- A report released by the State Bank of India last week states that thanks to demonetisation, India has seen a huge increase in digital payments using cards.
- It is unanimously agreed by experts that a cashless world offers many undeniable benefits.
- In a world where all, or at least most, transactions are digital, the government would be able to track any transaction.
- This would help prevent tax evasion, thus increasing tax revenue, and also help in dealing with criminal transactions.
There are often some good economic reasons for them to choose to deal in cash over other forms of money.
Physical cash often offers the easiest and cheapest way to deal in many low-value transactions.
- It might, for instance, make no economic sense for small businesses to build the infrastructure required for digital payments, or for poor households to pay the price for it.
- Many businesses and consumers might automatically adopt digital technology as its costs drop.
- Forcing them to prematurely adopt technology will only be harmful to their interests.
All untaxed cash-based economic activity
- It is a crime that needs to be punished, but it should be remembered that cash actually allows several beneficial economic transactions to thrive.
- In the absence of cash, a lot of these useful activities would be crushed under the weight of harmful government policy.
- It is no coincidence that many legitimate economic activities get pushed into the underground economy only under draconian regimes.
Cash and Inflationary Policies:
- Lastly, it is worth noting that the preference for cash among citizens has traditionally worked against the plans of governments to pursue inflationary policies.
- In fact, American economist Kenneth Rogoff, a prominent advocate of the war against cash, has spelt out clearly that cash stands in the way of central banks pursuing a negative interest rate policy (NIRP).
- Simply stated, if citizens are allowed to encash their deposits to escape a situation like NIRP, it would threaten the stability of the banking system.
- Cash thus acts as a natural check on inflationary government policies. It is no wonder that cash has been turned into an evil zombie, which it is clearly not.