Saturday, May 25, 2024

Cashless Economy: A Boon or a Bane?

On February 21, 2023, Narendra Modi, Prime Minister of India, expressed his hope that digital transactions will soon surpass cash, with UPI increasingly becoming the preferred payment mechanism in the country. He passes this statement after launch of the cross-border connectivity between UPI of India and PayNow of Singapore.

Transactions that are made without the use of cash are known as “cashless transactions.” This includes transactions that are made via credit/debit cards, cheques, Demand Draft, National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS), Unified Payments Interface (UPI) apps, Aadhaar Enabled Payment System (AePS), Unstructured Supplementary Service Data (USSD), E-wallets, Mobile wallets, Net banking, or any other form of online transaction that removes the use of cash.

Like all the other issues or elements in the world, the cashless economy also has its own advantages, challenges, and disadvantages. The main benefit of a cashless society is that the money system is more open and accountable. There is always a record of all economic transactions through electronic means. A cashless economy transacts via the above-mentioned methods rather than bank notes, coins, or any other physical form of money. Electronic transactions save time, and it’s always easier and safer to carry a smartphone rather than bundles of cash. Digital transactions let banks recognize customers and track the money flow, which leads to less financial fraud and crimes, like tax evasion and counterfeit money in the economy. Digital payment modes are secured with encryption and data authentication. Businesses benefit from processing fees when consumers use their apps and services to send and receive payments. International transactions have also become much easier with the help of cashless transactions. But, maintaining a cashless economy involves a great deal of challenges too. Lack of adequate infrastructures, like banking systems, digital infrastructure, internet connectivity, a digital payment interface, and penetration of Point of Sale (PoS) terminals are major obstacles to establishing a cashless economy. Besides, for an economy to become cashless, there must be enough financial inclusion and financial literacy. Another serious issue is that of cyber security.

But, more than advantages, there are serious disadvantages in a cashless society. People in third-world countries generally depend more on cash transactions due to a lack of financial literacy, financial inclusion, and infrastructure, and because they are habituated to dealing in cash only. This is the scenario in India too. Changing the habits and attitudes of the entire population is not that easy. Most older people aren’t as good with technology as younger people, so it’s hard for them to switch from physical currency. Besides, even in the presence of ATMs, PoS terminals, and bank branches, there exists a significant urban-rural divide in the case of infrastructure for cashless transactions, and bridging this gap is a must to enable a cashless economy. Going cashless means you have almost no privacy, are more likely to be a victim of cybercrime, are dependent on technology, make economic inequality worse, etc. Besides, an economy that goes completely cashless brings with it the extremely serious problem of the accumulation and centralization of power in the hands of the government. Since in such an economy, the citizens are left with very little cash in their hands, and their money is almost completely accumulated at the banks and other places in the form of investments that are connected to their personal details, it becomes very risky for the citizens.

India Moving into a Cashless Economy

The “cashless economy” in India is being boosted by the Indian government’s initiative of “Digital India.” Still, in India, a cashless economy may take a long time to adapt. The reasons are: A large part of the population does not have access to debit/credit cards and smartphones, which is why they prefer to make cash transactions, a majority uses debit cards to withdraw money rather than paying through it, lack of much awareness and education about the cashless transaction. Besides, not many people in India are aware of the USSD, which does not require internet access or a smartphone for cashless transactions. The government has taken some initiatives toward converting to a cashless economy. Those are- Demonetization in November 2016, the introduction of UPIs, Direct Benefit Transfer (DBT) scheme, Pradhan Mantri Jan Dhan Yojana, etc.

It is estimated that around 90% of all transactions in the Indian economy are cash-dependent due to the large informal sector, which employs 90% of the workforce. India cannot become completely cashless unless this huge sector adjusts to digital transactions.

Today, countries are moving towards a cashless society, especially in the West. In addition to removing the costs and hassles of managing currency, going cashless may also reduce certain types of crime. Although a cashless economy brings much convenience to an economy, it is necessary for the government to double-check before taking the decision. They need to consider if the country is ready to go cashless from all the infrastructural aspects and whether the entire population is financially aware and educated enough to handle such a transition. The privacy and cybercrime issues also need to be taken into consideration. Otherwise, the decision of the Government to go cashless might lead the country only to a darker future. We hope for India, that it won’t have to face such a condition in the future.

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