January 3, 2017 Sujeev Shakya

The Future of Cash

While crossing the Nepal-India border at Kakarvitta in Jhapa, my driver tells me how the demonetisation decision by India has impacted people in the bordering towns in Nepal. After Indian Prime Minister Narendra Modi in a televised address to the nation announced the demonitisation of the 500- and 1000-rupee Indian notes, his country has gone in a frenzy. The decision was first presented as a drive to bring out black money; then it transitioned into making India cashless and helping the poor. The Reserve Bank of India, its central bank, continued to issue circulars at the same pace as everyday newspapers. People who hail Modi as the saviour of their country continued to defend the disarray over the move and argued that the change is a short-term pain for a long-term gain. Modi’s critics, on the other hand, found a good opportunity to take on a prime minister who has a comfortable majority in parliament for the first time in 30 years and who is making firm decisions to change India and its economy.

My driver continued to share the story of how difficult it was for people who depended on cash. He spoke of how Indians were crossing the border to Nepal for daily wage work because they needed cash to buy essentials. Tourism has also been impacted; Nepali tourists cannot visit neighbouring areas in India and Indian tourists cannot visit parts of Nepal as the bulk of the transactions took place in cash. During my travel, I had to choose a travel agency that gave me a vehicle in exchange for payment in Nepali rupees, and rather than staying in hotels that do not accept cards, I stayed with friends. Some of the people in Kakarvitta told me that the people across the border have been suffering more than we Nepalis suffered during the blockade.

Culture and Policy

It is a challenge when policy does not consider the culture that a society or a nation believes in. The South Asian culture likes finding ways around rules and laws more than following them. Many religious and social norms are easily broken. There are people who interpret religious scripts for you and find easy ways of getting around the rituals. Similarly, everyone is finding ways around demonetisation rather than following the rule. But then weak infrastructure also prevents proper enforcement of the rule. How can banks work on automated systems when they do not have a good internet connection? How will internet connections work when the power supply is erratic? How will power supply work well when electricity theft is something that is acceptable in society?

Social media were awash with photos of long queues in front of ATMs and banks as people spend hours to withdraw a few thousands rupees. When there is no method to check on ATM efficiency, how can you rely on the system to deliver? In South Africa, the ATMs are wired to the Central Bank and if the ATM downtime is higher than 1 percent, the banks have to pay fines. In India, the fact that the majority of the networks are managed by state-owned banks, which are controlled by the state, prevented them from challenging their regulators as there was surely conflict of interest. If the banking system was not dominated by state-owned banks, perhaps banks would have raised a hue and cry over the way demonetisation was implemented.

A Wake-Up Call

The issue about implementation has many dimensions. As people are talking about mobile wallets and cashless transfers, the fundamentals of individuals’ identity also need to be worked on. For instance, a study revealed that when biometric cards were being issued in India, in many places, village elites came forward and ensured that one out of the 10 fingers used for identification was theirs, so that if the person had to do anything with the card, the village elite would be required for the one finger.

In Nepal, perhaps it is a good time to look at policy structures and work on what we can learn from India’s demonetisation drive. It is a wake-up call for financial institutions to ensure that they invest enough in security systems and that hesitant customers are convinced about using the various digital platforms. There is little trust in the system. Our quest of creating Nepali ways of doing things instead of following global systems will have to change. Yes, going cashless and using digital platforms are the future, but we have to prepare well for the transition. There are lessons from the Indian experiment. I hope we can learn the relevant ones.

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