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What is a cashless economy? It is an economy that ceases to have paper or metal cash, instead, all the transactions are done through digital means such as net banking, UPI, E-Wallets, cheques, credit and debit cards & cryptocurrencies.
As most of us know, the barter system was prevailing in the past, which is the exchange of goods for goods. Gradually, coins and paper notes showed up. Now it's plastic (cards) and digital money's era. Its use started in the 1990s and by 2010 payment apps like PayPal became famous.
For a cashless economy to be adopted there are few basic requirements such as internet connection, people should be literate, a bank account, and access to mobile phones or laptops as well as knowledge to use them. Now, let me tell you about India's situation. More than 37% of the transaction in India are digital in the year 2021 led by Paytm, PhonePe, Google Pay, etc. They rose due to the covid pandemic. In the future years, it is predicted to increase by more than 70%. India has more than 157 crore bank accounts and more than 80 crore debit cards. The adult population (above 18) in India is almost 928260000.
There are around 14.58 commercial bank branches per over one hundred thousand adults in India, which is not great. The situation in rural areas is sadder. There are 1.66 lakh branches and close to 2 lakh ATMs, the number of accounts is also not bad but insufficient. Moreover, their functioning is very inefficient.
The literacy rate in India is less than 75% and the education rate is lower than that. Internet connectivity is also very poor in our country. Only close to 54% of the population has access to the internet, and in rural areas, the speed is very low too. People who use smartphones also constitute less than 55% of the population in India.
Due to all the reasons mentioned above a cashless economy is not possible in India currently. But, there is a lot of improvement seen in recent years.
Hon'ble Prime Minister announced the Pradhan Mantri Jan Dhan Yojana as the National Mission on Financial Inclusion, intending to ensure comprehensive financial inclusion for all households in the country by providing universal access to banking facilities, including at least one basic bank account for each household, access to credit, financial literacy, insurance, and pension facilities are all available. A person who does not have a savings account can open one without a minimum balance requirement, and they can create a small account if they self-certify that they do not have any of the officially acceptable documentation necessary for creating a savings account.
In addition, all of the country's approximately 6 lakh villages were divided into 1.59 lakh Sub Service Areas (SSAs), with each SSA generally containing 1,000 to 1,500 families, and Bank Mitras were deployed for branchless banking in the 1.26 lakh SSAs that did not have a bank branch.
There are many awareness programs by GOI which help people understand how a cashless economy works.
Due to the Covid-19 pandemic, most of our work, especially education turned online. Due to this, there has been an increase in access to cheaper smartphones & the internet in many villages and towns. Even the government is doing its part in bridging the digital divide.
The government declared a new mission to provide broadband connectivity to all villages in the nation by 2022, requiring about Rs. 7 lakh crore in investments from various partners.
Through PM-Wi-Fi access network interface or PM WANI plan, the government authorized a framework for the spread of public Wi-Fi networks. The government intends to provide internet access through Public Data Offices (PDO's) as a part of this program. This ensures that youngsters will have access to smooth internet. Recently RBI has announced plans about its digital currency i.e. Central Bank Digital Currency (CBDC). RBI has advocated the use of a digital currency, as fiat money (inconvertible paper money made legal tender by a government decree), to reduce dependency on paper notes and reduce the load on transactions. RBI has also said that CBDC's would mostly be launched by December 2021.
There has been an increase in popularity for cryptocurrencies such as Bitcoin and Ethereum. There is a difference between crypto and CBDC.
Bitcoin and other virtual currencies are digitally encrypted, decentralized, and unaffiliated with or governed by any government. A CBDC, on the other hand, will be a government-backed digital counterpart of the fiat currency. Furthermore, central banks manage the quantity of fiat money, which may be raised or lowered depending on demand, but the supply of cryptocurrency is unregulated.
Legal tender money can also be maintained in a bank account; however, cryptocurrencies must be kept in digital wallets.
India's high currency-to-GDP ratio, according to the RBI, necessitates a move to CBDCs. The cost of printing, transporting, storing, and distributing money may be decreased if big cash transactions could be substituted with CBDCs. Virtual currencies, according to the RBI, may stimulate the usage of the US dollar. As a result, Indian-developed digital money might help the Rupee maintain its popularity.
The government has several policies and initiatives in place to help India transition to a cashless economy, including the Digital India program, which is a flagship initiative to transform India into a digitally empowered society and knowledge economy. One of Digital India's stated goals is to be "faceless, paperless, and cashless."
Furthermore, the RBI says that CBDC payments are final, decreasing financial system settlement risk. In this digital era, most transactions are paperless. If we don't adapt to CBC's there will still be paper transactions, which would still leave a gap for crimes, evading taxes, slower transactions, and the economic development would be slow when compared with the countries using digital payments.
I would say currently India still needs time for a cashless economy. Now, a partial cashless economy is a better option, i.e. using digital money as much as possible and making our economy into a cashless one in a phase-wise manner in the coming years. Not mandating a bank account for using CBDC's would boost its growth as it makes the usage simple.
To summarise, CBDC's should complement the rupee rather than competing with it. CBDC’s present both possibilities and risks to the money supply chain, posing a risk to the financial services ecosystem as a whole. Many central banks across the world have been investigating CBDCs in-depth and, in some circumstances, undertaking pilot test cases. Over the last decade, India has been at the cutting edge of technological innovation, and we must begin pilot programs for CBDCs in regulated conditions. --- Shreyas