TOPICS: Cashless economy
In today’s modern economy, the financial system is no longer an entitlement of banking institutions due to the advancement and innovation in the application of technology in delivering products and services due to the widespread use of e-commerce and the emergence of virtual worlds and mobile technology.
People’s access to financial services has greatly increased. Cashless economy indicates that economic situation wherein transaction through use of liquid money and paper money is replaced by digital and electronic method of transaction.
Digital cash is a proxy for real physical currency. Any type of money transactions are done through digital modes like debit cards, credit cards, mobile payments, internet-banking, electronic cheque, electronic fund transfer, mobile wallets and other payment channel.
This economic system provides higher security and privacy. This limits the flow of hand cash in the economy. It is an instant, hassle free, cost effective (no wear and tear replacement and cash logistics cost) and a convenient way to make payments.
With digital payment modes, paying or sending money is possible from anywhere and anytime since there is no need of taking loads of cash for transaction purposes. The threat of counterfeit notes can be avoided when payment is settled digitally.
The prevalence of cash often allows an informal or shadow economy. But if all the transactions are routed through banks, the government can monitor and trace such transactions, thus eradicating the problem of black money and corruption.
India’s demonetization initiative and subsequent drive towards developing a cashless economy is showing positive feedback turning it into a digitized economy. Digital payment helps minimize expenditure while printing, inspecting, moving, storing and guarding a lot of paper money.
Social crimes such as robbery, extortion, burglary etc. decline.
Further, it also helps to control inflation. Therefore, cashless economy highly boosts consumption and investment as no one gets incentive by keeping money at home. Cashlessness entails that all of society’s stakeholders agree on and trust the digital currency.
The foremost requirement for cashless economy is security, confidentiality and guarantee of privacy right of the citizens while using digital payment systems.
The potential drawbacks of electronic currency can be viewed as card fraud, hacking and identity theft.