Cashless economy

cashless-economy

Question-Which of the following is true about cashless economy?

  • The flow of cash within an economy is non-existent.
  • All transactions have to be made through electronic channels such as , credit and debit cards, electronic clearing, payment systems such as Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT),and Real Time Gross Settlement(RTGS).
  • Both (a) and (b).
  • None of the above

Answer-(c)

Related facts-

  • Second annual report of Reserve bank of India shows that cash transactions have increased since demonetization.
  • About 99.3% of the notes which had been sucked out of circulation have been returned after two years of demonetization.

Why demonetization was needed

  • To tackle black money in economy. It was believed that with the help of demonetization black money will flush out and corruption will end.
  • To lower cash circulation in country this is directly related to corruption.
  • Demonetization will help to open the way to a cashless economy and the new world of digital India.
  • To eliminate fake currency and dodgy funds which have been used by terror groups to fund terrorism in India.

About cashless economy

  • Cashless economy is the economy in which the flow of cash is non-existent and all transactions have to be made through electronic channels i.e., debit and credit cards, electronic clearing, and payment systems such as Immediate Payment Service (IMPS), National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS).

Advantages of cashless economy

  • It will plug the loopholes in public systems.
  • Due to this cashless mechanism intended beneficiaries will enjoy the benefits.
  • It will reduce the costs of transaction across the economy which leads to efficiency gains.
  • With the decrease in use of cash it will restrain the grey economy, prevent money laundering.
  • Increase tax compliance.
  • There will be no need of carrying currency notes in the wallet.
  • There will be no queues outside the ATMs.
  • During holidays there will be no cashout.

Constraints of cashless economy in India

  • A high inclination towards saving and use of cash.
  • Gender imbalance in use of digital payments has further dissipated the problem. This is due to insufficient focus on financial literacy.
  • Costs of point-of-sale terminals and operating costs are still high in India.

References-
https://scroll.in/article/892428/the-daily-fix-rbis-latest-report-is-clinching-evidence-that-demonetisation-was-a-failure
https://www.oecd.org/cleangovbiz/Integrity-Forum-2017-Beyes-Bhattacharya-India-demonetisation-drive.pdf