CASHLESS ECONOMY: THE PANACEA FOR CORRUPTION, BLACK MONEY AND FAKE CURRENCY

On the evening of Tuesday, November 08, 2016, the Indian Prime Minister declared a historic decision in the path of India’s fight against corruption, black money and fake currency by demonetizing the higher denominations of Indian currency viz. Rs 500 and Rs 1000 with immediate effect. The move delivered an unexpected assault on all the black money holders and hawala traders in the country, who were holding the majority of their black money and fake currency as denominations of Rs 500 and Rs 1000. Looking at the merit of the move, one can safely say that the move will be successful in wiping out the fake currencies in circulation almost completely, but the same cannot be said about the black money. Though for a short run, the government has dealt a severe blow to all the black money holders, but this decision alone is not sufficient to completely eradicate the menace of parallel economy in India. The true panacea lies in demonetizing all paper currencies of the country and moving on to a cashless economy. Though at the outset this idea might sound highly impractical, shambolic and insane, it is something not really IMPOSSIBLE. It can be achieved if a well determined government move on a well thought out and systematic policy path. To achieve this we need a gradualistic and systematic approach. In this article I am attempting to share with the readers the outline of one such policy path that propped up from my thoughts. The objective of this article is to initiate a discussion on these policies and churn out a robust policy that could help in achieving the goal of a total eradication of the parallel economy not only in India, but around the world.

STEP ONE – FINANCIAL INCLUSION

The first step towards a cashless economy will be a comprehensive financial inclusion. Government should aggressively try to get each and every citizen of the country to be part of the financial system. Policy such as PM Jan Dhan Yojna is a welcome move in this direction. Each and every citizen of the country should have a bank account, with net banking, debit/credit card and mobile banking facility. Personal accounts, Salary accounts and student accounts must be made compulsory and should be linked to PAN.

STEP TWO – ICT INCLUSION

The second step will be information and communication technology inclusion. This includes popularizing mobile phones and internet among all people in the rural and urban. Slashing down internet usage tariff and tax of gadgets such as smart phones and computers shall be right move in this direction of popularizing ICT.

STEP THREE – TRAINING ON NEW GENERATION BANKING

Once the inclusion of all people in urban and rural with ICT is achieved, then the next step should be to impart training to the illiterate and less educated people in urban and rural, in association with the various banks in the country, on various techniques of new generation banking such as net banking, debit/credit cards, mobile banking, cash wallets etc. Such training can also be made part of all schools in the country. Such trained students can also be made volunteer trainers in their locality.

STEP FOUR – CREATION OF ONLINE MONEY WALLETS

All banks in the country should start Online Money Wallets. It should be a separate account other than the regular SB, Current, Recurring or Fixed Deposit account. Money held in this wallet should be highly liquid and shall be given no interest. The account holder can decide on what proportion of his SB money he wants to hold in his Online Money Wallet. Transactions from the Online Money Wallets should not be charged with transaction or service charge by the banks.

STEP FIVE – POPULARIZING QR CODE BASED COMMERCE

Once financial and ICT inclusion is achieved and online money wallets are opened, the banks should issue QR codes to all account holders. Shop keepers, taxi drivers and all others who cannot keep swiping machines for debit/credit cards, can use these QR codes of their bank account for getting their payment online.

STEP SIX – GOVERNMENT RUN E-COMMERCE WEBSITE/APP

The Union Government should start an e-commerce website/app with all the scheduled, non scheduled and cooperative banks as partners in it. Through this website/app similar to the Paytm, the Online Money Wallets held with these banks should be interconnected. The mobile app should be enabled with not only provisions for net banking but also QR code scanners. The government should ensure the safety of these networks from hackers by building impenetrable firewalls.

STEP SEVEN – POPULARIZING SMART CARDS

Public transportation, Petrol outlets, Shopping malls, Food joints etc should all issue smart cards that will be having money wallets to which customers can transfer money from their bank account through net banking or e-commerce website/app. Public transportation should introduce smart card system similar to that used in Metro Rails. This will end free rider issue in public services for ever.

CONCLUSION

The idea laid down here envisages an economy that runs on plastic money and online money. QR codes for commerce and e-commerce app can revolutionize the commerce sector and can play an important role in achieving this dream of a cashless economy. There will be zero chance of having fake currency, black money and corruption in this system as each and every penny are accountable. Every single transaction is recorded. The financial inclusion will make the monetary policy more effective and direct money transfers will bring about a more efficient distribution of public fund. This can also end age old social issues such as bribery, undervaluation of land, unaccounted binami assets etc. However I do acknowledge that it is not something that can be achieved overnight, but definitely something which we should be pursuing. As mentioned in the introduction, this is only a rough road map. The purpose of it is to ignite the minds and initiate discussions on this line to churn out a robust policy could help in achieving the goal of a total eradication of the parallel economy not only in India, but around the world. Now let the discussions begin.