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Understanding Digital Money and Its Importance

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12 Feb 20206 mins readBy MOFSL

With the announcement of demonetization by Modi on the 8th of November, the use of Digital currency has seen an unexpected rise. While people from urban India are facing the cash curbs using digital cash, the majority of people from rural areas still need to understand the importance of digital cash. Are we Indians ready for a cashless economy? While many do believe that going cashless is still a distant dream for India, let us try and understand the advantages of Digital money and its scope in our country.

What is Digital Money?

The means of payment that exists in purely electronic form is called Digital money. Electronic money or digital money is not tangible and is accounted for and the transactions are performed online using computers. Digital money can be exchanged using credit cards, the internet, and smartphones. It can also be turned into physical money like in the case of an ATM.
 


 

Digital money is one innovative technology that moves the transactions from the physical to the digital world. Like any other technology, digital money too comes with its own pros and cons. While it can open up new opportunities for small businesses, the government also has to take necessary care to keep the problems of taxation and money laundering at bay.

Digital currency Advantages

The key benefit of digital or mobile payments is the ease and the speed of completing the transactions. The users of digital payments enjoy more flexibility in making payments. As all the payments are processed through secured servers, users need not worry about any risk involved. People who do not have credit or debit cards can also use mobile wallets where they can get their wallets loaded with cash from the nearest kiosk.

The benefits individuals enjoy by going cashless are many. No need to stand in those long queues outside the ATMs, no worry about the cashouts during holidays, no more waiting for the cheque to get credited and no risk of carrying currency in the wallets. The cashless transactions come with enhanced security procedures which address the above-mentioned problems.

Digital Cash Importance

The advantages of digital cash are not limited to an individual. This has a major impact on the economy of the country as the reduction in the use of cash will help reduce the grey economy and also prevents money laundering. This also increases the tax compliance which will at the end benefit the customer in the long run.

The use of digital cash will also make sure that any loopholes in the country’s public systems are plugged and the beneficiaries would be able to avail those benefits that are long due to them. While an individual gets to witness the direct benefits of cashless transactions, there are a lot of indirect benefits that have a greater significance. One of the benefits of using electronic cash is the fast pace with which the money gets circulated. As cash is a material, it can be prevented from circulation. For example, a tourist can bring back the cash that was unused from a visit and that would lie idle till the next trip. Cards and other electronic channels alleviate this and they help increase the circulation. In more economic terms, it helps to increase the velocity of money.

Our country India is still driven by cash and only 5% of the payments take place electronically. The major reason for this is the lack of access to online banking for the majority of the population. Another major reason is that both small and large transactions still continue to take place in the form of cash in India. When a survey was conducted by A T Kearny at the malls in India, it was observed that more than 90% of the transactions took place through cash. Even the E-retailers provided the option of Cash on delivery to increase their sales. Though many purchases happen electronically, COD is used for more than 60% of the transactions.

After the move of demonetization, we are witnessing the mix of cash and digital transactions. The tectonic shift has indeed come from the increased use of smartphones, the cashless economy is not yet here in India; however, the move towards it has certainly begun.

 

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Disclaimer: The stocks, companies, or financial instruments mentioned in this blog are for informational purposes only and should not be considered as investment recommendations. It is advised to consult with your financial advisor before making any investment decisions. Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Investors are strongly encouraged to carefully read the risk disclosure documents prior to participating in market-related investments or trading activities. Due to the volatile nature of financial markets, no guarantees can be made regarding investment returns. Motilal Oswal Financial Services Ltd. does not offer any assured returns on market-linked securities. Please note that past performance of stocks or indices is not indicative of future results.
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