Economics Current

Cashless Economy

Cashless Economy
What is a cashless economy? A cashless economy refers to a state where any kind of financial transaction is not conducted by money in the physical form, such as notes or coins but by the transfer of digital information, such as an electronic form of currency. Since the world is rapidly moving towards complete digitalization due to rapid advancements in technology, in many parts of the world, a cashless economy model has become prevalent for recording and exchanging monetary transactions and also to facilitate investment. What are the advantages of such a system? The move towards a cashless economy has been fuelled by numerous factors, such as: •Environmental concerns: Using the electronic mode of payment for transactions saves paper, and hence trees. Environmental activists have spoken in favor of digitalization which will have a sustainable impact on the environment. •Reduction in carrier diseases: Using manual modes of payment for transactions can lead to the spread of bacteria and germs from people to people and cause numerous diseases. •Efficient surveying of economic data: When all transactions are monitored by computers and skilled personnel, there can be no shortcomings in surveying economic data of a country, a risk that is possible with manual transactions. •Speed of transaction: This is one of the most argued points for a cashless economy. The speed at which transactions of even large denominations can take place is commendable thanks to advancements in technology. •It has also been argued that a cashless economy reduced criminal activities such as frauds since the operations are usually overlooked by professionals. What are the shortcomings of such a system? Despite the arguments for a cashless economy, there are several shortcomings of such a system. Some of these are: •Privacy concerns: in a cashless system, all activities revolving transactions will be monitored by institutions and personnel, thus making information available to a third party. This can lead to unethical surveillance operations by these institutions. •Fraudulent activities: Despite monitoring by professionals, transaction channels can always be hacked into for fraudulent purposes. •For developing countries like India, where a vast majority of the people do not have access to digital media and bank accounts, a cashless economy would pose various problems with regard to transaction activities. Where does India stand? The Digital India project of the Indian government aims to digitalize the nation. The push towards a cashless economy was seen in the demonetization scheme of 8th November 2016. In order to encourage a digital and cashless economy, the government has taken various steps and measures to reduce the currency in circulation and facilitate payments through electronic media. According to a report by the TRAI, as of 2016, 82 out of 100 citizens in India owned a cell phone. The evolution of the telecom ecosystem, with a reduction in call and data rates and smartphones, is a move towards complete digitalization. The Indian government has founded major initiatives such as demonetization, Direct Benefit Transfers, BHIM to streamline the economy and encourage a cashless economy. Incentives such as cash backs, cash awards, discounts are attractive ways to sway people into using digital modes of payment. The demonetization had propelled e-wallet services in India. The emergence and consolidation of e-commerce is also a strong shift towards a cashless economy. However, there are several issues such as abject rural poverty, non-availability of services and low rate of urbanization which makes a vast section of the Indian population unable to afford such services. Cash is still the preferred mode of payment in most parts of India. Security concerns such as hacking and phishing are also hurdles towards complete digitalization.

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