Cashless Economy @panditdeendayalpetroleumUniversity

JEET AMRUTIYA & AKASH ANTALA

What is a Cashless Society?• No paper money or coins• Everything is electronic• Payment via E-wallets• EFT- Electronic Funds Transfer• EPS – Electronic Payment System• Microchips/Smart Cards• Fingerprints• Retinal scan

Major Drawbacks of Cash• At 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 System• People 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 people’s spending habits. • Anything that’s 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 wasn’t 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 haven’t 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 it’s 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 Government’s 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 you’re 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 provider’s balance.• To ensure that a card is being used only by it’s 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 cash• According to RTI reply by RBI

• Before demonetization, India’s 86% cash was in the form of 1000 and 500 notes.• It cost the central bank Rs. 3,917 crore to print Rs. 500 notes in circulation, and Rs. 2,000 crore

to print the Rs. 1,000 notes in circulation currently.

Denomination Cost of printing(rs)2000 4.721000(Old) 4.06500(Old) 3.5850 1.8020 1.55 .50

Cost on Coins• Manufacturing of coins cost lot to RBI.

• The Indian one rupee coin (the one with highest circulation) weighs 4.85 grams and is made of Ferritic stainless steel (FSS) and has a diameter of 25 mm. 

• The value of metal will be 70 paisa when 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 misusing NGO and public trust for

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 HIGH• Paytm, India’s 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 Economy• On general day, only about 5% of payments happen electronically.

• India's literacy rate is at 74.04%. Bihar is the least literate state in India, with a literacy of 63.82%.

• 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 company’s customers using 2G Network.• 6 out of 10 transactions fails because of low speed on 2G connectivity.

• Only 41% Indians Own smartphones.• And only 61% of total population own mobile phone. • And Only 63% of total population having bank accounts (including

Jan-Dhan accounts)• Many educated people also afraid to pay via online portal.• That’s only reason COD introduced by Flipkart in India.• Many internet users are not friendly with e-wallets and mobile

banking Apps.• Fraud risk is vary high compared to cash.

Need Fundamental changes• Need to decrease tax rates for finished products.• The transparency in the funding of Political Parties was also

recommended by the Law Commission of India.• There is no record of the source of funds for almost 3/4th of the funds

received by parties.• If they come under the RTI act, then citizens can ask for such

information from the political parties.• Same case for NGOs and Public trusts.

• Need to establish cashless payment counters for small merchants.

• For that government should help them financially.

• Government can organize awareness camp for cashless transaction.

• Need a Boost in Growth of Banking sector.

Is India Moving Towards Cashless Economy?!• In developed countries, the figure of cashless transaction goes up to

between 50 to 60 per cent for personal expenditure volume. And India only with 5%.• Tech support is not robust enough to support even the existing

number of cards - some 26 crore credit cards and some 69.7 crore debit cards.• The country suffered a massive debit card breach in October 2016

that ended up affecting 3.2 crore debit cards across several banks, only showed up the vulnerabilities of our banking networks.

• The move to digital economy is not a rapid exercise, it is more of a steady journey.• It takes time to shift to digital platforms. Typically a period of three to

four years with sustained government policies.• Some experts are of the view that the government's demonetization

move will push more people and merchants to consider digital options. • The government's initiative to scrutinize large cash transactions and

demand PAN cards and IDs will keep on discouraging cash transactions.

THANKYOU!