Question

should cash be abolished?

Answer 1

Answer:- Concluding remarks

Several researchers have suggested diminishing the cash, where they say atleast the higher denomination notes to be abolished in the developed world, The reason being:-

• To eliminate the anonymous transactions carried out by parallel economy to fund the black market, crime, tax evasion and money laundering, Eliminate the zero lower bound on nominal interest rates that may interfere with monetary policy; and
• To eliminate the zero lower bound on nominal interest rates which may interfere with the monetary policy of central bank.

These suggestions could suggest that there is need to abolish the cash but on the other hand it has several drawbacks:-

The central bank of the country has to maintain the liquidity in the economy. To maintain liquidity, the most liquid form is cash which is used by the end consumer. If the liquidity in the market dries up, the banks in the country may lead to bank run.

Another question arises with this is that if the cash abolishes then the replacement forn that will be digital currency. This could pose as better choise but it can once again comes up with the technical issues.

On these lines, the developing countries where the maximum amount of transactions is done via cash payments as majority chunk of the market is in unorganized sector. This will make difficult for such markets to carry out the transactions and to replace the existing structure of cash payments.

Concluding remarks: Even though the phasing out of cash poses several advantages where more transparency can be brought in the system and the black economy can be curtail by abolishing the cash, But ultimately it has created the structure where the cash is necessary to sustain the economy for several reasons as discussed above, Thus the best solution can be instead of completely abolishing the cash from the economy, the cash can be gradually replace by digital currency to certain sustainable extent.