IMF Report on De-Cashing Bats for Cashless Economies

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New Delhi (ABC Live): In its recent IMF report, the International Monetary Fund (IMF) proposed to abolish cash and recommended to adopt measures in order to restrict its use.

The one of the main reasons behind this proposal is the desire of financial institutions to force people to keep their money in banks.

The IMF Report  on The Macroeconomics of De-Cashing did not offer any direct instructions with regard to the issue, but recommended to adopt measures aimed at restricting the use of cash in various operations.

As per IMF IMF Report on The Macroeconomics of De-Cashing,

“55. On the side of the costs, de-cashing may create temporary frictions in all sectors as the well-established cash procedures have to contract.

In the private sector, there may be disruptions from de-cashing, as a substantial part of consumption transactions and private investments, in particular in housing, is made in cash. Also, households and small private businesses may see carrying cash and conducting anonymous transactions as their constitutional right.

Their discontent can lead to social tensions, strikes, and, therefore, GDP losses. For the fiscal sector, de-cashing may represent a substantial financial burden, as additional capital and current expenditure will have to be made to procure equipment to manage cashless settlements. Additional spending will be needed for the training of personnel on cashless transaction, although part of these costs would be borne by the private sector.

Losses in profit transfers are also possible. In the monetary sector, de-cashing may reduce central bank independence with the lost seingiorage revenue. De-cashing would also deprive central banks of a useful tool in the form of changes in the demand for cash, which has served as a leading indicator of a possible financial crisis.

It is not immediately obvious that de-cashing would help improve financial inclusiveness. If the poorest cannot have access to computers or mobile phones, they will lose the most important financial asset that they rely on to save: cash. In the external sector, some deterioration of the current account may be expected, at least on a temporary basis, as the de-cashing country has to import the massive equipment needed to service cashless transactions and outsource the de-cashing services (programming, training, etc.) to non-residents.

 

Finally, in the structural area, substantial groups of the population not yet familiar with digital payments may feel disadvantaged, which may lead to social strain. Also, the tacit form of social protection used in many developing countries in the forms of forgone tax payments would be largely eliminated and has to be replaced with more direct forms of social protections.

Finally, if cash is still an important means of payment in a de-cashing country, currency substitution may become an issue, as economic agents would be forced to use other currencies as a means of payment.

  1. Coordinated efforts on de-cashing could help enhance its positive effects and reduce potential costs. At least at the level of major countries and their currencies, the authorities could coordinate their de-cashing efforts. Such coordinated efforts are, in particular, important in the decisions to phase out large denomination bills for all major currencies, to use ceilings and other restrictions on cash transactions, and to introduce the reporting requirements for cash transactions or their taxation.

For currency areas, a single decashing policy would be clearly preferable to a national one. Finally, consensus between the public and the private sector and outreach on the advantages and modalities of gradual decashing should be viewed as key preconditions for its success. VI