In ancient times, people used to trade with each other using the barter system. But its limitations are:
- Double coincidence of wants.
- Search costs and transportation costs are high.
- Doesn’t encourage specialization and division of labor.
A cashless economy is an economy where financial transactions are not conducted with money in the form of physical banknotes or coins, but rather through electronic methods such as POS, UPI, NEFT, Internet Banking, RTGS.
CHARMS & CHALLENGES:
Charms of RBI:
- Saves the cost of printing new currency (Rs.27 billion a year)
- Better efficacy of monetary policy updates, NPA/fraud surveillance.
Challenges for RBI:
- MDR, Interoperability, Fintech companies evolving more rapidly than a legal framework.
- KYC: Aadhar vs privacy debate (Ref: Polity, SC Judgement)
Charms of Government:
- Better tax surveillance, checks on fake counterfeit currency terror finance,
- Targeted delivery of agri-loans and subsidies/ DBT: Annually ₹ 1 lakh crore can be saved
- Can save farmers from moneylenders, and poor families from Ponzi schemes
Challenges for RBI:
- Power, telecom infra not available everywhere
- Government itself must become a role model first in handling tax, tender, tolls, procurements through digital payment
- To encourage digital payment of subsidy, tax breaks, lotteries given for perpetual time → fiscal deficit
- Post-Demonetization, digital transactions ↑ but then again ↓ so, punitive measures
Stakeholders
Secure, difficult to steal, time, convenience, financial inclusion. Some of its challenges are the Digital divide, Low financial literacy- the notion of security withholding physical currency. Cyberfrauds, Card cloning, service fees on NEFT / card payments Thus, Digital payment is not a panacea, nor is cash all bad.For a developing country like India, “Less cash” economy better than “Cashless” economy.