Question

How cashless economy leads to mis-allocation of resources? example

Answer 1

A cashless economy can lead to misallocation of resources in an economy with a large workforce involved in unorganized sector. Absence of fiat money leads to reduction in gains of trade because of universal acceptability of fiat money. If the promise of payment is made in any form other than cash, then it's not necessary that the form will be accepted in any other market. Elimination of cash may lead to segmented markets that have reduced opportunities to specialize. This in turn reduces comparative advantage and therefore, leads to misallocation of resources. One of the most recent examples of a step towards cashless economy is payments bank and digital olatforms like paytm that facilitate cashless economy. However, these payments don't work much in an informal sector that includes daily wage workers. Structural bottlenecks like cyber security, technical know how restrict their usage to these sectors that mostly function on cash. Another example is bitcoins that failed due to cyber breach and insecured connection. Another reason for misallocation of resources in cashless economy is the enforcement mechanisms and their inefficiency informal sector.