The growing shift towards digital payments is strongly debated among governments, central banks and financial experts. Indeed, the proliferation of new electronic and mobile instruments has opened the door to a possible revolution of the payments landscape. Yet, various factors must be taken into account as a worldwide shift to cashless could prove more complex than believed.
To justify a withdrawal of paper money, governments argue that a fully digitalised system would eradicate tax evasion and money laundering, reduce transaction costs and enable financial authorities to stimulate economic growth. A cashless system would enable governments to track and record every transaction, leaving no loopholes for fraudsters to exploit. Moreover, central banks would be able to impose any desired monetary policy – including negative rates – as consumers would have no way to retrieve their cash from the banking system.
A demise of paper money would enable governments to exercise a full control over the banking system, including tracking and recording all transactions. If this might be useful in the fight against criminality, it will also impinge on consumer rights to privacy. Furthermore, no one would be immune in case of a system failure, and a stolen or broken smartphone would immediately leave the victim without a payment tool. Last but not least, the millions of unbanked would be left behind without any resource. According to specialists, a shift to cashless might even create a second-class citizenry and thus deepen the gap between rich and poor.
The example of India’s demonetisation shows how laborious the shift to cashless can be. Last year’s demonetisation of the Rs 500 and 1000, which accounted for 86% of the currency in circulation in the country, unsurprisingly resulted in chaos. Companies were unable to pay salaries and millions of unbanked citizen could not buy food and medicine. What’s more, the economy slowed to a two-year low as the population spent days lining up at banks to open accounts and deposit their old notes.
To read the original article, please click here.