In recent days, many economist, the press and politicians have been talking about a cashless economy. This is very deceptive and misleading. The terminology I would suggest is virtual economy.
Cash refers to cheque, banknotes or coins used during the exchange of goods or physical and mental labor. Obviously, cashless refers to absence of money or cheques during the exchange of goods or labour. It makes sense to interrelate the term cashless economy with the direct exchange of goods – a system practiced by ancient civilisations.
We can also correlate it with primitive tribes who simply shared all their wealth within their own community. They primarily depend on nature for all their needs which makes them self-sustaining and helps them to lead a life without the purpose of money. Thus the system practice by ancient civilizations and the primitive tribes are the right example for defining cashless societies. The modern society of today’s world is trying to move towards virtual economy through virtual money transfer, which would mean the replacing the need of physical money with virtual money. This cannot be called cashless; as long as money (physical or virtual) is involved, nothing is cashless.
In a cash-based economy, cash transfer is the predominant mode of transfer. In the future, virtual transactions will dominate other modes of transaction. In a virtual banking world the society will be cash-starved, but initially, banks will store a huge pile of physical cash on behalf of the people. In the longer run (after several decades), there is no point in printing more and more physical cash only to store in bank lockers. Banks, at one point, will get away from physical cash to release unnecessary storage space, to reduce printing cost, security expenses and the risk involved in handling physical cash; rather, banks will invest money in advanced cyber-security.
This will ultimately lead to a virtual reality in which people will start believing that the digital numbers reflected in their bank accounts (virtual money) as real and the physical money will lose its place permanently. The definition of virtual reality: “Virtual reality, the quality of having the attributes of something without sharing its (real or imagined) physical form.”
Is this country actually ready for complete virtual banking and removing physical cash out of the system? Considering the fact that most people do not have access to internet, bank accounts, infrastructure and banks in rural regions, it is a premature move. I am not pessimistic, I am pragmatic. India is not ready for any such drastic change. Only metropolitan cities can test this model. We must keep in mind that cities cover only a small population of this vast country. The rural population will find themselves as outcasts in this kind of a system. This sudden change will creates unnecessary chaos and put the existing system in jeopardy.