Daily Times

Cashless economic system describes an economic state where financial transactions are not conducted with money in the form of physical banknotes or coins, but rather through the transfer of digital information between the parties. Societies of such form have existed from the time when human society came into existence, based on barter and other methods of exchange and such forms have also become possible in modern times using digital currencies as adopted by economies such as China.

Studies have showed that according to central bank 66.5 percent of people in rural areas were already using digital payments by 2017. This high number was due to the benefits listed by different promoters of the cashless mode of payment. First and foremost, benefit by promoters of cashless mode of payment is the speed up transactions (reduction in the time of transaction), reduce business risks (easy dealing of the businesses and documentation of the business documentation) and reduction in the opportunities for criminals to cheat.

Second, through digital mode of payment there is high tendency towards eradication of the theft of cash and counterfeiting.

Third, through digital mode of payment there is easiness in bank facilitation thus reducing number of visits to bank and other regulators therefore reducing compliance cost which in the long run will facilitate the cost of doing business. Business facilitation varies from different type of businesses such as from small vendors to the big businesses owned by government and private sector.

With these benefits of cashless system, there is fear which have been somehow facts while looking at the digitalizing the economy through cashless economic system. First and foremost, fear in this regard is linked to the privacy. Consumers have fear that with such systems in place there is high tendency for violation of privacy as it can be accessed by outsiders such as private data miners and suppliers.

Primarily in such concern with involvement of technology there are challenges in cyber security as a result of which consumer can be deprived of cash deposited in the bank or cash deposited in different systems.

This privacy can also be linked to another factor that there is a fear that the digital and mobile economy will result in another fear for consumers such as access by government to activities, or even tap their money.

With these benefits and challenges, China though may be leading the way in going towards cashless but even its bank is not yet quite ready to give up on ready cash. Different outlets in this regard were instructed to not to discriminate against those wanting to pay in cash as it will damage legal status of the yuan as well as hurts consumers’ rights to choose payment methods.”

While moving towards more regulated, documented and monitored system, Pakistan is putting target to move towards cashless economy and has launched strategy in this regard. Reasons which are being put forward is high cost of cash. Central Bank being one of the vocal institutes in this regard put benefits in the form of easy mode of payments for companies existing in the market or are entering in the market. Further central bank is advocating that this migration towards cashless economy will stimulate consumption and trade, bringing benefits to the whole economy in the form of high growth and job creation.

Thus, putting this system in order in long run with benefits there are certain challenges which will hinder its stability or long run functioning. First and foremost, challenge in this regard is the regulation to protect the legal status of Pakistani rupee. For this purpose, education for consumers of such facility should be of the form that both systems have the maintainability i.e. cashless and cash mode of transaction. Second challenge for Pakistani system will be to encourage business community to document transaction which government was not able to do while asking for copies of CNIC to document higher transactions. Third and tougher challenge will be resistance from the business community as there will be a possible fear of data leakages from the system which can result in higher accountability and compliance cost for business community.

Fourth, protection of the privacy in the current security paradigm hovering over the region which in incidents have deprived people from the cash which compelled banks to have more security features for registered and new customers in the form of biometric verification.

With the current system in place government will be having challenges in going towards cashless system for which there is need to have harmonization within the systems which seem to be missing. There is need for province and business community to come up with the same agenda which should not hinder the growth trajectory but should deal more significantly with the business facilitation.

Similarly, before implementing such system more focus and stress should be on public private forums for all stakeholders to have uniformity and consensus on evolution of the system. This will enable business community and consumers of other nature to adopt the cashless system.

The writer is PhD Scholar at Beijing University of Technology, China and Visiting Research Associate at Sustainable Development Policy Institute