CasH vs casHless: tHe war Has Just begun

In his recently published white paper ‘Cash Essentials,’ Guillaume Lepecq, a globally recognized expert in the subjects of payments and cash provided an in-depth analysis of the economic and social utility of banknotes and coins. We spoke to him to know t

India is the largest producer and consumer of currency notes, next only to China. Currency continues to be the dominant means of payment with the banknotes in circulation (in value terms) placed at ₹14.3 trillion as of end March 2015.

According to Reserve Bank of India Annual Report 2015, the value of banknotes in circulation increased by 11.4 per cent to ₹14,289 billion as of March 2015 over the previous year. Further, the volume of banknotes in circulation increased by 8.1 per cent to 83.6 billion pieces over the same period.

Though in a country like India usage of cashless mechanisms can ensure that loopholes in public systems get plugged, and the proposed beneficiaries get to avail what is rightfully theirs.

In his recently published white paper ‘Cash Essentials’ Guillaume Lepecq, a globally recognized expert in the subjects of payments and cash provided an in-depth analysis of the economic and social utility of banknotes and coins.

We spoke to him to know the reason and agenda behind this war on cash led by e-payment service providers and few European governments who believe in a cashless society.

Cash is Universal

Electronic payments offer convenience and particularly for new channels including e-and m-commerce. But, they are in no way a substitute for cash.

They lack the universality of cash. Cash can be used by all, regardless of age, gender or financial situation. And because the same notes and coins are used by all, cash does not discriminate against users. This is why Uber accepts cash in India.

They depend on an infrastructure, which is subject to failures. On the other hand, cash works everywhere, anytime and for everyone. It is not subject to technological breakdowns or failures. This is also true in the case of severe floods, such as those that hit southern India during the last monsoon season.

The last and perhaps the most compelling reason is that cash connects people. In 2002, a group of OECD economists wrote in a forward-leaning paper called “The Future of Money,” that a proliferation of new payment methods could actually harm social dynamism by “further fragmenting and ghettoizing certain communities and regions.” The portrait of Mahatma Gandhi gracing the Indian banknotes is a powerful symbol and example of the social cohesion role of cash.

Is Interoperability Between Services and Countries a Must for the Success of Cashless Economy?

Interoperability is an important element but it is not sufficient.

Cash can be used for a broad range of transactions: they can be used for low and high-value payments; they can be used across different channels such as face-to-face but they are also used for e-commerce transactions as we have seen with Uber. And they can be used between different parties: consumer-to-business, person-to-person etc.… It is a general-purpose instrument.

On the other hand, electronic payment instruments are increasingly specialized: dedicated to a specific