The death of cash

A number of governments, central banks and even some economists now advocate a switch to all-digital currencies. With the rapid rise of mobile payments, the long-term survival of cash seems precarious. But what would be the consequences of removing cash from society altogether?

The cashless economy is almost here. On November 8, 2016, the Indian Prime Minister Narendra Modi announced the demonetization of Rs 1000 and Rs 500 currency notes.  At a time when millions in the country found themselves grappling with ATMs being out of cash, digital currency became indispensible.

And now, globally digital wallets and new mobile point-of-sale technologies and front-end consumer technologies such as mobile apps are replacing traditional cash and are becoming more popular.

What is a cashless economy and where does India stand?

• A cashless economy is one in which all the transactions are done using cards or through digital means. The circulation of physical currency is minimal.
• India uses too much cash for transactions. Less than 7% of all payments happen electronically. The number of currency notes in circulation is also far higher than in other large economies across the world.
• Some studies show that cash dominates even in malls, even though they are frequented by people who are likely to have credit cards. Hence, it should come as no surprise that cash dominates in other sectors and industries as well.
• For the time being, these payment channels claim a smaller share of the market than traditional card payment options. In such a dynamic landscape, it’s critical to stay abreast of major developments in mobile and digital payments as well as changes that may have a significant impact in the near future.
• While consumers are embracing new ways to pay, many incumbent businesses are limiting these options. By placing emphasis on new payment options, it limits a business’s ability to retain its customer base and attract new clientele.
• India’s digital state, unfortunately, does not engender the trust needed for ceaselessness to take hold in a meaningful way. Despite a billion mobile phone subscriptions, just about 30% of Indian subscribers use smartphones. 

Analysis

“Time has come for everyone, particularly my young friends, to embrace e-banking, mobile banking and more such technology”- NarendarModii.

Even the RBI has also recently unveiled a document — “Payments and Settlement Systems in India: Vision 2018” — setting out a plan to encourage electronic payments and to enable India to move towards a cashless society or economy in the medium and long term.

By 2020, digital transactions will happen at 10 times the current level. Demonetisation may serve as the catalyst. But cash will stubbornly resist wholesale digital disruption. We should plan for a slow erosion of cash addiction at best.

Citizens are changing the way that millions of companies acquire and track the movement of money through their businesses. A predominantly cashless society is inevitable and while it may seem daunting, it can ultimately create new opportunities for business organizations.

This has been a global trend. Two years ago Singapore withdrew its largest currency. The European Central Bank recently eliminated the 500-euro bank note. South Korea plans to eliminate paper money by 2020. But the key is that each of these countries had a digital strategy in place unlike India.

But in Africa some countries have had a cashless transaction for at least a decade via cellphone but still rely on cash. We've had debit cards for about that time.

When could we see a cashless society? The worldwide cashless transaction grew 50% in 2005-2015.

Assessment

Ultimately the world is slowly moving towards becoming completely cashless and hence, the journey should be anticipated and planned out by governments globally. The inconvenience to the common man should be better managed before such schemes are introduced. Our assessment is that there needs to be more foresight when it comes to putting into place the digital and physical development that will ultimately support the economic structure.