Is the End of Paper Currency near?

Just because it is normal does not mean it is right. What is “normal” anyway, except a setting on washing machines? These lines ring very true with the current currency situation. Versions of paper money existed as early as 7th century China. Since then, the currency system has undergone multiple changes to make physical notes the widely accepted mode of exchange of value. Humanity has come a long way since the 7th century. Isn’t it about time that money kept up with the times and developed too?

This need for a change isn’t baseless either. Although the concept of currency is nearly as old as human civilisation, a relatively new disease plagues the system. We are all quite familiar with the progression of barter and how currency brought liquidity to an inflexible system. However, it is human nature to corrupt all that exists; money, of all things, was not going to escape this rot. This new disease is illegal, or as the laymen call it, black money (could have very well been purple or green money, but nope, black). Nevertheless, 👇

Oh, did you think I was propagating the acceptance of black money? Sure it's comforting and nice in the short term, but getting out of its mayajaal isn't as easy as muttering, "It's not you, it's me."

And just like you dropped that ex of yours, you ought to drop the thought (or habit 😏) of earning physical currencies that are black too. The way to go about it? First, stop stalking the ex; second, go DIGITAL! A solution emerges in the form of digital currency, but its implementation will take some time. So before we dive into the new iteration of money, let’s get rich with information.

Rot on Old Money

As I mentioned before, currency brought liquidity to the exchange mechanism. Before the introduction of money, economies widely used the barter system to meet the demands of their various segments. The “half of a horse” problem needed to be solved. After all, how long would a poor guy give away an entire horse just for a sack of rice? Plus, if he gave away just one leg, the horse wouldn’t survive for another sack anyway! SO MUCH CONVICTION! 🤯

Finally, a valuation method and an accompanying store of value were found in currency!

However, in recent times, money has attracted the unscrupulous attention of corruption, and people soon started amassing illegal gains in this new form of money (cash is supposed to be in ATMs, not walls and flushes 😠)! For a moment, the government was on to something; paper currency had run its course, and a paradigm shift was needed. Thus, the Indian Rupee was discontinued, and a new form was implemented… a form that was just an aesthetic change and a huge inconvenience for the middle class. 

The new look made it so that the older design served the same purpose as dyed bank notes in a cliche movie bank heist. If you possessed the differently marked notes, you had some amount of criminality linked to you. The old notes got you caught blue-handed. 🤭

This was also the time when online transactions started gaining some traction. Online transactions spiked from October 2016, when the demonetisation wave had people thronging around banks and ATMs in an “out with the old, in with the new” rush. By May 2017, online transactions went up by 56%, from 71.27 crore to 111.45 crore transactions in a brief period of 7 months. If Paytm’s little jingle didn’t play in your head remembering the situation, I don’t even know what to do with you! This was when people started slowly understanding the benefits of digital payments. 

However, cash was still king as smaller vendors had yet to adapt to the new system. But on the date of writing this and in the future beyond, “UPI hai kya?” won’t be something to worry about. All I keep in my wallet these days is my own photo and the leftover bits of old receipts. In my digital wallet- chillar (apni-apni spending habit hai, bhai!).

Done judging me? Let’s get back to the point. With digital payments catching eyes, the currency notes were catching fire. The pandemic had a positive effect on the digital payments environment too. Being forced to go contactless made acceptance of the new medium more widespread. Don’t believe me? Between April and July 2022, India recorded close to 3,270 crore online payments. I personally had to teach over 5 relatives of mine how to use digital platforms. And remember the chillar in my digital wallet from the above paragraph? I collected that by sending ₹1 to myself from their accounts while I taught them. 

I feel pretty confident about having nailed the case of digital payments, but just to drive the point home, let’s go on a journey to a completely cashless economy.

The Nation that Pays together, Stays together

The first step in going cashless would be to find a better alternative. (Again, I’m not propagating something like relying on your parents or siblings or kids; read on, you judgy person!) Online transactions have taken the forefront in this department and are the definite next step. In its initial stages, online money transfer had the shortcoming of different “wallets” or dedicated stores of money with each payment intermediary.

Me- “Bhaiyya, Paytm karu, ya Gpay?”
Shopkeeper- “PhonePe nahi hai kya?” 

As a result, cross-platform payments were not possible as each platform wanted to retain the most funds in its own ecosystem. This set off a scramble among the payment intermediaries to gather more and more customers and establish a monopoly to ensure that there would be no need for cross-platform payments. (I’m sure the big corporates had customer welfare at their heart, increasing their bottom lines was just a “welcome side-effect”.)

In a truly “Unity in Diversity” move, the National Payments Corporation of India (NPCI) created the Unified Payments Interface (UPI) to ensure that almost all banks would have a common platform for the millions of account holders to achieve “pay unity”. Soon enough, all the payment intermediaries had hopped on the UPI boat, and lo and behold, payments were “easy-peasy-lemony-squeazy”.

How easy? Easy enough to make payment value skyrocket from ₹2,071 crore in 2017-18, a year after UPI’s inception, to ₹5,554 crore by the FY 2021-2022. Going cashless was a transition that India readily accepted, which is strange coming from a tech-averse generation that is infamous for its rigidity. (How many generations of runaways did it take to normalise love marriages?)

Now let me impersonate an overzealous salesman and tell you, “But wait! There’s more!” about digital money and going cashless.

Upgrades! People, Upgrades!

Because it would not be an Insider article without a little stretching of the imagination, let’s take this “digital money” idea a bit further, yeah? To go truly cashless, what if the physical currency was taken completely out of the picture, and we use blockchain technology? Now now, don’t go crinkling your noses. How judgemental are you?! I am not talking about cryptocurrency; I mean to shed light on the tech behind it.

You see, as indigenous and ingenious UPI is, it is still not the most secure platform. The number of financial frauds for the one-month period of May to June 2022 was over 61,000. That’s over 2,000 complaints per day. Out of these, more than half of the instances of financial deception rose from the UPI at 33,712 complaints. While I am a proud user of the platform myself (teaching the older gen and earning small bucks off of it), I also firmly believe that where there is room for improvement, headway must be made.

Digital currency has already made a splash in Sweden and Kenya with the e-krona and eNaira, respectively. Although the central bank digital currencies are still in their pilot phase, the countries have started working on parallel implementation to make the transition from existing currencies more streamlined. Indian authorities could take a page out of this book of uniform change...

A central bank digital currency is a legal tender that does not exist in physical form in any capacity. The currency’s value is determined by the same standards its physical tender would be based on, whether it’s a bimetal system or foreign reserve-based valuation. The cool part is, it works on the same blockchain tech that hosts cryptocurrencies, but instead of free markets deciding its value, it is the government that takes the call.

So could our FM rest easy and maybe, just maybe, give blockchain (not crypto) a shot? Speaking of the government, going cashless also has tax benefits. Got your attention now, didn’t I? 😏

Tax Haven

As a commerce major, I became aware of the various years for tax quite some time ago. However, this was my first ever assessment year as a salaried individual. It was 2 days before the ITR submission deadline when I had an inkling of doubt that I might be taxable. Imagine my panic when I suddenly remembered that there was a plethora of documentation that I needed to produce in order to complete the procedure! Fortunately (or unfortunately), I didn’t quite make the minimal tax bracket and was exempt (I wish I wasn’t).

But how about never having to file an ITR, or even a GSTR for that matter, or even paying taxes on your own? Relax, we’re going cashless, not taxless. Imagine if all the taxes you ever had to pay were pre-deducted. While this setup sounds quite far-fetched, the Arthakranti initiative is a pipeline proposal that plans to achieve the same. The Arthakranti scheme brings forth the following proposals:

• Scrap all 56 domestic taxes, including GST and Income Tax, but not customs.
• Remove high denomination currency notes from circulation.
• Mandate to make all high-value transactions pass through the banking system (DD, Cheques, Online, etc).
• Limit cash transactions and make the same exempt from taxation. However, withdrawals would be taxed.

• Collection of fiscal revenue to be conducted through the banking system.

Under the proposed system, the scrapped taxes would be replaced by the Banking Transaction Tax (BTT), which would range from 0.7% to 2%. Our deepest condolences to commerce students. 

The Bottom Line

A cashless economy will absolutely have its own set of obstacles, glitches, and issues. With cash being a major fuel for a corrupt government, the Indian population would be better off with these problems. The inconvenience of a new system is far better than the decay caused by a system that has outlived its welcome.

Since the shift will be quite drastic, India would do well without another round of demonetisation. A parallel implementation would ensure that the government does not pull a Muhammad-bin-Tughlaq with the currency switch.

Also, if a physical currency is about to poof, I’m saving a note of each denomination of the new “monopoly-looking currency” before they are outlawed. Demonetisation brought this opportunity once before, I’m not missing out again. Purane notes OLX pe bechunga.
#NoMoreChillarInMyDigitalWallet 💪

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• Blockchain Technology: Future of Non-Fungible Tokens in India