Money is probably the most significant invention in the history of economics which has now by and large fully replaced the barter system of trade across the world. However, nowadays, many developed societies in the world have now moved a step further by moving on to the cashless economy. In the developing countries like India, the cashless system has started making the inroads but it is far less in use than that of the developed counterparts.
During the pre-demonetization, the cash to GDP ratio in the country was between 12-13% of the GDP which fell to 7.3% during the demonetization. It was less than that of US where cash GDP ratio is at 7.8%. Though Reserve Bank of India (RBI) has started replenishing the cash into the economy but many experts believe that cash-GDP will not raise to the pre-demonetization level as government is giving a push to the cashless economy.
As India moves towards a cashless economy, following advantages are expected to accrue:
The electronic payment will help the entrepreneur to increase their customer base and breach the geographical limitations.
It is not necessary to be physically present to conduct cashless transaction. There is also no limitation on timing of transaction as it can be done at any time and from anywhere.
Carrying high amount of cash is always a security hazard. For other modes like credit/ debit cards, in the event of loss or robbery, one can block the card. It may also reduce pickpocketing and highway robbery.
Increasing share of cashless will improve government revenue as online transaction lead a trail of events which can be traced to find out tax evasion if any.
Since the cashless transactions are more visible, it will help in curbing the clack money.
If subsidy or wages for the welfare schemes like MNREGA are paid online through bank transfer instead of cash, it would also help in plugging the leakages and help in ensuring that subsidies are better targzeted.
As the people increasingly started using cashless transactions, it will help in increasing the tax base. It will be easy for the public as well to explain the tax authorities their past expenditure.
Being cashless also inculcates budget discipline.
It will also be easy to ward off the borrowers if you are cashless.
Cashless transactions do away with the need of change. One can pay in exact amount even in fraction of rupee or paisa through card payment or online transaction.
Problem of counterfeit currency will also be reduced in online transactions.
One can also trace the funding of terror activities as online transactions leave a trail.
There is high cost of printing currency notes. Switching to cashless transactions will decrease this cost.
However, being cashless has its share of disadvantages too:
The biggest fear is the risk of identity theft. One can also become a victim of phishing trap.
In case of loss or theft of card, getting another card is time consuming process.
Since mobile phone had become an important element of cashless economy, loss of phone may become a double whammy as many financial details can be retrieved from it.
If we take into account the proportion of non-tech-savvy population, the practical implementation of cashless economy will take enormous efforts.
Despite its drawbacks, the cashless system is indeed an improvement over the traditional cash based system. However, none of the advanced economy has fully replaced the cash as it is practically not possible but reducing the amount of cash and increasing the cashless transactions will definitely improve the transparency in business transactions and therefore is good for the country and economy.