides services in the informal sector and depends on monthly or bi-monthly cash payments.NO CASH- scenario boosted cashless payments in last two weeks.
PAYTM at HIGHPaytm, Indias largest mobile payments company and an e-commerce platform, has said that post demonetization of Rs.500 and Rs.1000 notes, it has touched a record five million transactions a day, against Rs.2.5-3 million transactions earlier.Paytm has touched a record 5 million transactions a day and is on the way to process over Rs.24,000 crore.The company said it had registered a 700 per cent increase in overall traffic and 1,000 per cent growth in the amount of money added to the Paytm accounts over the last couple of weeks.The number of app downloads went up 300 per cent, while the number of transactions per user went up from 3 transactions to over 18 transactions in a week
Over 8,50,000 offline merchants across India accept Paytm.The highest increase in usage was seen in Chennai, followed by Ahmedabad, Hyderabad, Kolkata and Bangalore.
Constrains For Cashless EconomyOn general day, only about 5% of payments happen electronically.
India's literacy rate is at74.04%. Bihar is the least literate state in India, with a literacy of63.82%.
High taxation rate on finished goods, which induce manufacturers to deal in cash for purpose of tax saving.
Same case with service sectors.
Lack of access to banking.Card swipe machines are costly as 7000Rs to 25000Rs.According to data available with MasterCard and Visa, some 14 lakh merchants across India accept cards.Internet is not accessible for every Indian.Only 34.8% of total population have access to internet.(Even after digital India campaign)Still 88% of Data companys customers using 2G Network.6 out of 10 transactions fails because of low