Inclusion: a cashless economy fights the poorest, not poverty

Payment tools which were, a few decades ago, reserved to the wealthy are now widespread, as banking and financial systems develop throughout the world. According to some, the development of electronic means not only warrants the termination of paper currency but would also enable further financial inclusion for impoverished masses. Yet, financial experts fear the potential backlash of such a theory, as recent examples have shown.

A century or so ago, just about every payment was made in cash. Only immense transactions (such as the purchase of Alaska from Russia) were carried out with cheques, but just about everything else was paid in cash. While these times may seem distant to the average European or American, this is still very much day-to-day life for many people in developing countries.
In India, for instance, almost all non-cash payments transactions have declined, despite the Indian government’s best efforts. Forbes Wade Shephard reported India’s demonetization scheme was a unilateral initiative that was planned in secret — in a back room of Prime Minister Modi’s home, in fact — by a small group of insiders tied-in with the upper echelons of India’s government. The strategy was to instantly nullify all 500 and 1,000 rupee banknotes, the most common currency denominations in the country, and then eventually replace them with newly designed, more secure 500 and 2,000 rupee notes. This endeavor instantaneously became policy when the prime minister announced it via a surprise television address at 10:15 PM on November 8.”
With everyone on the grid, the claim is that even modest citizens could have access to the ease and functionality of modern banking systems, and the socio-economic gap would narrow. Most of all, citizens would no longer be limited in their transactions by the necessity for physical contact and would therefore see their economic freedom restored and expanded. But critics consider the entire concept of forced economic freedom to be a dangerous chimera. Nobel laureate and economist Amartya Sen, for instance, called it a “despotic move”, while Prabhat Patnaik, a noted economics scholar, called it “witless” and “anti-people”.
A cashless society relies on a number of pre-requisites to function perfectly, which no country can guarantee over time, such as a completely banked population and permanently functioning communication networks. Even a developed and digitized country like Canada has an estimated 1 million people who remain unbanked, many of which estimated to be homeless and financially excluded. Cash is yet considered a lifeline for the poor, who rely almost exclusively on this medium. Sam Zak writes for Future Center that “Cashless societies complicate economic activity for people in the informal economy without physical addresses or bank accounts, something India has found out during its demonetization campaign. There are a number of schemes in place to try and use cashless payments to encourage more effective giving, although critics say these reduce homeless people’s agency.
The same problem, adequately addressed by cash, can be seen in humanitarian relief operations, where jump-starting the basic economy is an urgent need, as confirmed by the pledge to increase cash programming by 25% by the 2016 World Humanitarian Summit. “In disaster situations, reliable, efficient, secure, convenient, and timely payments solutions need to be provided to all those affected commensurate with the neutral, independent, and impartial ideals of humanitarian action, and according to standards set by the humanitarian clusters”, writes CashEssentials.
And India hasn’t done much to promote the idea that killing cash was tantamount to inclusion. The latest large-scale economic reform led by Indian prime minister Narendra Modi aimed specifically at breaking the fiscal bias against the poor and promote the economic development of the country. Zeebiz writes “Cashless economy is a serious agenda for the Prime Minister Narendra Modi government. Not to forget, the launch of demonetization was done to make India a cashless country. Post demonetization, the government has boosted their digital transactions with apps like UPI, BHIM, Bharat BillPay and Bharat QR.” In the Indian government’s view, total demonetization would bring the entire economy under State control, where government agencies could then promote the little man and decrease poverty rates. In reality, the opposite happened, when the national economy was riddled with shockwaves , and the reform was a disaster.
Because every non-cash payment method relies on electronic servers and third parties, cash stands out as the never-failing option. Whatever the situation, from natural disaster to power shortage, from remote locations to under-developed telecommunications structures, cash payments can always be carried out. Not only is paper currency the infallible option, but it did carry India out of poverty, up to its current 6th global economic rank, thus proving that it can perform in the more elaborate settings of the Indian economy.
Moreover, the “forced financial inclusion” program made the banks hungry for economic controlling powers and eager to deploy their long-waiting strategies. Over recent years, the cashless effort in India has coincided with a sharp rise in over-indebtedness in the Indian population, as banks strive to seize collateral belongings they now have access to. Financial expert Siddhartha Chowdri writes for Financial Inclusion; “MFI borrowers are borrowing from as many as 6 MFIs and many local money lenders. MFIs do not have the systems to track how much debt their clients are taking on from the other MFIs. Some of these clients significantly exceed their capacity to pay and run into problems when managing these multiple borrowings.”. With national wealth on their radar, banks and micro-finance institutions are enticed to over-lend by individuals by the guarantee of either making good on a large loan or making a profit in the case of a default-related repossession of assets - an unstable situation quite similar to the genesis of the subprime crisis.
Despite probably honest intentions behind them, cashless reforms quickly elude the control of governments, once they have been launched, and the outcome is gravely imbalanced towards a negative result. While the forced absence of cash deprives anyone off the electronic grid of the ability to pursue their operations unencumbered, it does place citizens at the mercy of banks and financial institutions, or of any failure of the infrastructures. While a few countries like Sweden or Denmark may have slid towards cashless societies, forcibly removing cash from economies carries little justification and high risks. “Cash plays an important role in our modern economy, particularly among the poor, and those urging a cashless future should do so with great caution”, Pr. Dana Kronberg confirms.

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The cashless society from an ethical point of view

The debate about the move towards a cashless society has been at the center of the scene for several years, now. Various angles have been taken by economists, politicians, banking institutions and sociologists. Beyond the technicalities of the debate, lies the question of freedom, of inter-citizen solidarity and of governmental responsibility. The debate cannot remain in the hands of financial specialists, it is first and foremost an ethical, political and societal issue.

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