Ushering in the era of e-money

Paper money is a currency issued by a government or its central bank. The currency is printed on paper that can be circulated as a substitute for specie. On the other hand, transaction is the function that has its effect on the financial position of a business. Transactions are recorded in what are known as "journal entries." Each entry describes a single transaction and states its date and amount.
Transactions are done in three ways: i) cash, ii) clearing, and iii) transfer. Cash means money in the form of coins or notes distinct from cheques, money orders or credit. Clearing denotes all activities from the time a commitment is made for a transaction until it is settled. Clearing ensures movement of a fund from one account of a bank to another account of another bank. Transfer means the change in ownership of an asset or the movement of a fund or asset from one account to another.
Balancing means an amount of something left over after additions and subtractions made. Balancing confirms the asset and liability of a person or country transparently. Transaction and balancing are important, but it is not necessary that it will always be done in cash. If a secure and user-friendly system, i.e., software for transaction without paper money can be developed, it will bring a big change in the banking sector.
The people are now doing most of the transactions in hard cash. If there is no paper money, the transactions will be done through mobile banking, credit or debit cards or any such device. That means all the transactions will be done through banks. In that case, it will ensure transparency in monetary dealings, as every transaction is recorded. So, it will help curb corruption, as it will be easy to detect any under-invoicing, over-invoicing, money laundering or any other illegal financial dealing.
On the other hand, the deposits of banks will increase many times as shown in the chart below. We can present here a scenario of what will happen, if there is no paper money. Suppose a bank receives Tk 100 in deposit. After deduction of Tk 19 on account of cash reserve requirement (CRR) and statutory liquidity ratio (SLR), the account holder will disburse the remaining Tk 81 in the form of salaries or any other expenditure. As there is no paper money, Tk 81 will be back in the bank in the form of deposits as the recipients will use the money through the bank. Again on deduction of Tk 15.39 from the Tk 81, the remaining Tk 65.61 will be disbursed. And it will continue until the amount reaches the zero level. At the end it is found that the total deposit is Tk 526.22. If it happens in every three months, then the deposit will stand at Tk 2104.88.                               
1. Creating loans and deposits. Banks can create loans and deposits up to Tk 1704.96 and Tk 2104.88 respectively from the original capital of Tk. 100.00 only in a year.
2. More consumption, more development. If people spend more and the recycle time is shorter, ultimately the country will develop more and more.
3. Huge financial inclusion: No cash balance will be available in one's pocket or in the vault of a corporate house or a bank. As such, a big amount of pocket/vault money will be included as deposits. Ultimately financial inclusion will happen.

4. 100 per cent savings: All the earnings of people or any organisation will be in the bank account. Ultimately 100 per cent income savings will happen.
5. No incentives against savings: No incentive will be required against savings as people will automatically keep their money in bank accounts. When a person will spend an amount to buy something, he will transfer the value to another account in a bank or the seller's account. As such money will always be in the bank account, even if no incentive is there against the deposit.
6. Cost of fund: Ultimately bank's cost of fund will be nil.
7. Expense of banks. Banks will have only two types of expenses - one is administrative and another is operating expenses.
8. Interest-free banking. Banks will not spend any money against deposits. Thus its cost of fund will come down to nil. As such, the banks will not be required to charge any interest against loans. Banks will charge only administrative and operative expense for loans or investments.
9. No inflation. Here loans and deposits will increase but not the supply of currency. As such, there is the possibility that inflation will be nil.
10. No security for paper currency in a bank. Banks will not require any security for cash currency as the vaults will be empty and the money will be in the electronic form in the account.
11. No expense for printing paper currency. The country will get rid of spending a big amount of money for printing paper currency.
12. No duplicate currency: Duplicate currency is a big problem. As there will be no cash currency in the country, there is no chance to print duplicate currency.   
13. No hundi/illegal business: Every transaction will be recorded and held through banks. So, no chance is there to do any illegal business. If any, an investigation team will easily find it out.
14. ATM vs laptop/iPad/cell phone. Presently we are using ATM machines for withdrawal of cash currency which costs about Tk. 10 million (1.0 crore). On the other hand, if we shun the cash money and develop software for recording the transactions and proper balancing, no ATM machine will be required for withdrawal of cash. Then laptop/iPad/cell phone will be used for transferring the fund from one account to another, which is far cheaper than an ATM machine.
15. Banks in remote areas. Banks can open branches in remote areas, as no hard cash and no security or vault will be required.
16. Lending in the public sector. Banks can lend to the public sector, against which the risk weight is zero. As the risk weight is zero, banks will not require keeping capital against loan.
17. No shortfall of money, if borrowed by government from local banks. The full amount of lent money will be deposited in the loan accounts and even the spent amount will be deposited in the bank account of a recipient. As such, the government can borrow from local banks and the private sector will not be affected by the borrowing of the government.
18. Balancing is more important and needs secured and user-friendly software. Every transaction must be recorded electronically. There will also be user-friendly software for all people, including the blind.
19. Multiple accounts. People or organisations can have the right to open thousands of accounts in different banks. On the other hand, proper balancing is required to identify every transaction and prohibition of illegal transaction. As such, the national ID card may be used as the code number for individuals and a unique code can be there for any lawful organisation.
20.    Cash management (transfer of account management). Multiple accounts can be opened under one obligor considering the nature of transaction such as salary, wages, advertisement, purchase, sales etc. of an organisation or a person. Through a unique code banks can easily identify the total number of transactions of the organisation or the person concerned and create transparent balancing.   
21.    Collection of TAX, VAT, Custom duties. As every transaction is recorded electronically, the collection of tax, VAT and custom duties will be easy and accurate.
22.    Balancing account-to-account, country-to-country. Balancing will confirm the asset, liability, income and expenditure of a person and a country. Balancing will also confirm the proper presentation of assets, liability, income and expenditure etc.
23.    100 per cent control on money by the government. As every transaction is recorded, balancing is done electronically and no cash withdrawal is allowed, the government will have the full control on money.
24.    More powerful government. A peaceful, happy, developed and transparent society will be created and the government will be more powerful than earlier.
So, if e-money can be introduced fully, a secure and user-friendly system (software) will be there for recording transactions and ensuring proper balancing.     
The writer is Executive Officer of Bank Asia Ltd. at its Corporate Office. mashiur.du@gmail.com