On Demonetisation... Note-ban-di plus Note-Bad-li - Part Three
The GoI invalidated currency worth ( nearly ) INR 15 lakh crores from the economy on the 8th of NOV, 2016. This is about 86 % - 87 % worth of the free float of currencies. The impacted currencies are the INR 500 and INR 1000 denominations alone.
Effectively 86 % - 87 % of the currencies have lost their existence. And the liquidity, initially, was impacted by that much amount.
The liquidity still remains... way far from healthy.
...
This entire stuff seems like a black swan event with massive implications in every which way for the country and the entire world.
So... a few contextual ideations follow -
(( ONE ))
Now...
The Indian population might be something around 128 crores.
Considering that a typical family might have ( on the average 4-6-8 members ).
Can we assume that this translates into a family unit size all across India ? , quantified as -
@ 4 members per family == 32 crore family units
@ 5 members per family == 25.6 crore family units
@ 6 members per family == 21 crore family units
@ 7 members per family == 18.3 crore family units
@ 8 members per family == 16 crore family units
Let's assume that we got approx. 24 crore family units ( @ 5 members per family ) in the country.
Now...
On the average if these 24 crore family units across the nation keep some paper based currency with them ( not in the banking system ) ON their person or in their premises, then -
@ INR 10,000/- per family unit => this is equivalent to INR 240,000/- CRORES with the entire population of the country.
@ INR 20,000/- per family unit => this is equivalent to INR 480,000/- CRORES with the entire population of the country.
@ INR 50,000/- per family unit => this is equivalent to INR 1,200,000/- CRORES with the entire population of the country.
So, what BALANCE stays with the banks and the banking system and the overall Govt. machinery is for everyone to make out.
Again - with 1 USD == INR 68 ( approx. ) presently.
INR 10,000 = USD 147
INR 20,000 = USD 294
INR 50,000 = USD 735
Btw...
if we assume that each Indian family unit has USD 500 apiece ( = INR 34,000 ) on them ( out of the banking system ). Then actually the currency in the hand of all the Indian family units alone may be = INR 34,000 X 24 crores = INR 8,16,000 crores ( nearly - INR Eight Lakh Crores ).
The balance stays with the RBI coffers, banking system, diverse Govt. organizations, private Organizations, enterprises, etc.
Now... any/ all of the "inter and intra-family unit" transactions contribute significantly towards the economic resilience and, therefore, the GDP of the entire nation. << NOTE and MARK THIS. >>
And... taking into account what lies with the RBI chests, banks, state/ centrally owned/ managed institutions/ organizations, financial institutions, mega corporations, enterprises and an array of entrepreneurs - one may easily make out what may be the quantum of the "free flowing currency" that may be going around.
Also this might throw quite some light on the extent of... fresh capital, loans, etc.
(( TWO ))
In general, apart from those having money deposited with the banks, people do keep ready cash with themselves. Just, in case. This is the norm since ages.
Additionally, people do keep sort of universally acceptable "readily convertible cash equivalent" with themselves in the form of... GOLD. Gold... as a store of value, mostly on their person. In the case of emergency - this can be easily redeemable, for easy cash, anywhere in the world.
Notably...
In fact, the per head banking penetration across the country is really pathetic. The same holds for the number of installed ATMs across the country.
Again...
The quantum of cash that people keep with themselves depends on diverse factors. Too many to elaborate, fully, here. And could range from - wages, earnings, 'meant for regular weekly/ monthly/ quarterly expenses', contingency funds, windfall gains, life savings, widow pensions, etc. etc.
Further...
The quantum of money in terms of cash ( apart from those deposited in the banks ) that any individual, household / family unit or business unit, etc. keeps at any instance of time may vary from -
INR 100 ( say, for a beggar on the street ) to INR 1000s of CRORES ( for big corporate stalwarts ).
There are quite a few instances that some firms or people keep unaccounted money in the form of cash, with them, to the tune of thousands of crores.
AS SUCH -
The Govt. MUST legislate a fixed or variable celing wrt the quantam of "PAPER CASH" anyone can keep on his person/ premises.
Especially wrt the new form/ format/ scale of the "electronic cash" that is going to be espoused belows.
(( THREE ))
NOT TO FORGET -
Whilst, at the same time it is quite possible that nearly 80 % ( = 103 crores ) or more of the population in this country barely meet their ends and somehow eke out their existence. And might have some paltry amount of cash on their person. What to speak of any access to the banking system. Most of these folks stay in the country-side i.e. majorily the rural areas.
Which all put together might not exceed INR 50,000 to 100,000 crore. ( @ INR 500/- or INR 1,000/- per person ).
For a family unit having five members this translates to... INR 2,500/- or INR 5,000/- per family unit.
Better still figure could be... @ INR 1,500/- or INR 2,000/- per person = might not exceed INR 150,000 to 200,000 crore.
In fact... actually... even this number... is actually a tall order for the BPL ( Below Poverty Line ) people in this country. Crores of who all live in abject poverty and barely meet or eke out their livelihood. Perhaps passing off as daily wage earners to meet their ends.
Note-ban-di + Note-bad-li might have destroyed innumerable such unskilled, semi-skilled, etc. daily/ weekly or seasonal wage earners and their families.
Was this factor factored in and its' impact or lack thereof understood by the authorities ? remains a moot question.
In the eastern part of the country - huge pool of migratory and seasonal laborers are all honing/ honed back to their home state. With no work for them - along with their families, eating on their insignificant life's savings. With no new work awaiting them. This is going to impact/ already impacting the local state Govt. and the state economy significantly.
...
...
...
IMPORTANTLY -
Whilst... going gung ho on note-ban-di + note-bad-li - the GoI has completely failed to highlight and take into active account that majority of the populace in the country are illiterate. And... to be digitally literate is beyond the scope and capabilities of more than 90 % to 95 % of the population ( my guesstimate ) at this instance of time.
Effectively... in real technical terms ( based on the nuances of Information Technology Security )... this number may exceed GREATER THAN 99.9 % of the populace <<- VERY IMPORTANT NOTE HERE.
In a general sense...
do I suggest that out of ( approx. ) 24 crore or so households in the country... at max. 40-50 lakhs to up to 1 crore household may be digitally literate to some or greater extent. ( Some real rough extra-polations here ).
That may mean that, at best, NO GREATER THAN almost 3 - 5 crore people may be digitally literate to a reasonable extent at this point of time. This is... out of a figure of 128 crores.
(( FOUR ))
PERCEIVED PROBLEM STATED HERE -
The REAL problem is TWO FOLDS -
1) Massive amount of money deposited or lying with the banks. In which case this results in potentially massive amounts of corruption, in the form of untenable and unrecoverable loans doled out to people/ institutes/ enterprises/ organizations by the banking officials. Almost a good part of which might not be easily recoverable. And, turns up as mammoth NPA on the banks's balance sheets.
( The problem is - the banking officials are never personally responsible for any loan going bad. This must change, and there must be accountability with those doling out loans. )
The same / similar situation we are witnessing now. Owing to the banking largesse doled out during the UPA terms spanning a decade.
Evidently... apart from the economy under-going roller-coaster ride... over the past 10-12 years time frame... in congruence to the international economic turmoil witnessed... and... again... that still remains to be witnessed.
There might be quite some dubious characters in the banking fraternity for sure. And- SOME of such ever knowledgeable banksters in cahoots with wily businessmen and greedy politicians know quite well - how, how much, when and where to pull the strings and to what extent. And all the concerned guys ( in quite some cases ) know quite well the extent of the gains and losses, over a period of time.
Evidently... the country has got massive banking NPAs to deal with. And... there seems to be no way out !!
2) Secondly, massive amount of money in the form of cash hoarded ( therefore - of stagnant nature ) by any of - individuals/ family units/ companies/ enterprises/ organizations, etc. poses a serious challenge to the overall economic well being and developmental agenda of the nation. Definitely impacts on the national security, as such.
( Developmental agendas... as envisaged and laid out by the planning and executive function of the Govt. ).
This impacts the overall liquidity situation. And... the stagnant cash sitting out of the banking system and out of the free monetary float of the nation-wide economic process is akin to stagnant water... which has the potential to create definite rot in the economic well being of the entire system.
In as much as these constrict and restrict the liquidity situation in the country. Which is bad for the economy.
The more the liquidity... the greater the chances that the factors of production ( of wealth ) may be ( to a greater extent ) aptly utilised for new wealth creation; therefore, accretion of the wealth of the nation to a ( much ) greater extent. This eventually translates into an ever expanding GDP. Translates into... greater opportunities and growth for all and sundry.
(( FIVE ))
CHALLENGE is... how to achieve that ?
Does the digitization of cash transactions leading to a completely cashless system ( as envisaged, planned and rolled out by the GoI ) solve this problem in any manner whatsoever ?
Hardly. Perhaps to some certain extent - definitely. But that might not be 100 % foolproof. For...
There is a massive risk element pertaining to cyber security involved. Which is exteremely dangerous indeed.
When we talk of cyber security... the latest is...
There is active talk and accusations of former first lady Hillary Clinton losing out owing to Russia induced mass hacking that led Trump to win the US presidential elections.
And... the Americans are way to ahead of us in terms of cyber security. Every which way. And, years ahead of us.
NOTABLY -
Any one can be set up, framed and proved guilty for any cyber misdemeanor that (s)he might have never been involved in.
His/ her life destroyed in the process.
Remember the "HeartBleed" flaw. Undoubtedly... there are front-doors and... there are back-doors.
And... again... most of the hardware, firmware, critical networking infra-structures back-bone required for all this cashless system that the Govt. plans to actively roll-out - are almost 100 % sourced from overseas markets.
Undoubtedly... there are front-doors and... there are back-doors in a vast majority of these imported wares. All of which might be beyond the knowledge, scope of understanding of our own native critical cyber security experts. Thereby evading their knowledge.
This is akin to having sentry at the bank's front door, whilst the back door remains open and unguarded, unknown to the front dooe sentry. The contrary situation might be true, as well.
I hope this point is noted. And well.
(( SIX ))
Importantly - most of the hardware for the infrastructure is surely to be sourced from overseas. And... these pose a severe form of national security risk... down the road. I think the Govt. must take that into due account.
Again... going cashless might involve massive amounts of (c)overt costs in terms of new(er) equipments to be procured / purchased. For... the whole end-to-end landscape. All which might be a tedious and extremely costly on the national import bill, on a year-to-year basis.
...
In effect a cashless economy, though desirable, is fraught with great/ greater/ greatest dangers. If things ever go wrong ( and there are chances that any hidden enemy country or a small group of highly skilled individuals of the STUXNET creator types can inflict incalculable losses to the economy by targeting the bare basics cyber infrastructure of the country. VERY IMPORTANT ) then it might be difficult to absorb the extent of the loss to / in the economy.
The only false positive that seems apparently plausible in all this is... the tax base might increase for the GoI, if the system goes cashless. This may be likely.
Frankly -
There could have been many other ways and means to achieve that.
Going full cashless all of a sudden is akin to - putting all ze eggs in one big basket. This must be a gradual process. Backed by strong IT security experts. Self manufactured hardware, firmware, networking gears and servers, etc. Highly secured military grade network directly and partly under a Cyber Command and Control of the Armed Forces.
Comprendo **Fatichar ( some random persons I think of ... in my mind ) !!
<< **Fatichar => phut-teacher => teacher gone phut i.e. running amok => Guru Ghantal >>
(( SEVEN ))
PROBABLE SOLUTION ( actually, one PART THEREOF. One major part of probably others to follow. )
So...
let us consider here-withal an alternate means of keeping and dis-seminating cash in pretty much a cashless manner.
We consider the specific case of -
a) Fully personalized though freely exchangeable electronic cash ( 100 % usable and redeemable cash in the public domain ),
b) eCurrency or eCash denominations of the value ( say ) = INR 5,000/- , INR 10,000/- , INR 20,000/- , INR 25,000/- , INR 50,000/- , INR 100,000/-
all of which can be safely kept on the person and in the premises ( say ) even in the open. And, no burglar or dacoit ( = bandit ) can dare to snatch/ loot the same and take it away.
The reason for issuance of high valued e-cash is - this liberates the lower denomination currencies from hoarding at physical ( non-banking ) premises in terms of huge black money hoard. Generally ill-gotten gains piled up... are stagnant for several years and dampens the free flow of currency. And, this definitely impacts the quantum of the free flowing currency.
So, eCurrency may result in more and effective liquidity in the economy. Provided the Govt. puts a cap on the extent of paper cash one can keep, store and carry .
Results in greater transparency. Thereby Govt./ RBI/ the Banking System has greater clarity on the money supply chain.
IMPORTANTLY -
It may NOT be ANYMORE easy for someone to amass INR 50/ 300/ 1000 crores in INR 10, 20, 50 and 100 denominations notes. Assuming that INR 500, INR 1000 and INR 2000 note denominations are all withdrawn by the GoI in the oncoming days.
c) Paper &/or plastics based e-Currency. Say - of the size of the banking traveller's cheque. Say postcard sized or envelope sized. Any of which can be safely kept or stacked in the shirt pocket. Mutiple coloured. Color coded based on denomination.
May be savings type or for regular business ( current account related ) transactions. And color coded accordingly.
May be plastic sheeted and securedly tamper-proofed and laminated at the point/ instance of issuance by the local bankster. The local banker gets the same e-cash from the RBI state or regional chest for disbursal to the customers.
d) The e-currency is TIED / PEGGED to one's mobile phone. In the backend Banking database. This is a TRANSACTIONS based e-cash. For transferring the money or even exchanging the same for lesser or greater denominated cash/ e-cash - one's 'linked' mobile phone MUST be MANDATORILY used for effecting any/ all the transactions.
e) The e-cash must be necessarily printed with ( say - a 10 digit number ) a machine-readable BAR code as also another unique ( say - a 10 digit number ) machine-readable QR code.
So we get a 10 + 10 = 20 digit unique serialization number for any denomination and piece of eCash.
Again there may be alphabetic or alphanumeric 3 or 5 units serial number on the e-cash.
f) The mobile transactions enabled eCash or eCurrency must have any/ all of the following electronic chips/ sub-systems/ systems on it -
1) RFID ( Radio Frequency ID ) tag
2) Zigbee or Bluetooth or some such NFC ( Near Field Communication ) highly secure comm. technology resident on the e-cash.
3) Some communication technology to link with the bare basics LINKED or COUPLED mobile phone ( ones already massively prevalent in the Indian scenario and scope ) may be there.
The bare basics mobile phone may have old style GSM, GPRS, CDMA, 2G, etc. technologies. Again, solution/ services for the 3G, 4G, etc. technologies must also be catered to.
4) A remotely, wirelessly controllable, conditionally operable ON/ OFF GPS style ( using our own Indian GPS / GLONASS type system ) chip/ sub-system/ system that resides on the e-cash.
There MAY be TWO set of denominations of the e-cash. One without GPS ( Indian ) chip inbuilt. Others with resident GPS ( Indian ) system built in. This provides the exact geographical co-ordinates of the e-cash. And, this can track the eCash movement or actual location.
A customer can request any of these two flavors of e-Cash from the bank for keeping in his physical premises for use... as READY cash. Both varieties of eCurrency provide GREATEST security to the eCurrency owner against theft, looting, dacoity, etc.
Simultaneously, the Govt./ Security agencies/ bankster may provide the customer with GPS enabled e-cash to track the customer and the actual location of the e-Cash.
g) The customer taking hold of the e-cash from the bank must request the desired / a certainly denominated e-Cash from the bank.
The banking system ( this includes the RBI and the central Govt. ) must use the customer's unique identification credentials - like the Aadhar card number or the PAN number, etc. to internally generate a unique 10-12 digit serial number eCash linked ( internal use ) identification number for this customer.
Now, there may be two cases -
for multiple e-cash requests the bank may use the SAME unique "one-time-mapped serial number id" of the customer.
Else the banking system may generate A SET OF unique serial number ids for the customer ( all of which are mapped to his unique personal identification credentials ) for a set of requested e-cash.
Another ( much better or the best ) option is - whilst the moment the banker issues an e-cash then at the point of issuing the e-cash, the banker logs into the official system the unique identification credentials of the banking customer and thereby thus ties the unique customer identification number with the issued unique e-cash(es).
I guess the second method is MOST apt. The best.
h) There may be different flavors of e-cash. One which generates an interest ( say @ 2 % - 3 % ) even if the same is kept at one's premise rather than be held by the bank. The e-cash may be part of the Bank's virtual cash pool. Though for the localized bank branch the e-cash is actually - disseminated and fragmented cash not particularly being held by the bank. Matter of fact, the entire banking system may consider the eCash as such.
IMPORTANT -
Going this way, MUST the Govt. dilute the clerical low grade jobs at the bank ? Which add none of value addition, in general. Bland observation.
This way - the entire banking operations at a branch may be fragmented. Say a massive bank branch may better NEED to cut staff and operations by half, one third or one fourth - this entails greater banking efficiency and reach. This means more bank branches may spring up everywhere around, even in the country-side. After the bank's operational and staff expenses are cut significantly. Might mean more fresh ATMs installed around the country.
One of the key banking functions would THEN become "NOTE CHANGING" i.e. converting e-cash to cash or vice versa. Which even anyone around the nook and corner can effectively get into. Thereby earn INR 5/ 10/ 20/ 25/ 50 on per transactions basis. Thereby easily earning couple of hundred ruppees sitting at his/ her premises every day. This may add up nicely over a month.
...
Using of the issued out e-cash -
the bank may use the same "not in use" e-cash ( residing at the customer's premises. Customer holds eCash on account of any future or contingency usage ) for lending out money i.e. for giving out loans.
Example - Say a loan that seeks 100 units of e-cash of a certain denomination might make use of a piping queue, of the First In First Out ( FIFO ) type. This piped queue may have a capacity of 150 or 200 units.
Those eCash at the head of the queue get used. And these "used" eCash units earn an interest. Others do NOT. Say - 100 units earn an interest of 1.5 % - 2 % - 3 % . Whilst the other 50 or 100 units await their turn to earn an interest.
As and when any eCash unit by any customer is used up/ diluted ... i.e. the "used" unit vis-a-vis an active loan is actually used up by the end user ( holding the e-cash ) as parts of any transaction. This same unique e-cash is removed from the loan pool/ system. And another uniquely id-ed e-cash in the system, at the head of the queue, is enrolled in the "doled out loan pool by the bank" thereby earing interest = cash for the end user and the banking system, rather than sitting dud at his/ her premises.
Compare this smart and productive eCurrency to the other 'dud' cash or e-cash that generate nothing. And, sit at one's premises idle.
i) There may be smart-phones that may be able to scan the bar codes and the QR code and using secured transmissions and transactions the e-cash may be transferred to another user holding another mobile number.
The transfer ought to be a two step process - 1) physically exchanging hands, 2) Transferring the electronic ownership credentials of the eCash.
The transaction makes use of the serial numbers on the e-cash.
When we make use of bare basic mobile phones that are perhaps of circa 2000-2010 ( using 2G and GPRS ). Then in that case the eCash holder ( = owner ) has to use the printed serializations numbers ( 10 + 10 = 20 , say ) on the e-cash to consummate the electronic wireless transaction.
Simultaneously, ALSO making use of the recipient party's mobile phone number to whom the e-cash is desired to be transferred.
Say... some key steps could be -
1) One dials to a mobile gateway using one's registered mobile number
2) One keys in the barcoded serial number ( all digits printed below the bar code ), followed by
3) one keys in the QR code digits ( all digits printed below the QR code ), followed by
4) Keying in the recipient's mobile phone number, followed by
5) Further one may or must be prompted to key in a PIN to finalize the transaction.
6) Alternatively, one may be prompted to key in security digits from a hard-copy of a matrix/ grid - digits from specific ( row, column ). This secret hard copy of personalised matrix had been sent by the banking system to the customer earlier by courier, for safe keeping. The customer is now required to provide the ( row, column ) digits for completing the transaction.
Since, once the customer keys in a specific ( row, column ) based digits. After one time usage - the same ( row, column ) may NOT be sought again by the requesting /confirming system.
7) Lastly, the new owner of the eCash or eCurrency takes hold of the same from the last owner who transferred the money.
Is this system akin to 24 hours always ON banking sans banking hassles ?
j) There may be PIN ( Personal Idetification Numbers ) or a password to effect the e-Cash transaction.
The PIN may be a one time expirable PIN. May be re-set-able PIN.
Again... it may be part of a 21 X 21, 36 X 36, 50 X 50 or 100 X 100 or 128 X 128 or 256 X 256 matrix.
So... a transaction may demand to put in the PIN derived from - Row 99, Column 33. of the grid matrix.
Followed by Row 37, Column 255 ( say ).
That row or column may contain either 2, 3 or 4 digit randomly generated numbers. The same matrix is generated afresh by the Banking System and is distinct for each banking eCash customer.
Perhaps may be issued against each unit of eCash ? This might be too much. Better is - issue one matrix for a unique customer no matter how many eCash unit (s)he holds.
Now, to complete the transaction -
the customer looks up the harcopy matrix for the requested numbers... keys in the same...
This one time PIN/ password is to be sent over the air ONE TIME only. Then this row, column combo request is NEVER to be used again. The same is sent to a back-end database for query and verification of the transaction.
The one time to be used over the air digits ( all randomly generated for a customer ) are marked as USED now. Never used ever again. This maintains the security of the entire e-commerce or e-banking transaction.
Actually mobile-commerce or m-banking transactions.
(( EIGHT ))
The e-cash and cash put out by the RBI/ Banking System in the public domain MUST have a definitive period of existence = term of expiry.
Say - one banking user goes to the bank and requests an e-cash that has a validity of 2/ 5/ 15/ 30/ 45/ 60/ 90/ 180/ 365/ 1000 days alone. Again - the eCash may have a lifetime validity.
At the end of those many days. The e-cash becomes invalid. And, the same amount of money linked with the eCash or eCurrency may be reverted back to the customer's bank account. Thereby earning the customer higher interest rate.
NOTE -
The eCash customer pays some banking charges for the "secure" and "personalized" money / currency doled out to him/ her by the bank manager/ staffer.
The Bank Staffer issuing the eCash may use his personal seal/ signature to authenticate the eCash. A set of two-three banking staffers may effect this, this ensures greater security. And, shared responsibility while issuing eCash.
(( NINE ))
The USP of this entire eCurrency system espoused and briefly outlined is... at any instance of time... the Govt. / RBI/ the Banking System/ the Security Agencies, etc. can order a FULL and in-depth inquiry. With definitive logs being maintained at the district, state and national level for any all eCurrecny ever issued and their "ACTUAL" movement.
The banking paper-based logs MUST be kept at each and every instance of the eCash transactions.
<< THIS IS VITALLY IMPORTANT >>
(( TEN ))
ADDENDA -
The GoI MUST mull putting out customized color coded notes ( say red or orange ) that have a certain life span validity in the disturbed / terrorist infested AND impacted regions of the country ( whether that be Kashmir valley or the North Eastern States ). The currency notes must have markers that tells that the currency is to be predominantly or necessarily used in the disturbed region, alone. And, the normal Indian currency must be sparingly used or NOT be allowed to be used in the disturbed districts and adjacent areas. This helps in security management. Even to track the funding and channeled thereof, going to outlawed terror groups.
( Frankly - the cashless system as espoused by the GoI is most apt for such regions.)
Further the same currencies may have bar-codes as well as QR codes. And, a stack of such currencies MUST be machine readable.
Further - these currencies MUST lapse out over certain period of time. Say - one, two or three years. There may be an expiry date associated with the currency. Before which time the same must be redeemed or deposited in the banking system. There may be a grace period of a month or two on this expiry date.
Say - a customer deposits a bundle of currency notes ( of 100 ) in the bank, then the banking staffer must be able to put this bundle in a currency reader machine. And, this electro-mechanical currency counter + reader + tabulater machine MUST read each individual piece of currency id and the same data may be put in the interfaced computing system of the bank. Tagged against that specific customer.
The same process may be repeated whilst a bundle of currency is paid out to a suspect person. This enables in tracking his/ her expenditures and contacts, and the channels thereof.
This might prove in quite handy in many ways. For extrapolation.
(( ELEVEN ))
There is an URGENT need for a military grade hyper secure CYBER network infrastructure spanning the entire country. 100 % secured. Each district, city, town and village must be fully covered.
The same network must be manned, managed and administered by the best brains in the IT Systems and IT Security landscape. This is extremely vital.
There MUST be a separate Cyber Security Command and Control of the armed forces.
This wing of the armed forces ought to be more powerful than any wings of the armed forces, we might have seen till date. Utmost need of the hour.
To depend on others or extraneous forces to aid or facilitate on Cyber Security might be nothing short of foolhardiness.
< EndOfPost >
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