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Could e-coins be the solution to our woes?

  • Published at 10:24 pm January 30th, 2018
Could e-coins be the solution to our woes?
Last year, the Indian government, led by Prime Minister Narendra Modi, launched a demonetization drive to control the flow of black money in the country -- a rather bold step. The burning issue of black money generation and circulation needs to be handled with sustainable, long-term reforms, as opposed to drastic, short-term interventions or politically-influenced one-time measures. Issuing e-coin or e-currency is a long-term remedy that can help corruption-riddled countries like India and Bangladesh to control black money and thus eradicate corruption, encouraging the general public to disclose their hidden assets to the government. In India, the demonitized notes of Rs500 and Rs1,000 used to comprise over 80% of the total currency circulation in the country. However, the sudden ban on these denominations has created a serious cash crisis, causing a major unrest among the public. Generally speaking, the primary motives behind demonetisation are combating corruption and crime, ending the circulation of fake currency notes, and controlling 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, since most economic activity remains largely un-documented. 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 the common man, such moves cannot bring in sustainable change as intended, as corrupt people tend to carry on their old practices using a new currency. In order to over-ride this problem and strengthen the economy, the more effective and viable option is to introduce e-coins, or a digital currency, in place of a paper-based currency. First of all, using a digital currency is not a new concept. To make it happen, a country has to establish an “e-bank,” where people will deposit all of their money into e-accounts, or e-vaults, which will be used to make, send, and receive money through their mobile phones. Alternatively, the bank can 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 transition to the proposed method.

How it works

When one goes to buy groceries, 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 (eg date, time, quantity, price, 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, and applicable taxes will be deducted systematically. Commuters using public transport will be able to pay with 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 charges, and other bills. Real estate and automobiles will also be 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, customers will be asked to specify the purpose of the transfer to determine whether the transaction is taxable or not.

Benefits of using e-coin

Converting to e-coins will successfully address the issue of the un-documented, underground economy, since all transactions will be on record. By analyzing the data, governments will be able to make better 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 or fake currency and will also thwart their use in the funding of terrorist activities. E-currency can effectively combat socio-economic evils like 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 provide adequate justification or face charges. It will boost total deposits in the banking sector, enabling banks and financial institutions to sanction more loans at a reasonably low interest rate, thus increasing investment, creating more jobs, and improving the whole economy. We can expect to see a significant drop in crime, particularly robbery, theft, and the threat of terrorist activity. In the real estate sector, it will be difficult to avoid taxes, as landowners will need to disclose the actual amount on official records, thus decreasing the overall property price to a considerable extent.

Areas of concern

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. However, the idea of using e-money as a popular currency is entirely 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. It could also lead to an increase in online fraud, unless the government takes adequate precautionary measures. In short, resorting to digital currency is a viable option if the government is truly committed to uprooting corruption. Owing to the enormous costs involved, it looks difficult to implement at the start, but it is worth it in the long-run.   Syed Farman Ghani is a freelance contributor