The hidden side of RBI’s push for more electronic payments

In this article, the RBI is cited to be pushing for electronic payments as a replacement for cheques for loan repayments. The obvious explanation is that ECS will eliminate all the time and effort involved in collecting, depositing cheques and then getting them cleared. This is supposed to leave the banking system more efficient.

What is not stated is the deeper reason for the move – to make people more accustomed to making electronic payments for everything to eventually make the move to eliminating cash.

Now, cash is a bothersome thing. As long as people have a concept of cash and want it for various purposes, the banking system has to keep some cash. This is the reasoning behind having reserve ratios like CRR and SLR. With these, the bank is supposedly in a position to comfortably meet demand for cash.

Why does people having a demand for cash make it bothersome?

If people did not have a demand for cash, there is no operational limit to how much money the central bank and the entire banking system can create. We will then land in Inflationist Utopia where money creation and credit expansion can go on unbridled. That also means that all limits on government spending are eliminated.

Is it possible that this Inflationist Utopia is RBI’s goal?

The hidden side of RBI’s push for more electronic payments
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4 thoughts on “The hidden side of RBI’s push for more electronic payments

    1. Bala Post author

      I too try, but there are many ways in which credit cards become a convenience. So, I find it very difficult to avoid them. Debit cards come with greater risks though they would be better. The problem is not electronic money substitutes per se but the inflationary banking system. The solution to that is beyond you and me. Only the crack-up boom that Mises identified is capable of bringing it to its knees. Until then, I prefer to live life as best as I can.

      1. Amit

        Do you think that we should start investing in gold? And by investing in gold, I mean, have less bank notes and more of precious metals and other valuable goods.
        Because according to your theory the current banking system (all over the world) is bound to crash sometime. It’s like they give a smoking addict a cigaret every time he coughs. He may feel better for the time being but each cigaret takes him closer to his death.

        1. Bala Post author

          Hi Amit,

          First, I wouldn’t use the word “investment” when I speak of Gold, unless you are talking of it as an investment in a cash balance. The reason to hold gold is simply that in the long run, fiat paper money is bound to get diluted. Given enough time, any fiat paper money regime enforced under a fractional reserve banking system must reach a point where it implodes in a crack-up boom. When that time comes, people are certain to look for an alternate form of money. There are few options available in the form of goods that are highly marketable, are scarce, have a high value to volume ratio and are durable other than precious metals like gold and silver. So people like me who swear by the free market would say that in that eventuality, having already converted worthless paper money into precious metals when it would have got you much more gold and silver would be deemed a very wise move (Note that at the time the fiat paper money has become worthless, it will get you very little gold or silver). So, the real need to hold gold and silver is to be able to permit you to restart commercial quickly transactions when fiat paper money becomes worthless.

          So, holding a certain proportion of your cash balance in the form of gold and silver is something I would always recommend. What proportion is up to each individual depending on their immediate cash requirements, their cash flows and their perception of the time horizon of the inevitable crack-up boom.


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