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November 15, 2013

Throwing Money Away Has Its Benefits

Posted by Rajashekara V. Maiya (View Profile | View All Posts) at 4:28 AM

The Future of Money: Todd Hirsch at TEDxEdmonton [Source: http://www.youtube.com/watch?v=K0n3BGId9nU]

Nothing catches a crowd's attention quite like telling them they're throwing money away. That was the subject of a recent report from a financial services company.

What it meant was that many countries are moving toward getting rid of their paper currencies in favor of other modes of payment. When you think about it, the exchanging of cash for services or merchandise is a pretty antiquated system. It's been around for eons. One of the reasons it's remained popular is that small businesses continue to accept bills and coins even though cashless payment systems abound.

Some economists say that a nation's dependence on cash can be symptomatic of both short- and long-range problems. In fact, the act of printing paper money and striking coins can account for as much as 1.5 percent of a country's gross domestic product. It's clear that as economies become more sophisticated, organizations will come to rely on cashless systems because of their efficiency and effectiveness.

It's hardly any wonder that economic powerhouses like Singapore are moving steadily toward being cashless societies. Nearly 70 percent of that country's transactions are electronic. The United Arab Emirates is another economic hotspot whose leaders are flirting with the idea of going cashless.

So how do we know if a society is ready, as it were, to throw money away? One factor is the access its citizens have to financial services. At Infosys, we know the importance of enabling banks around the world to help customers make seamless transactions. When the lion's share of a community utilizes bank accounts and electronic payment methods, it's a sign that its economy is firing on all cylinders.

Moving away from traditional paper money is also a sign of cultural change. It suggests that businesses are more comfortable accepting other methods of payment. The United Kingdom, whose subjects pride themselves on keeping up traditions of all kinds, is nevertheless closing its check clearing house in 2018. The shift is also indicative that businesses and infrastructure within a region are growing. A retail chain will more likely prefer non-cash payments than would mom & pop stores. Finally, say experts, a cashless society is one in which innovation and technology are in abundance.

A fascinating example of these economic advancements comes from Kenya. Citizens of all stripes - poor, middle class, and rich - are all embracing the M-Pesa, a payment method that utilizes the country's mobile telephone platforms. In frontier markets like Kenya, a bigger chunk of the population has access to a mobile telephone than a bank account. So the M-Pesa method actually bypasses the traditional way people in developed countries make payments. In the West, it's safe to say most people depend on landlines to ensure their cashless payments. Even though Kenya doesn't measure up to all of the standards that indicate the readiness of a country to go cashless, the power of mobile computing platforms is helping its people leapfrog past its peers. In fact, it's not a stretch to say that Western markets can learn from the success of mobile platforms in frontier economies like Kenya.

The path to cashless societies taken by Western markets has been a bit different. Because they began their journeys longer ago, they didn't have the advantage of mobile computing platforms to instantly put in pace cashless systems. Things happened more gradually, with market transparency and business-friendly environments allowing for alternative payment methods to take hold. One such method is the virtual currency. Bitcoin, a popular virtual currency, isn't attached to the central bank of any country, so therefore is unregulated. Depending on how you look at it, such a characteristic can be either an advantage or a flaw.

What's also interesting about the latest studies into the cashless societies is the function of the "plateau." Advanced economies like Japan and Germany have long had the right infrastructure in place to go completely cashless. But standing in its way are consumer perceptions. All the technology might be there, but if there's reticence on the part of consumers to embrace the system fully, an economy can instead experience a plateau. Maybe cold, hard cash will never completely disappear. Having a currency emblazoned with national figures makes any nation proud. But going forward, I suspect those types of paper notes will occupy a small, specialized niche in most countries. The global economy is ready to experience another growth spurt in the next few decades. For that to happen, it's just a matter of throwing certain money away.

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