Demonetization : India Towards A Cashless Economy

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‘Demonetization’, This word which you all must have heard ingeminating since 8th of November, whether its twitter, Facebook or Instagram Everywhere the word is iterated infinite times.

Everyday I wake up and tends to find at least 10 articles in newspapers depicting the consequences of it.

Why is this word getting so popular ?

demonetization-india-towards-a-cashless-economy

Let’s start by describing what is Demonetization?

It is an act of stripping the currency unit of its status as legal tender. It is a radical financial step to declare a part of national currency as invalid and exchange it with the newer denominations.

Unfortunately citizen of our country had only 4 hours to react to it. It was an attempt to weed out the evil shadows in the country’s economy, Rs 500 and Rs 1000 denominations were scrapped out and replaced by the new 100,500 and 2000 notes.

It came at the time when these two divisions contributed about 86% of Indian economy.

India has one of the most cash to domestic gross product ratio.Reducing Indian economy’s dependence on cash is desirable for a variety of reasons.

The act could be the start of a new economy for India—one that is far more inclusive, and helps to educate the people of India on the benefits of transactions in a digital world.

Cashless societies are generally corruption free, There are lots of benefits for being cashless(doesn’t mean being poor) like:

  • Reducing the Manufacturing Cost: The government spends a lot of money in printing and reprinting (to replace soiled ones) notes. It might sound like a meager expenditure, but considering there are billions of notes in circulation, this amount accumulates and can be significant.

The cost of managing the money itself is high, In the period 201011, the RBI spent nearly Rs 24 billion on printing money, and an additional Rs 455 million on distributing that money nationwide.

For one, there are no extra transaction costs involved when you pay with cash, costs that often make it financially enviable for smaller merchants to switch to electronic payments. Image result for Demonetization

 

  • Cashless Transfer Is Accountable: It is the one of the best way to curb black money. You can’t pay money or do transaction unless you transfer the amount from your bank balance.

Since all the money will be transacted through bank and from there it is easy to check and the fake currency will be discounted.A shift away from cash will make it more difficult for tax evaders to hide their income, a substantial benefit in a country that is fiscally constrained.

Cash transactions also facilitate informality, and wouldn’t it be just so much better to use formal systems such as Visa, MasterCard, PayPal, Paytm, Apple Pay, M-Pesa, Bitcoin and the like?

These transactions could be convenient, trackable and adds in curbing black money.

  • Restrain Anti national systems: Cash is anonymous and crime requires cash.A large part of black money is generated in illegal trades (like selling drugs; Breaking Bad fans would know,Terrorism,Smuggling etc).

Without a payment system, illegal trade might become difficult.Funding of election and involvement of various terrorist groups will be effected badly. The money stored by terrorist in big currency has become a piece of paper now.

There will be no money laundering.

In Sweden, electronic payment advocates claim there has been less crime reported due to there being no cash to steal with armed robberies at banks at 30-year lows.

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Some also believe that cash was the primary cause of crime and that the underground economy is cash-driven.

  • Reducing the Spread of Liquid Money:Avoid the threat of counterfeit currency: Fake currency can harm the monetary policy of the country adversely, besides being illegal and almost equivalent to theft in my opinion.

A cashless economy would be immune to this harm.If the government finds a person guilty government can easily block his/her transaction.

Money in cash also has the problem of being stolen or wet,torn which cashless system has resilience.

 

  1. Will Help in curbing Corruption:In his book, The End of Money, journalist David demonetization-india-towards-a-cashless-economy

 

Wolman narrates a story about the unexpected consequences of switching to an electronic payments system.

In 2010, local police in the Afghan province of Wardak started receiving their monthly salary electronically, When they checked their bank balances on their cellphones, they were stunned to find that their salaries had jumped 30 per cent overnight.

This was not an accounting error — the extra 30 per cent was the amount that corrupt senior officials in the system had been skimming from their cash payments.

  1. Hygienic: More electronic transactions would be good for hygiene (banknotes carry an assortment of germs).
  2. Environmental benefits: No tree will be cut for making slips and Notes.

Recently transparency international [The Global Anti-Corruption Coalition] did a research on corruption in countries and results was that the cashless countries are in top-30 (Not counting third world countries because of inefficient administration and highly corrupted government).

  1. Sweden: Ranks 3
  2. Canada: Ranks 9
  3. South Korea: Ranks 37
  4. Australia: Ranks 13
  5. Singapore: Ranks 8
  6. Hong Kong: Ranks 18
  7. United states: Ranks 16
  8. United kingdom: Ranks 10
  9. Denmark: Ranks 1
  10. Norway: Ranks 5

A few responses seen as a result of this step of promoting Digital India :

Digital banking companies have also risen to the challenge, setting up shop in more convenient places to allow people to sign up and use their money as they wish. Paytm, an e-wallet firm, has seen a huge surge in transactions, for example—even a roadside stall has started to accept payments through e-wallet.

The removal of the notes has also brought India’s first “digital and cashless village,” Akodara, which is 60 miles from the northern city of Ahmadabad, into the limelight. Most of the 1,200 people living in Akodara buy everything from wheat flour to potato chips through mobile banking and have little to worry about when it comes to the demonetization.

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