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In a recent edition of The 5 Minute WrapUp, we showed you how Mr Modi's surgical strike against the cash economy is part of a worldwide megatrend. Here's a snippet if you missed it:
The case is this: Governments and central banks across the globe are on a war footing to uproot physical cash from the financial system. And with the demonetisation saga, India too has joined this rally to become a cashless society.
However, we must question: Will it be in India's best interest to move towards a cashless society?
We don't think so.
The fact is that India is not ready to go digital. A few days ago we pointed out some challenges to India's digitisation. Only 15% of India's one billion wireless subscribers have a broadband connection. Around six lakh villages do not have adequate mobile or internet connectivity. India has only around 15.1 lakh point of sales machines. So unless these issues are sorted out, the road towards a cashless economy will remain a long one.
But the problem doesn't end there. Even if these problems are overcome, there remains a dark side to digital money. When individuals use less cash, they switch to credit cards. And unlike cash, credit cards allow you, even encourage you, to spend more than what you have. People then start spending more by borrowing. And this could mean an increase in debt and decrease in savings.
This is already in play in the US where cash accounts for a minority of transactions. Asad Dossani at Daily Profit Hunter lays down the facts...
We don't know how the above trends will play out. The move towards a cashless society could mean a positive development for India. It will lower costs, improve transparency in transactions, save time, and open up opportunities for some companies. However, we must pause to consider the other side of the coin, and be ready to deal with challenges.
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