If the cashless dream goes sour, it will be the poorest who suffer | Artificial intelligence

A few central banks are considering whether to issue digital analogues of cash, but unless done carefully, it could leave the most vulnerable out of pocket

Saikat Paul/Pacific Press/LightRocket via Getty

ON THE same day that Donald Trump was elected US president, Indian prime minister Narendra Modi took to national TV to make a stunning announcement. From midnight, the country’s two highest denomination banknotes would no longer be legal tender. The 500 and 1000 rupee notes accounted for 86 per cent of currency supply in a country where roughly 90 per cent of transactions are done in cash.

Modi’s stated intention was to curb what he called “black money”. People had 50 days to swap their old cash for new at banks. It was hoped that by capping how much each person could exchange, criminals would struggle to launder suitcases of banknotes.

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Plenty of people around the world think having less cash would benefit society. After all, counterfeiting aside, cash can be unsafe – in terms of being easily stolen – and it also results in transactions that are hard to keep track of, which can lead to the oiling of corruption. The Better Than Cash Alliance, a UN-based partnership of some 60 governments, companies and international organisations, is pushing this line.

Yet in the aftermath of Modi’s overnight demonetisation, sociologists documented how it was poor people who were disproportionately affected. Replacement notes turned out to be in short supply and poor people found it hardest to get to banks and trade in old for new.

The trend towards less-cash societies keeps spreading and strengthening, especially in richer countries. A few central banks are considering whether they should issue digital analogues of cash (see “Why the end of cash could cause a new data disaster”). But as India’s experiment hints, this tech trend presents risks as well as opportunities. Unless the phasing out of cash is done carefully, it is the poorest who will suffer.

This article appeared in print under the headline “Out of pocket”