Challenges of digital economy

Transcription

1. Challenges of digital economy Mubashir Hassan
2. Challenges of digital economy Mubashir Hassan The introduction of internet technology in banking has brought in its wake new concepts and instruments like e-banking , Mobile banking, various cards like credit, debit cards, virtual cards and e-wallets and e-commerce etc. One can transfer money, recharge phones, pay various types of bills, perform online shopping and so on. We can buy and sell shares while sitting comfortably at our homes. Then there is e-gold: you can have deposits of Gold in the electronic form and the quantity simply mentioned in your accounts while the actual gold is held somewhere else and so are your investments and bank balances. We can’t foresee the new financial instruments and gadgets we are going to have in future. This type of economy or the Digital economy appears as thrilling, time and money saving. No doubt it is advantageous, but these things are not so simple, there is more to it than meets the eye. It heralds a completely new economic system which may not be as pleasing as it appears. The present economic system is the result of long chain of historical events and changes. To begin with, we had barter system which evolved into a more feasible system in which precious metals like gold and silver were used as currency, followed the paper currency. Initially Money lenders used to issue receipts for the gold which were used in the market place as currency in lieu of the gold which was held by the money lender. With the passage of time money lenders learned a trick, they issued receipts for far more amounts of gold deposited with them and charged interest on the said receipts, as they were used as currency and slowly it matured into full fledged monetary system based on paper currency. In 1944 foundation was laid for the Bretton Woods which was to govern the international monetary relations. As per this system the various countries of the world were now to settle their international accounts in Dollars that could be converted to gold at fixed exchange rate of $35 per ounce which was redeemable by the US government, or in other words the US government was committed to back every dollar overseas with gold and the other currencies were fixed to dollar which in turn was pegged to gold. As the dollars were now to be acceptable and required in the international market, gold (real wealth) was transferred to US. (US today has more than 2/3 gold reserves of the world.)
3. Then real shock in 1971 , the Nixon shock. Various nations of the world wanted redemption of the dollars held by them into gold. Fearing that it would have to return the gold back to the demanding nations, USA cancelled unilaterally the convertibility of the dollar into gold and began the era of fiat money. The USA and the other economies of the world were now free to print out as much money as they wanted. There was no one to curb printing of currency. Fiat money is just a form of currency which is not backed by anything nor has it any intrinsic value. It is just the assurance of the issuing agency that lends it value. To make things worse the banks multiply the money available with them through the process of Fractional Reserve Ratio. To understand the concept let us consider that there is only one bank in the vicinity. Depositors deposit Rs One Lac in it. The said bank loans out Rs 80 thousand out of it and the borrowers use it in buying commodities, luxury items or property and in turn, out of these Rs 80K, Rs 70K are again deposited in the said Bank. The bank again lends out say Rs 60K to some other borrowers and the cycle continues and this way out of the actual Rs one Lac, the bank lends out Rs Five Lac to ten lac depending on the circumstances and the regulations of the central bank. In case of many banks in the system, there is little difference in the process as the borrowings of one bank are deposited in the other banks and vice versa. The consequences are that more money is available in the market leading to inflation, the benefits are reaped by the upper class only, who use this extra money available in the system to earn more and more and the poor suffer the adversaries of inflation. The impact of the digital economy can be understood very easily in this backdrop. Firstly there would be no actual use of currency, only the net based transactions would be there and one can’t say with certainty when the current paper currency based economy would be replaced by the digital economy completely. The impact on money generation by the banks and the resulting inflation can only be imagined. There are also some other problems. The credit card ensures that you are always steeped in debt and paying interest. The credit card coupled with the lure of advertisements on the online shopping sites, you are tempted and encouraged to buy, as the scarcity of money is no constraint to buy more. Your bank is there to pay for you and then you have to make adjustments with bank on EMI’s. You simply end up buying things you really didn’t need and all that on credit and interest. However, you forget that these new commodities come with a price, ‘interest’ and all
4. that . Millions of rupees are being spent to trap you into this dirty consumerism. You consume more and those big industrialists are benefitted. Your monthly credit bill piles up and at one stage you are unable to cope up, you give up and the bank gets hold of your securities and the properties. In case you have some extra money and that too would be in e-form and mentioned in your accounts. You may earn some bucks and the wrath of Allah. You can’t do anything about it, you have to keep your money in banks, as there would be no way to keep it anywhere else. Presently there are proposals of Gold deposits in banks where you can deposit your gold in the bank accounts and the bank in turn can lend it to jewelers on interest and a part of the interest shall be paid to you. It is great temptation to fall into sin. You have extra gold lying in your cupboard or in bank locker, why not deposit it in an account, ensure its safety and earn some extra money? In other words you are asked to hand over your gold to a bank which in turn shall give you a receipt on a paper or just as an entry in your e-account. (Don’t forget Bretton woods system and the Nixon Shock). Anyway you would be involved in Riba dealings and it would appear as a normal process. There is nothing to cheer about all this. We can’t foresee where all this process is leading us to. One can only imagine. In future all your cards, accounts and your identity may be integrated in one card and all your bills, like electricity bill, water supply bill, gas bill may be deducted from that card and in case of default, your supplies would be stopped automatically. And may be down the line we may have chips inserted into our bodies, which contains all our details, as a substitute to the cards. We have gone so far that it seems difficult to retreat, the only end seems to be the conclusive digital economy. That would be really hard times. Email: mubashir_07@rediffmail.com Mubashir Hassan Dar S/o Manzoor Ahmad Dar R/o Zirpora Bijbehara Mb:;9419924672