PS: this blog was first published at this link https://ibsintelligence.com/blog/covid19-crisis-need-more-digital-currency-reasons/
The COVID-19 pandemic has been one of the most complex crises of modern times. What started as a small outbreak in China has now taken the whole world in its grip. So many lives are at stake, and so is the economy. Nations, both developed and developing, are scrambling to work out strategies to overcome this virus. But even when the pandemic would have been contained, the magnitude of economic losses that it will leave behind would be both massive and enduring.
While governments may be tempted to put more money into circulation for some post-crisis economic overhaul, it would be in everyone’s best interest to not do it in physical form. We are at such crossroads where even one critical change can turn the tide for or against us. But with the right kind of changes (primarily technological), the economy can get on the right track. I would especially press on utilizing this time as an opportunity to move to digital currency
The circulation of printed money should not be increased right now, and there’s more than one good reason for it.
Aiding the Viral Spread: Physical currency i.e., notes and coins, can potentially help the spread of coronavirus by being a carrier. Some countries have even urged their citizens to stop using banknotes altogether. According to Reuters, South Korea’s central bank said it was taking all notes out of circulation for two weeks — and even burning some — to reduce the spread of the virus.
Costly & Harmful: It is a certain irony that printing money, itself, is an expensive affair. From procuring paper (by cutting trees) and ink to printing notes of various denominations as per the precise design is a complicated and costly process. As for India, the currency paper, ink, and even the printing machines have to be imported from outside. Also, the utilization of papers contributes to deforestation and, thus, to climate change.
Minting of coins, on the other hand, is even costlier when compared to printed money. Not the process, but it’s the sheer cost of metal that makes minting coins so expensive.
Cash Handling Costs: Most of us rarely ever consider the logistics of all the cash that’s in circulation. Cash handling is quite expensive as well, both for the economy and the environment. Moving cash from a bank’s deposit to the treasury and then to ATMs requires careful and secured movements, which is not only costly but inefficient. Add to that; all the carbon footprints left behind in the process.
Leads to Black Money/Hoarding: The whole phenomenon of black money (hoarded, unaccounted cash, or illegally obtained income) revolves around cash. If the economy digitizes all payments whatsoever, this black money will reduce significantly over a short period. Tax evaders and hoarders prefer cash payments instead of digital transfers, thus adding to the vice of black money. Also, it lowers the country’s revenues as taxes obtained are lower if most transactions are done in cash (for avoiding GST/income tax).
Counterfeit Notes: The use of printed money also brings the problem of counterfeiting. In India alone, over 4 million counterfeit notes were detected in the last decade. The inclusion of these fake notes in circulation can add to the already growing inflation.
Lack of Traceability of Transactions: Cash transactions are largely untraceable as many dealers do not provide a proper bill. Moreover, non-commercial transactions between people are rarely if ever traceable. In such cases, the probability of fraud, blackmailing and misuse is much higher than in digital transactions.
What Can Be Done?
With so many revolutionary technologies like payment mechanisms such as UPI, blockchain coming into play, there’s so much that can be achieved in the financial realm. From digital payments gateways to digital currencies , technology has unlocked numerous ways for much better economic practices.
Escalating Digital Transactions:
Digital payments should be pushed further by governments across the world.
Mobile and contactless payment options should be made extensively available.
There are technologies now that can enable consumers to pay in stores directly through their smartphones or smartwatches or NFC enabled credit cards, thus allowing buyers to make contactless payments. The results of such an economic change would be highly beneficial, especially for revenues and restriction of illegal money.
Moving to Digital Money:
Digital currencies like DINR (digital INR) or some stablecoin (on blockchain private network) could be launched by Indian central bank and be integrated within all UPI enabled payment systems. They say, “never let a crisis go to waste,” this may be one to at least push for central bank digital currencies.
Digitizing money would not only help in curbing black money but would also help bring inflation down by reducing the circulation of currency notes.
For a while, digital rupee and physical rupee will have to co-exist in some ratio until the digital transactions reach a majority of all transactions percentage.
And for global remittances, Bitcoin alike cryptocurrency (which is arguable “truly” decentralized), may emerge as the standard and can be easily tracked/ traced for regulatory purposes
Moreover, blockchain-enabled transactions are highly secure, traceable, and immutable.
Also, it will make transactions less expensive since the cost of transferring digital money through the Internet is cheaper than the conventional banking system.
Every cloud has a silver lining, but it’s up to us whether we’re able to recognize that silver lining or not. If we try with enough dedication and intent, the current crisis could be very well utilized instead of being feared. We all know, and the Indian government especially has been pushing for Digital transactions, which can be very well enforced by digital currency. It may be the best opportunity to strike the home run.