Do we really need the money as we know it today, in the future?
The world is moving fast towards digitalization of financial transactions. The level of innovation happening in payments space is mind boggling. Governments are realizing the benefits of digital transactions and the negatives of cash, as a result, the usage
of notes and coins is decreasing by the day.
Just to highlight:
>In Sweden, notes and coins account for just 2 per cent of transactions by value and are expected to go further down in future.
>One of Asia's major economy, South Korea is targeting to phase out cash completely by 2020 and deal only in digital payments.
>Only 30% payments are made in notes and coins in UK and is expected to come down to 10% by 2034.
>India in becoming more and more digital each year.
Changes are also coming in the way the various currencies are being used for dealing in the financial transactions. Crypto currencies like bit coins, Vegan coins, Alt coins are gaining acceptances (though with underlying challenges) across the globe and
alternate methods of payments are cropping up. As we move towards the digital world, the countries/governments/agencies would have to come together to arrive at standard methods of transacting and recording in the future.
Considering the market trends, the various options would be to:
> Continue with traditional currency in digital modes
> Rise of new currency types like crypto currencies
> Do away with currency concept totally and move to points/credits.
I would like to focus on the third option above that Credits/points should be the future. It may read like a
fint-fi (fintech fiction) as I call it currently, but moving towards a standardized points/credits system instead of currencies will have its own share of benefits.
So instead of measuring the assets/liabilities in currencies for an entity, they should be measured in points/credit. Rather than doing payment in various currencies, it should just be a simple points transfer from entity A to entity B.
As the world is inching towards a single global market and the people are becoming global citizens, it's imperative that they are able to interact with each other in one single financial language.
Currently also, there are various places where corporates/Governments/Agencies use points/credits to reward or penalize individuals/organizations or give monetary value in terms of points/credits.
Examples of Points/Credits:
> Biggest example is the credit card points- For every spend you get points which can be redeemed for various products or make outstanding payment.
> Air Miles – most of the airlines in the world provide air miles which have monetary value.
> Supermarket/Grocery points – Which can be redeemed to buy grocery.
> Food aggregator points – Food aggregator like zomato provide points which can be used to order food.
> Carbon credits for countries/industries
> Penalty points for wrongful driving/civic duties.
> Benefits of moving towards points/credits system
Benefits of Points/Credits system:
Listing down some of the obvious benefits which will come from moving towards points/credits system:
> Standardized one single value across the globe, unlike currencies or crypto currencies.
> Untraced money to go away. Everything is accounted for and recorded.
> Safer - Risk of physical money getting stolen is reduced.
> Convenience of use – The points/credits are mapped to your digital id and can be used for any purpose.
> Cheaper – Will be cheaper to operate.
> Calculate the actual net worth of an individual/organization by considering all the tangible and non-tangible avenues.
Below I portray a basic difference in how the net worth of an Individual will differ between traditional and points calculation method:
Current calculation of Net worth using currencies
Mr X, owns the following:
Car – INR 13,00,000 House – INR 65,00,000 Cash – INR 45,000 Bank A/c – 75,000
FD – INR 6,00,000 Total Net Worth: INR 85,20,000
Calculation of net worth using points
Mr X, has following credit/points
Car – PTS 13,00,000 House – PTS 65,00,000 Cash – PTS 45,000 Bank A/c – PTS 75,000
FD – PTS 6,00,000 Air Miles- PTS 50,000 Credit Card- PTS 45,000 Food/Other – PTS 2,55,000
Total Net Worth: PTS 88,70,000
Note: The increased net-worth of PTS 350000 can be used for any purpose which in traditional method has limited use.
There are challenges/cons to the suggested proposition.
> The biggest challenge is that currently it's just a random thought.
> Setting up a detailed blueprint on how it will work.
> Acceptance by governments/organizations- Just like crypto currencies are facing challenges.
> Cost of rolling it out and maintaining it.- The initial cost of implementing it at country and global level would be huge as it will tantamount to technological and infrastructural changes.
> Being digital in nature, it will be prone to cyber-attacks just like any other digital product.
As we move towards digitalization of financial transactions, the aim should not be just to convert the current paper transactions to digital but also to come out with the more homogenous method of transacting which is safer, faster and brings everyone to
the same level platform. It may seem to be a farfetched idea, but then, no one device was predicted to replace camera, phone and clock ! No one knows what the future holds.