The modern-day monetary transaction has its roots in the barter system of ancient times. Over the course of thousands of years, physical money has become an integral part of our daily life – until the idea of replacing cash with digital currency was propagated.
The idea of replacing cash has been around for a long with cheques and bonds. However, the true idea of replacing cash has not been possible to implement up until recently with the advent of Mobile Financial Services and cryptocurrencies. Let's take a look at how they are impacting the economy of Bangladesh and what are the prospects and risks of a cashless society.
What is Digital Currency?
Digital currency is a form of currency that is available only in electronic form. That is, the transactions will take place virtually without any physical interaction. The idea of digital currency was popularized in 2009 after the initiation of Bitcoin by a certain unidentified individual named Satoshi Nakamoto. Harnessing the blockchain mechanism, Bitcoin slowly gained traction and today it is one of the leading cryptocurrencies in the world.
The individual Bitcoins and other cryptocurrencies like Ethereum are stored in an e-wallet from which transactions can be made digitally. Currently, more and more organizations are opening up to crypto transactions as it is secure and an effective monetary system against cash-based transactions.
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State of Digital Currency in Bangladesh
However, the popularity of cryptocurrency is also a headache for central regulatory authorities like Bangladesh Bank. Cryptocurrencies are decentralized monetary systems meaning they are not regulated by any central bank or government. The valuation of cryptocurrency is solely dependent on the stock market fluctuations. The lack of control over the system makes many central Banks skeptical about its usage as well as long-term implication in the economy. As a result, Bangladesh does not allow the mining or transaction of any form of cryptocurrency.
However, with the increasing popularity and adoption of cryptocurrency, we are only putting ourself at disadvantage for not making use of the potential posed by the system. Currently, the market capitalization of Bitcoin alone stands at over a trillion-dollar, several times more than the GDP of Bangladesh. It is to be noted that a large population of Bangladesh is still unbanked. And without the inclusion of people in the banking system, it's nearly impossible to move forward with the idea of a cashless society. So what is the answer of Bangladesh to this? How are we trying to keep with the increasing trend of digital transactions?
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The answer is Mobile Financial Service. With over 47 million internet users and 165 million mobile subscribers, Bangladesh is rapidly moving into the age of the internet and digitalization. Leading banks tapped into this opportunity to introduce Mobile Financial Services like Bkash, Nagad, and Rocket.
The platforms aim to bring micro banking to the unbanked and make a transaction to various sectors a matter of a few taps on phone. Almost all the leading business including government channels now accepts payments through these MFS which is complementing the idea of a digital currency to some degree.
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Applications of Digital Currency in Bangladesh (Representational Image)
Advantages of Cashless Economy in Bangladesh
The primary advantage of a cashless economy has to do with the physical economy itself. Retail Banking Research, a proprietary banking research firm found that the average per head cost of maintaining physical cash in Europe is 130 pounds per year. This is extra money that you pay in the form of transactional fees, withdrawal, and service fees. RBR also states that by moving to digital currency, it will be possible to save over 110 pounds per head.
The same also stands true for Bangladesh. Moving to a digital platform for a transaction not only reduces the handling cost but also becomes easier to trace the money.
The cash-based monetary system has always been susceptible to corruption and illegal advantages and the situation is no different in Bangladesh. the prime method of money laundering is cash as the tracing method is not only outdated, it is practically impossible to put into effect. In hindsight, digital currency offers better security and tracing option for currency which a cash system can’t offer.
One of the common economic fallacy that the government faces is the hoarding of cash in times of economic downturn. With less control over physical cash, it becomes increasingly harder for the central bank to lower rates as it faces a cash shortage to stimulate the economy. With a cashless digital system, the concept of cash hoarding will be null and void. Banks will be able to ascertain more control over the monetary system and better handle economic downturns.
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Disadvantages of Cashless Economy in Bangladesh
One of the prime arguments behind switching to a digital currency can also be used against it. it was mentioned that digital currency can reduce corruption and make banking more accessible to the unbanked. However, as tech literacy in Bangladesh is still in its nascent stage, people might be susceptible to online fraud. It is evident from the widespread anti-fraud campaign of Bkash in the country.
The lower-tech literacy means a whole generation needs to be introduced with the quirks and methods of digital transaction, not to mention the requirement of some form of a digital device which is still not 100% available to the people of rural area.
More and more businesses and organizations are now accepting digital payments but the paradigm shift hasn’t occurred yet. You still can't use digital transactions for groceries from your local shop. Super shops are accepting digital payments however that take us back to our previous point, lack of accessibility to these places.
In reality, the idea of a cashless society is still a distant dream in the context of Bangladesh. We are still far away from making digital currency accessible to all walks of people. However, the ray of hope here is that there has been progressing right direction. Slowly but surely, the economy is integrating the idea of a cashless system. And sooner or later we will be able to better reap its benefits.
Source: United News of Bangladesh