The goal post of the present demonetisation drive keeps shifting every other day. Now the goal is said to be that of driving India to being a cashless society. The debate often circles around whether this is possible, given the situation which prevails here now. While this is important, it is even more essential to examine whether a move to a cashless society is desirable.
What is wrong with cash?
It is said that a currency driven economy facilitates parallel economy particularly the illicit activities. A cashless economy also potentially expands the tax base and eliminates the cost of printing currency. Cash could be stolen whereas if you opt for cashless transaction it is safe. The advocates of cashless economy also say this will enhance consumption and investment thereby providing a boost to employment and GDP. While it is true that cashless economy will expand the tax base, all other arguments are debatable to say the least. In October 2015, the UK Government did a National Risk Assessment based on Money Laundering and terrorist funding. The study based on recent past data revealed that the risk is highest with regulated institutions such as banks.
The risk of money laundering with Banks is placed at 158, with Accountancy Service Providers at 90 and Cash third at 88 risk points. This is particularly relevant in the present Indian context as the demonetisation move was projected as a fight against money laundering and terrorist funding. It is true that some use cash to evade tax but it is paltry when we compare the tax evasion by big corporates. How do we explain the stressed debts and NPAs in our banking system if cashless economy prevents tax evasion? If we care about tax evasion, we should start with the mass corporate tax avoidance facilitated by the formal banking sector.We cannot blame this on Indian banking system alone as this is the case globally. Linking progress and growth to the financial banking system is also not supported by facts. In most places, the landline telephone connections demanded a bank account and credit. But a mobile phone and airtime required only cash. According to a UN study, today 6 billion people have a mobile phone connection, much more than those who have access to a toilet, where as only 1.3 billion have landline connections.
Many experts opine that the financial system was actually a barrier to progress for the poor while cash was a facilitator. The GDP gets enhanced in a cashless society but at a huge cost to the public. This is examined later in this article. Even the cost of printing currency is often exaggerated and such studies sponsored by payment intermediaries. The cost of printing 86 percent of our currency is now estimated as Rs 12000 crores. The cashless system also comes with even more operational cost with a difference that it is often passed on to the public.
Is cashless society desirable?
Cash may not be bad but is cashless better or equally good? A ' less-cash' society and cashless society are entirely different. When every transaction you do is authorised and recorded by a commercial bank, the banking system contains a transaction history of your entire life, right from your birth. In a country where people are being attacked, at least once in a while , on the basis of what you eat and where you go, how would one feel safe with such micro-surveillant possibilities? That apart, payment intermediaries like Mastercard and Visa could have a big data economic macro-surveillance system. Often the service providers has built in intrusion mechanism. For example Paytm was requesting access to read your web bookmarks and history.
Freecharge asks to 'read call logs'. Almost all these wallets insist on reading our contact list. There is already an 'external watcher that 'assist', 'guides' or 'helps' you in your life, tracking and logging your moves in order to influence you', as Brett Scott the author of 'The Heretic's Guide to Global Finance' puts it. The Swiss People Party's member Manuel Brandenberg recently proposed a legislation making the existing denominations of bank notes now in use, permanent. He said " Cash is property and cash is freedom. It empowers the individual because it is tangible wealth. We want to guarantee that cash remains in force. If it's anchored in the law it's harder to change". We know about instances where Visa, MasterCard and Paypal , obiviously under instructions, attempting to choke WikiLeaks by refusing to process people's donations.
Uganda shut down the popular mobile money in February 2016 just before elections to block donations being received by opposition parties. The official version was that it is being done to prevent the opposition parties from paying the public for votes. Here again, every transaction was traceable and the guilty could have been booked but the censorship was enforced throwing the gullible public into further distress. Mr Scott concludes his analysis saying " The proclaimed Death of Cash is thus an episode in the broader drama that is the Death of privacy, the death of breathing room, and the death of informal, non-measured, unaccounted-for behaviour. Every action you take must forever be attached to your digital persona, dragging with it a data trail extending back to the day you were born, We face creating an entire generation of people who do not know what it feels like to not be monitored".
Not just a threat to our privacy, a cashless society is a threat to our financial security as well. Sweden is the world's best example for a cashless society. There were reports about homeless people selling newspapers carrying a POS terminal with them. But the central Riksbank has set an interest rate of -0.5 percent for deposits. What does this negetive interest rate mean? That one has to pay the bank for parking thier money. And you have no where else to park your hard earned money. So in a cashless society what do we do? Like in a passing the parcel game, keep transacting money and never hold on to it. GDP would grow but at the expense of the consumer.Over a fifth of the global gross domestic product is now produced in countries that have negetive interest rates. These negetive interest rates does not go along with the concept of free market at all. They destroy the impetus to save and build capital thereby negating thier own theory.
The strategic campaign
We have to learn from somebody else's mistake. We cannot make all the mistake ours and then learn from it. Similarly we have to be live to the strategies that were used earlier. One such strategy is telling us over and over again that There-is-No-Alternative. There is a carefully orchestrated propaganda that involves projecting usage of currency as primitive and not in tune with the modern world. Cash is showcased as redundant, inconvenient and inefficient. Anyone defending cash would be termed anti-developmental and a nostalgic luddite. Cash belongs to the current holder. An account balance is not actual money but just a claim on money. But the propaganda will continue.We should not forget that every transaction done with cash is a missed opportunity for payment intermediaries like Visa, Paypal and MasterCard. Visa campaigns " Cash free and Proud" whereas Paypal shouts " new money isn't paper, its progress". They expect us to shift without reasoning as we have no option but to be modern.
Like 'sustainable development' which made many lives unsustainable, so is the new mantra 'Financial Inclusion'. This is a policy to exclude many from doing any commercial activity. While the banks want more account holders who will use thier whole gamut of services, banks cannot make profit from marginal users who use thier card to make low value payments. The move to a complete bank based transaction system will completely alienate them.If you do not have official stamps of approval like university certificates it is going to be difficult. If you have a criminal record or been expelled from your college or even a bad CIBIL score then that is it. And we were discussing financial inclusion.
(To be continued)
(Joseph C. Mathew is former IT advisor to Kerala Chief Minister)
