Barters And Digital Money

Cashless economy and digital banking have been growing at a phenomenal rate in the past few years and we are adopting it more and more. The digital transactions in 20-21 stood at 4371 Cr Rs. The previous year it was 3412 Cr Rs. Will this rise be even more in the coming years? Will we also use digital methods of recording, managing, and exchanging money for commerce and investments? We transact using credit cards, debit cards and mobiles. Some of us also transact in digital currencies such as bitcoin. What is transforming is not the technology. Actually, the technology is transforming us. Will most of the banks shut down their cash machines and branches in future?  

We know search engines like Google and Yahoo allow us to access and navigate the internet via their privately controlled search portals. Will we also see a similar trend in the financial world? Will the financial institutions too, make every one of us access and navigate the economy through their systems? 

Banks have a perspective in this. They can lay off staff, cut costs to boost profits and justify by pointing out, that their customers were turning digital. Self-service is the new maxim. We see it in malls and super markets. Standardised self-service applications allow senior managers of the Banks or the mall managers to directly control and monitor interactions with customers. Are we really changing our preferences or are being forced to change them by being shown that the alternatives are far worse? 

Digital payments can now be made by methods such as Banking Cards, USSD, AEPS, UPI, Mobile Wallets, Banks Pre-paid Cards, Point of Sale, and Internet Banking. So, what is the true motive? Probably corporate profit. The Banks, the Payments companies such as PayPal, PayUmoney, Paytm, CCAvenue, and many others, all make money. Even intermediaries such as VISA, MasterCard, PayPal, digital wallet systems such as Apple Pay, contactless and NFC payments by electronic card or a smartphone are all designed to make money. Are they all, in a way, increasing the inconvenience of transacting in cash, ATMs and branches and then promoting digital banking to the extent that it becomes indispensable? 

Is cashless society in our interest? Sometimes yes. Cash is easy to launder and fund anti-social elements. Cash less transactions may avoid all of that. Our country demonetised currency in 2017. This removed a large amount of high denomination cash that is most vulnerable to counterfeit, from the system. UK, US, Canada and Sweden, all did the same at some point of time in their history. Even the European Central Bank no longer issues the €500 denomination euro banknotes as of April 2019. 

Digital systems may be “convenient”, but failure is often built into it. Cash doesn’t need external data centres. There is no remote control or remote monitoring and allows an unmonitored space which is why financial technology companies are averse to using it. Have we ever wondered why cash never crashes? The digital systems crash on the other hand.  Bank processes fail like the UK’s Royal Bank of Scotland (RBS) and America’s Knight Capital some years ago. The Payment companies’ networks also fail like that of VISAs in recent times.   

Not everything is good about creating a cashless society. Those without bank accounts will be marginalised and disenfranchised like the poor, disabled, elderly, and the undocumented immigrants, from the support system that cash provides them. The government has been proactive by opening Jan Dhan Accounts. There are psychological implications too. Cash in hand promotes self-control while digital banking promotes profligacy. Privacy also is compromised with cashless transactions. Everything has a flip side. If cash is associated with crime and tax evasion, with money laundering and financing terrorism, digital payments are also associated with equally serious maladies using technology. If cashless payments eliminate risks of counterfeit money, stolen cards themselves are a risk. If theft of cash by employees, or burglary is a risk, there is a cost to both physical and cyber security. Above everything else cashless economy calls for self-discipline.  

Cashless society proponents cite difficulty of money laundering, tax evasion, and performing illegal transactions. Is it really so? There are any number of cases that suggest use of digital technology to precisely do the same. Can regulation, restriction, and bans prevent illegal transactions? Cashless or cash, how does one stop large value stored in real estate, antiques, or commodities like diamonds, gold, silver, and platinum, and what if they were to be bartered for activities not necessarily above board?    

The government seems to be rather than conducting "costly and periodic" surveys and sampling of real-world transactions, is collecting "real data" on citizens', and their spending. However, the data can assist in devising and implementing policies that are more realistic. It can even better track the movement of the money through financial records which enables it to track the black money and illegal transactions taking place in the country. All very good.  

However, with such data, both the government and institutions would have potential access to data that makes the transactions vulnerable, compromising individual privacy. By collecting consumers spending patterns, the businesses could build personal profiles. Cashless transactions leave a record in the DB of the company as one makes a payment. This record can be used for prediction of future events. Data Mining then creates or compiles profiles of individuals from the databases. Such data retrieved from transactions can lead to widespread surveillance where individuals can be tracked by both corporations and the government. Such records may even be available to hackers that could be made public if a data breach were to happen.  

Actually, cashless societies have always existed, maybe from the time human society came into existence. Barter and other methods of exchange were used in the early days of evolution. Even today, countries manage trade deficits and reduce the amount of debt they incur through barter. There is a flip side. Even as most financial institutions and governments may want to create a cashless society, we have seen an increase in the supply of money in many countries especially during the pandemic. It is argued that it lowers interest rates, generates more investments and leaves more money with the people to spend. Does digital banking negate the argument?  

In the future, with a cashless economy ticking in, can a government enforce a transaction tax on every person-to-person payment? Or can it conduct a more effective mass surveillance and prevent certain individuals from buying anything or earning any money or restrict the type of consumer goods that can be purchased or sold with a certain amount of money? In the long run, cash-based economy is not sustainable. Jeff Bezos, Founder, Amazon said “In Today’s era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility, that’s it. Because nothing else is sustainable, everything else you create, somebody else will replicate.”. That is some food for thought. 

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