Banks avoiding/penalising cash is like bakery avoiding/penalising wheat….

The leading Indian private banks have decided to penalise cash deposits and withdrawals after a limit. On home branches the limit is 4 and on non-home branches it is 1. There are several other charges making it more and more difficult to conduct transactions in cash. The war against cash is up and running. Perhaps sprinting in India.

All this reads so ironical though. To say banks becoming averse to cash and penalising it is like saying bakery doing the same to wheat (any better example?). People started relying on banks as over time people needed a seperate player/service where their savings could be parked safely. These parkings were earlier made at home but were no more safe.

Banks owe their existence  and riches to the very idea of cash, deposits and credit. Earlier the more cash you brought into a bank, the branch manager could not be happier. But all this is changing quickly.

Why is it that banks have joined this cashless bandwagon? Simple. Banks have to run a large infrastructure to serve your cash needs. With lower cash, they could just minimise their branches/ATM and also close them. This will save so much costs for the banking system and even more profits.

As explained by Brett Scott:

The cashless society – which more accurately should be called the bank-payments society – is often presented as an inevitability, an outcome of ‘natural progress’. This claim is either naïve or disingenuous. Any future cashless bank-payments society will be the outcome of a deliberate war on cash waged by an alliance of three elite groups with deep interests in seeing it emerge.

The first is the banking industry, which controls the core digital fiat money system that our public system of cash currently competes with. It irritates banks that people do indeed act upon their right to convert their bank deposits into state money. It forces them to keep the ATM network running. The cashless society, in their eyes, is a utopia where money cannot leave – or even exist – outside the banking system, but can only be transferred from bank to bank.

Ideally a cashless or less-cash world should also mean bankless or less-bank environment. One could find other avenues to deposit monies than just a bank as after all your savings are going to be in digits.

Ideally, any player which could give you secured deposit services could be a bank. With rise of P2P lending and other such platforms, one could push for credit functions being taken away from banks as well. This is how earlier financial intermediation used to be with different players doing different things. Till banks concentrated all things related to money and finance towards themselves. And who helped them in this endevour? Yes the government of course.

But this is where things are unlikely to happen. Why? Because again government will help them. The government/central bank will ensure that payments/taxes have to be made through the banking system. After all, this way they can continue to keep things under their control. When the leading private banker says that digital wallets don’t have a future, he pretty much knows it.

Call this eat the cake and get the icing too. But for this banks have to go the bakery which does not have a choice but continue to work with wheat.

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