Economy, asked by himrajguptasaharsa, 10 hours ago

can you assume an economy where there are no digital transactions..the economy is based on cash transactions only...what will be the scenario and challenges for that economy ?​

Answers

Answered by c3vikatskmlo
2

Answer:

The digital revolution is taking the world by storm and no other area has witnessed such metamorphosis as payment and settlement systems, resulting in a myriad of digital options for the common man. Consumers now have a range of options to choose from when selecting a payment method to complete a transaction. They make this selection based on the value they attribute to a payment method in a certain situation as each payment mode has its own use and purpose. In India, like in many parts of the world, cash is the well-established and widely used payment instrument. It is, however, reassuring that non-cash payments, especially those using electronic or digital modes are rapidly increasing.

2. Approach

2.1 Cash is all pervasive, easy to use and store and offers great convenience. The challenge in assessing the progress of a country from cash to digitisation arises from the fact that, given the anonymity of cash transactions, it is very difficult to establish the exact volume of transactions conducted in cash, and consequently the value of such transactions. Notwithstanding this, this paper studies the popularly used indicators over the world which denote the use of cash and which are considered as a proxy for cash payments.

2.2 This study also analyses the measures of cash, the enablers for payment systems and the measures of electronic payments over a timeframe of the last 5 years to ascertain the shift in India, if any, from cash to digital payments. Further, a comparison with the 26 member countries of the Committee on Payments and Market Infrastructures (CPMI) over the same five year period has also been attempted to evaluate India’s performance vis-à-vis other countries.

3. Measure of Cash

3.1 While there is no accurate estimate of the cash payments, two key indicators, viz., (a) the value of Currency in Circulation (CIC) versus Gross Domestic Product (GDP); and (b) the value of ATM withdrawals that take place across the country, can be used for this purpose.

(a) Currency in Circulation

3.2 The amount of CIC is related to the use of cash as a payment instrument since one of the major forces of demand for currency is its use for making payments. The CIC across the country increased at a Compounded Annual Growth Rate (CAGR) of 10.2% over the past 5 years, i.e., between the financial years (FY) 2014-15 and 2018-19.

Table 1

3.3 It is assumed that having high CIC relative to GDP indicates that cash is highly preferred as a payment instrument. Based on this assumption, India continues to have a strong bias for cash payments. Demonetisation and an active growth in GDP brought down the cash in circulation as a percentage of GDP to 8.70% in 2016-17. This increased to 10.70% in 2017-18 and to 11.2% in 2018-19 which, however, is less than the pre-demonetisation level of 12.1% in 2015-16. The rate of increase is lower indicating a perceptible shift away from cash.

3.4 The notes in circulation (CIC minus coins in circulation) increased at an average rate of 14% between October 2014 and October 2016. Assuming the same growth rate, notes in circulation (NIC) would have been ₹26,04,953 crore in October 2019. NIC, however, was ₹22,31,090 crore, indicating that digitaisation and reduction in cash usage helped reduce NIC by over ₹3.5 lakh crore.

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