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Cashless economy

Nearly two years after demonetization, about 99.3% of the notes sucked out of circulation has been returned. 

Outcomes of demonetization: 

Over the last two years, at least three of major claims of demonetization have collapsed. 

  • First, it was supposed to flush out black money and end corruption. The government predicted that Rs 3 lakh crore in currency would not return to the banks. This has proved to be false, as most of the cash has returned. 
  • Second, demonetisation was to help detect fake currency, which apparently funded terror and distorted the economy. The government claimed that at any point of time, there was Rs 400 crore in fake currency notes floating in the economy. Nine months after demonetisation, it was claimed that Rs 11.23 crore in fake currency had been detected. Now, the Reserve Bank reports a huge jump in fake Rs 2,000 notes, which were introduced after demonetisation. 
  • Third, demonetisation was to pave the way to a cashless economy and the gleaming new world of digital India. Two years later, the amount of cash with the public has reached a record high 

What is a cashless economy? 

It is a situation in which the flow of cash within an economy is non-existent and all transactions have to be through electronic channels such as direct debit, credit and debit cards, electronic clearing, payment systems such as Immediate Payment Service (IMPS), National Electronic Funds Transfer and Real Time Gross Settlement. 

Benefits of a cashless economy: 

  • Would ensure that loopholes in public systems get plugged, and the intended beneficiaries are able to avail the benefits due to them. It also leads to increased efficiency in welfare programmes as money is wired directly into the accounts of recipients. 
  • Transaction costs across the economy come down.  
  • Financial inclusion and enables e-commerce growth. 
  • Strangulates the grey economy, prevent money laundering and even increase tax compliance, which will ultimately benefit the customers at large. 
  • No need for queues outside ATMs. 
  • No cashout during long holidays. 
  • No risk of carrying currency notes in the wallet. 

What perpetuates use of cash in India? 

  • A high propensity to save in and use cash. 
  • Cash intensive supply chains require many merchants to transact in cash. 
  • A large shadow and remittance based economy is also to be blamed for the situation. 
  • Also, costs of point-of-sale terminals and operating costs are still high in India. 
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June 2022
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