Characteristics of cashless economy

A "cashless economy" is a concept in which all financial transactions are carried out digitally rather than utilising actual cash like coins or banknotes. Many countries have already implemented cashless transactions. Cashless systems maintain transparency, accountability, and mobility in financial transactions, as well as increased security, convenience, and efficiency. Many other countries have passed laws that allow businesses to ban cash payments, and in some cases, even require payments by mobile applications or credit cards.

 

 

Naw a day, "No Cash Accepted" is a very common sign in shops in different countries. In a cashless economy, it will not only mean that its citizens will stop using cash, but also cash will no longer be a generally accepted means of payment there. A unique law is already in place in different countries which enables merchants to make customers pay electronically despite the status of cash as a legal tender.

 

 

Cashless economy against the backdrop of today's context, it is specifically referred to the societies where financial transactions are conducted with digital information, usually an electronic representation of money instead of physical banknotes, coins or cheques. In the modern world, credit and debit cards, points of sale (PoS), mobile banking, internet banking, etc. are the most common forms of cashless transactions.

 

 

A cashless financial system is one in which people rely primarily on electronic means of payment such as credit cards, debit cards, and mobile apps rather than using physical cash or checks. All transactions are conducted electronically. This requires businesses to have the ability to accept electronic payments and for consumers to have access to electronic banking services.

 

 

In a cashless economy, people don'twithdraw their money from the financial systems but transact through debit and credit card or other digital means. The system stimulates more lending from banks and increased investment by businesses, as well as encouraging people to invest, borrow, and spend instead of amassing money.

 

 

The law makes a cash transaction subject to tax and service changes to encourage cashless transactions. Cashless economy allows governments and banks to leverage greater control of the economy. In a cashless economy, all financial transactions take place digitally rather than using physical money like coins or banknotes.

 

 

The use of digital currency could lessen corruption and increase unbanked people'saccess to banking. However, because computer literacy is still in its infancy in Bangladesh, individuals maybe vulnerable to online fraud. In contrast, cash-based monetary system is prone to corruption and unfair advantages. A large portion of our population relies on cash transactions. The cash-based monetary system has historically been vulnerable to corruption and unfair benefits, and Bangladesh is no exception. According to a study by a news agency, cash is the most common way that money is laundered because the tracking method is not only ineffective but also nearly impossible to use. In retrospect, compared to a cash system, digital currency provides superior security andtraceability options for currencies.

 

 

Poor digital literacy, cybersecurity concerns, and infrastructure gaps remain key obstacles to realizing a cashless economy. To address these problems, the MFS can use block chain technology to trace each transaction once any amount of money enters the ecosystem. Block chain is a decentralized network that tracks and records transactions in a digital format. It is a distributed ledger, which means there is no central authority over the network and no one or entity in control with the ability to corrupt the network.

 

 

The block chain system comprises individual blocks of data, each containing a record of information, that are linked together in chronological order. These links cannot be changed, which is what instils confidence in the network. This revolutionary technology manages transactions of information by securing them as they occur. The purpose of block chain is to lower the cost of transactions and make them more efficient and faster.

 

 

Block chain can make the financial industry more transparent since users are performing activities on a public ledger. This transparency can expose inefficiencies like fraud, leading to problemsolving that could reduce risk for financial institutions.

 

 

There will be several advantages in a fully cashless society, which starts from the easy, convenient and instant money exchange and payment system for anyone with a card or electronic device. Crime rates will fall in such a society. As there will no longer be any cash in one's wallet, hijackers and robbers will also not be able to steal money. The major crimes like illegal transactions, money laundering as well as gambling, drug dealings, etc. are also expected to come down. Paper money prompted cash transactions are used for such crimes so that no records are left. But with the emergence of 100% transactions through electronic media, criminals will become wary of leaving behind digital footprints.

 

 

A significant amount of cost and manpower go into cash management, which will no longer be required once there is no physical cash in circulation. Even international payments and foreign exchange will also pose no more headaches, as the electronic transaction devices will be responsible for everything ranging from automatic currency conversion to payment completion.

 

 

It is already a statistically proven fact that credit cards encourage many users to overspend, putting a strain on their overall monthly or annual budget in the process. Such a phenomenon could become more commonplace in cashless societies.

 

 

According to specialists in the field, a cashless economy is essential to achieving continued economic growth, and access to digital financial services and the expansion of digital financial inclusion will contributeto this progress. There is optimism for a better future thanks to the steps the government and businesses have already taken towards digital financial inclusion and digital finance. This will help us reach our next two goals, which are to have an upper-middle-income nation by 2031 and a developed nation by 2041.

 

 

Managing cash is very expensive for banks, which is why increasing cashless transactions is essential to reduce the operational cost of a bank. Bangladeshi bank spends as much as Tk 260 crore each year just to manage cash-printing, transporting, securing, and storing it.

 

 

Mobile Financial Services (MFS) platforms now offer services such as savings, peer-to-peer transfers, bill payments, merchant payments, mobile recharges, and G2P disbursements, reducing dependence on physical cash. Experts say, MFS providers can play a more transformative role by improving interoperability, expanding merchant networks, reducing transaction costs, offering incentives, and collaborating with the e-commerce and transport sectors.

 

 

Irrespective of its pros and cons, a cashless society is the destination for Bangladesh as well, with the journey of "Cashless Bangladesh'' having kick-started already in the system. Bangladesh needs a law to regulate and implement cashless financial system.

 

 

The writer is CEO, Bangla Chemical