Why cash is here to stay in the subcontinent
Cash is not only appealing to those bureaucrats who want to siphon their money abroad or prefer dealing with payments and receipts via “cash-in-hand”
On November 2016, all the TVs across India flickered in unison with images of Prime Minister Narendra Modi. In an unscheduled surprise address, he announced that the Rs 500 and 1000 notes would lose their status as legal tender effective immediately after midnight.
The two notes accounted for 86 percent of India's currency as the country paid 80 percent of its workforce salaries in cash. The sudden decision wreaked havoc among the masses.
The next few months were nothing but a disastrous experiment. To track the underground economy, policymakers turned the life of 1.3 billion people into a nightmare.
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Bangladesh is facing a similar situation. While salaried workers' taxes are automatically cut from their paycheques, a country with a projected informal economy greater than 60 percent of the entire workforce cannot possibly benefit from the digital transactions in the short run.
Earlier last month, Visa announced that they plan to expand their operations in Bangladesh and would be hiring for various positions in an attempt to capture the growing middle class who transact almost entirely on credit nowadays.
The City Bank Ltd has also launched an international debit card with a limit of $12,000 for those interested in making international purchases, who would otherwise require a credit card and eventually a Taxpayer Identification Number (TIN).
These facilities cater almost exclusively to the growing middle class. The lower echelon is still unaware of how to open a bank account and the formalities that accompany it.
Earlier, Visa's European head of payments told the Financial Times that the pandemic would lead to a 'permanent' shift away from cash; temporary moves to reduce the use of physical currency — intended to cut off a possible pathway for virus transmission.
Self-interest aside, she is likely to be right. The number of cash transactions was already in decline and the pandemic has expedited the process. People simply prefer to swipe a card or enter their CVV online for making necessary purchases. But comparing the likes of a subcontinental nation like Bangladesh to Europe is not justified.
The age-old tradition has always been "compare apples to apples".
The notion that cash will disappear altogether, or that it is an outdated technology is an incorrect fallacy. Digital currencies are far older than cash!
The first form of currency was an abstraction in ancient Mesopotamia which had never left the clay tablets of temple and palaces of bureaucrats, similar to today's currencies that circulate via silicon chips.
The physical currency was created later due to various advantages it offered to the remaining segment of the population. The key factor was portability and for the present fast-paced world, privacy, and anonymity.
Cash is not only appealing to those bureaucrats who want to siphon their money abroad or prefer dealing with payments and receipts via "cash-in-hand". But as more and more technology companies move into the digital payments arena, cash could be a means to keep the consumer data regarding spending habits to themselves.
It is scary when people view a particular item on Facebook and start receiving advertisements relating to similar products based on their search history. The caches and cookies are outdated and the technology giants make extensive use of consumer analytics to ensure that their products get sold.
Central bank digital currencies (CBDCs) could be an alternative, but that would hamper the monopolies of most banks, a sector that so heavily contributes to the government exchequer, in addition to the discomfort of having to disclose every single detail and the risk of giving birth to a large state-owned corporation that may not employ those who would lose their jobs in the banks that get heavily impacted.
In Germany for instance, its traumatic history with totalitarian governments has forced consumers to hoard cash even while other European countries have seen an increase in bank deposits during the pandemic. Sweden, where trust in government is high, has been one of the swiftest to adopt contactless payments — where 86 percent of the nation's daily transactions now occur through some form of digital payment mechanism.
Physical currency, therefore, does not deserve to die. Those who still depend on cash, in particular the consumer segment from isolated areas, need to be protected from falling on the wrong side of the "digital divide".
Their inability to understand new technology should not be mistaken for reluctance. An 80-year-old pensioner still prefers cash and draws his pension from his village post office and general store, though for many years the government has been putting great pressure on them to opt for bank payments. He uses the post office for convenience and also in solidarity with those who do not have access to a bank for various reasons.
India's demonetisation scheme did add 9 million taxpayers but the mass disruption it caused resulted in 8.8 million taxpayers to completely exit the banking channel.
Despite its sole purpose to curb corruption and reduce terrorist financing, demonetisation did not necessarily force the ultra-rich to pay their fair share in taxes. Instead it created hours wasted at the bank, financial uncertainty for the most vulnerable, lost wages, and cost at least several innocent lives.
But why is the policy still very popular in India among those who personally paid its costs? Similar to Xi Jinping's consolidation of power in China, Modi successfully solved a part of the riddle that dealt primarily with monetary unfairness in India to ultimately gain political support.
Thanks in part to the popular belief that demonetisation was a collective sacrifice to force the rich to pay their dues to support the underprivileged, it was all disguised under the false umbrella of patriotism.
Given the public interest in preserving privacy and helping marginalized groups, there is a case for government intervention which have given rise to organizations such as Nagad but while countries like China have already gone from "paper to bytes", Bangladesh's focus centres around the notion of expanding the number of its branches.
The digital infrastructure is not on par with India and the number of people who still believe in paper money is quite substantial.
Access to either mobile phones or electricity for that matter is crucial even when mobile banking enters the scene.
Thus, as it turns out with a population that is yet to be attracted to the merits of banking, the demerits of undue regulatory formalities, paperwork, and minor inconvenience still triumph the likes of going to a nearby store and bKash-ing 200 takas for purchasing daily necessities.
Sayeed Ibrahim Ahmed, is an experienced investment analyst, the author is currently a Senior Lecturer in Finance at American International University Bangladesh (AIUB) pursuing research along the lines of capital markets and economic policy
