Recently, the Indian government, led by Prime Minister Narendra Modi, has launched a demonetization drive to control the flow of black money in the country. Quite a bold step taken, the burning issue of black money generation and circulation needs to be handled with some sustainable, long-term reforms, compared to drastic, short-term interventions or politically-influenced one-time measures.
A long-term remedy, issuing e-coin or e-currency can help such corruption-hit countries as India and Pakistan to control black money, eradicate corruption, encouraging the general public to disclose their hidden assets to the government. In India, the banned currency notes of the denomination of Rupees 500 and 1000 used to comprise over 80 per cent of the total currency circulation in the country. However, the all-of-a-sudden ban on Rs 500 and Rs 1,000 notes have created a serious cash crisis, causing a major unrest among the people of the country.
Generally speaking, the chief motives behind the demonetization move are to stop corruption, eradicate the circulation of fake currency notes and to take control of black money and the underground economy, as well as to normalize inflation, particularly the increasing prices of real estate. However, such initiatives tend to backfire and fail to make any impact on the economy in the long run, which remains largely undocumented and where the black money hoarders can easily convert their illegal funds into other assets or are able to exchange it as soon as the ban is lifted.
Other than creating a host of unseen problems for a common man, such moves cannot bring in a sustainable change as expected, as corrupt people tend to carry on their old practices using a new currency. To curtail corruption and strengthen the economy, the more appropriate and viable option is to introduce e-coins, or a digital currency, in place of a paper-based currency circulating in the country.
First of all, using a digital currency is not a new concept. To make it happen, a country has to establish the ‘e-bank,’ in which people will deposit all of their money into their e-accounts, or e-vaults, which will be used to make, send and receive money through their mobile phones. Or else, the bank will issue a plastic card in the shape of a coin or currency note for the same purpose (similar to a debit or credit card). The government may also use the existing banking network to adapt to the proposed method, being the best alternative to make, send and receive money.
How to use
When one goes to buy grocery, for instance, one will make a payment using e-coin. As per the envisaged procedure, the seller will generate an e-invoice through a mobile application or by using computer software preloaded with all the particulars needed (e.g. date, time, quantity, price and levied taxes, etc.). After that, the customer will transfer the amount by tapping his or her e-coin through a POS device.
Similarly, employees will be able to receive their salaries directly into their e-accounts from the company’s e-vault. During this, the applied tax/taxes will be deducted systematically.
Commuting in public transport, passengers will use their e-coins, tapping on their POS machines to pay the bus fare. One’s e-coin will be effectively used as a valid currency when one travels in a taxi or through an auto rickshaw, as passengers will pay the fare through money transfer made from their respective e-accounts to the driver’s e-vault.
The e-coin will be used to pay utility bills, school fees, remittances, mobile phone recharges and other bills. Real estate and automobiles will be also purchased using the e-coin.
Foreign visitors will be able to exchange their currency into e-coin.
When transferring funds from one bank account to another, one will be asked to specify the purpose of the money transfer to determine whether the transaction is taxable or not.
Benefits of Using E-coin
It will successfully address the issue of undocumented economy, as using the e-coin will help generate a log/record of transactions made, creating a huge amount of data for the government to analyze and make better-informed policies accordingly.
Overall, the move will increase tax collection, offering no chance to hide transactions from tax authorities. This is because each and every transaction will create a log file, revealing the true identities of people making or receiving the particular transaction with taxes applied.
The digital currency will eliminate the use of black money/fake currency and will also thwart its use in the funding of terrorist activities.
It will control the underground economy, as all transactions will be made through the banking channels.
The proposed form of currency will reduce such socio-economic evils as corruption, bribery, embezzlement, extortion, blackmailing, etc., since every transaction loop is easily traceable and those making any suspicious transactions in their accounts will have to justify the reason.
It will swell banking industry’s deposits and will enable banks and financial institutions to sanction more loans at a reasonably low-interest rate, thus increasing investments manifolds and creating more jobs, particularly for IT and business professionals.
This will lead banks to open more branches, being another source for employment generation.
A significant drop will be seen in the total number of street crimes, robbery and theft attempts by fraudsters, tricksters and unscrupulous people.
In the real estate sector, it will be difficult to avoid paying taxes, as the property dealers will need to disclose the actual amount on the official records, thus decreasing the overall property price to a considerable extent.
Some Interrelated Concerns
Implementation of the proposed ‘e-coin’ initiative is difficult, as well as a costly step for the government.
It will take at least six months for people to fully adapt to the new payment system and get used to it.
It may also lead to the increase of online frauds.
In short, resorting to digital currency is a viable option if the government is truly committed to uprooting corruption. Owing to the unbearable cost involved, it looks difficult to implement at the start. However, the idea of using e-money as a popular currency is all achievable and it only entails a one-time cost, which is equal to the total cost spent on issuing new currency notes to the public