Why a 'cashless' economy would hurt the poor: A lesson from India

India recently tried to reduce the use of cash in its economy by eliminating, overnight, two of its most widely used bills in what was called demonetization.

While the effort – initially explained as an attempt to curb "black money" – has been a failure in many respects, it was part of an ongoing and global push toward cashlessness.

What India and other governments have failed to contend with, however, is the adverse effect such severe policies have on the poor, who seldom use banks.

India’s working poor rely almost exclusively on cash, with about 97 percent of all transactions involving an exchange of rupees. With 93 percent of the country working in informal off-the-books jobs, most transactions entail personalized relationships rather than standardized forms of legal contract or corporate institutions.

Beyond collecting trash, these workers also constitute the city’s only recycling service by separating out and selling plastics, papers, metal and other valuable scrap – including human hair sold for wigs and stale bread used for cow feed. The money they earn from selling these materials is how they support their families.

While my research focus was to understand how an informal economy like this one persists when confronted with formal government-backed services, I also learned how the exchange of cash between buyers and collectors of scrap helped structure community life by creating durable social bonds that functioned like contracts.

Over 20 months from 2013 to 2015, I interviewed more than 100 garbage collectors, scrap buyers and policymakers and worked alongside collectors on their garbage collection routes, at their homes where they sort and sell the scrap, and at recycling factories.

According to a 2014 study, just 10 percent of Indians over 15 had ever made a digital payment. And in countries where a large share of transactions are already done digitally, there’s evidence that this does not serve the poor well.

With cashlessness becoming a new economic frontier, the effects of such state-led policies on cash-dependent economies must be considered seriously before they are indiscriminately introduced. My work in India leads me to believe that cash plays an important role in our modern economy, particularly among the poor, and those urging a cashless future should do so with great caution Read More

Hi Everyone This is Aarohi..I m self employee