The criticism over the discontinuance of two thousand rupee note is understandable. The first question among the critics is why introduce it at all at a time when 500 and 1000 rupee notes were withdrawn on the pretext of ‘hoarding’. The 2000 rupee note had greater hoarding possibilities – and precisely, on this ground it is being withdrawn now.
But such controversies will die out soon when we think of the increasing popularity of digital transactions in India. There are people to say ‘no’ to all changes: in a country like India where the access to the internet is so poor, they said, digital transaction would be a failure. Today, from zero to over seven billion digital transactions (worth over $150 billion) is being done in a month, through the new system of unified payment interface (UPI) in India. From the origins of the commodity barter system, followed by metallic and paper currency, we have come a long way in the evolution of money and have entered the digital system. Let us not try to walk backwards.
According to a report, world’s currency in physical form (cash) is just 8%; the rest 92% is in the digital format (bank balance, and now digital transactions). Critics of course still keep quoting statistics to counter the validity of digital currency. Some bring forth IMF estimates to show that 61% of the central banks in the world (the number is about little over 100) do not have the law to issue currency beyond bank notes and coins. Forty central banks (23%) have a clear mandate to go beyond bank notes and coins; while for 16% of the central banks, the law is not clear. After some initial hesitancy, India’s Reserve Bank is now clearly encouraging digital currency in the form of CBDC (central bank digital currency). The infrastructure for this change is strongly in place because of UPI.
The two issues that need to be looked into while introducing digital currency are privacy and cyber crime. Hacking is a reality and this is being closely looked into worldwide. There will be crimes – the world was never free from it;
but cyber policing is becoming stronger and stronger. The ‘legal’ hackers who work for cyber security are much in demand and all organizations, including banks, pamper them to keep their network safe.
The issue of privacy is closely associated with money and it is here the technology of ‘blockchain’ becomes relevant. This is a new form of digital ledger-keeping which retains privacy for all transactions and it’s becoming very popular. Yes, the crypto-currency bubble, a deviation in the bitcoin technology, is now burst. At one time, the world was alarmed
to witness a parallel, de-centralised, financial transaction system grow in a lightning speed – bypassing the banks. Luckily, neither the union finance ministry nor the RBI approved of the de-centralised crypto-currency. In fact, the union budget imposed heavy taxes on transfer of crypto-currency to real money – evidently to discourage the creation of a parallel financial transaction system.
But now through the CBDC, RBI will have a centrally controlled digital currency system making both international and national money exchange easier and swifter. We need to remember that India has the highest amount of international remittances in the world, making its foreign currency reserve so reassuring. CBDC will be of great help for such instant
digital transfers. RBI is doing its own research into the new form of digital ledger keeping, so that privacy of transactions remains intact. RBI needs to introduce its own crypto-currency, at both retail and wholesale levels.
So controversies on physical money are futile; it’s a dying art.