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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
• 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
• Hand-to-hand currency is favoured by criminals as it does not leave a paper
• 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
• 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
• 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
• 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)
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.
• 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
• Indian companies are reportedly misusing NGO and public trust for
• 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
Cashless economy boosted by Currency
• 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
• 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
• Only 41% Indians Own smartphones.
• And only 61% of total population own mobile phone.
• And Only 63% of total population having bank accounts (including
• 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
• 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
• 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
• 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
• The government's initiative to scrutinize large cash transactions and
demand PAN cards and IDs will keep on discouraging cash