A three essay series by Tony Joseph of Business World. He looks at the various political economy factors behind the digital cash drive. This go digital drive is hardly as rosy as it is presented to the masses. There are several players involved who are using governments to rush/push through policies to make that quick killing.
- Part I: Why there’s a war on cash (and you are in the middle of it)
- Part II: Who is behind the war on cash (and why)
- Part III: The problem with the war on cash
In the first essay he says:
There is a global war on cash.
What we have seen in India in the last couple of months is part of that war. This is a difficult point for many opponents of the demonetisation exercise to accept because it interferes with the narrative that demonetisation is a story of political malice marrying incompetence. Suggesting that there were other motives too, whether good or bad, is seen as diluting the charge of incompetence. But we have to take facts as they come. If we do not do that, we will not be able to grapple with the real issues or understand what is going on.
The timing and reasoning for demonetisation may have been shaped by political opportunity and the schedule of the Assembly elections, but the move towards cashless economy was happening anyway. And demonetisation did give it a big push. At a very high human cost, of course. (Please click here for an explanation of how different threads/initiatives came together to cause an explosion on November 8.)
But who is waging the war, and why? And thereby hangs a long tale. For ease of articulation, first the summary, and then the substantiation.
The war on cash is being waged by four major groups. One, existing financial services providers such as banks and credit card companies. Two, technology companies, including start-ups, with financial services ambitions (known as Fintechs in current terminology). Three, governments. And four, Central banks. It is difficult to imagine a more powerful combination of forces.
It is not that they have the same objectives. In fact, they have different objectives that sometimes conflict. But their interests are complementary when it comes to driving cash out of existence. For example, new start-ups like PayTM may take away business from existing financial service companies and ruin some of their business models, but for both groups, physical currency is either a mortal enemy or is of little use. There is little profit to be made from it and, for banks, it costs money to count, manage, store and move cash. But the moment currency turns into digital bits, two opportunities present themselves – one, to charge tiny little fees on every single transaction and two, to create a data trail of income and expenditure of customers that would come in handy to sustain new services and business models. So it makes sense for banks and fintechs to join hands to chase cash away.
India is right in the middle of this battleground, for two main reasons. One, India is seen as having the basic infrastructure in place – in terms of bank accounts and mobile penetration – to be able to take the jump to a cashless economy. Two, it has also been identified as a country with very large potential gains from the war.
The conflicts of interest and varied motives should make people sit up and ask tough questions from governments. If this decline of cash was a gradual process it was fine. What we are seeing pushing of agendas down the throats of people.
The governments in collusion with select firms and few ivy league economists, is usually a deadly recipe in making…..