User talk:Mmqasim

GOOD BYE 'PAPER MONEY'

INTRODUCTION 1. Credit and debit cards have been in use in various countries of the world since long, later on ATM system came in and provided convenience to the users for withdrawal/transfer of money. Recently limited services are provided for financial transactions through cell phones, which include transfer of funds, charity to different charitable organizations and credit card and bank accounts transactions alerts etc. Apart from the user convenience, these tools are also having impact on economy. The demand of actual money decreases with every increase in e-money resulting into economy in printing and circulating costs of paper money. My idea is an extension to these sub-systems which will yield a vast variety of economic benefits for country.

WE ARE IN STONE AGE 2. Back in Stone Age people used barter system for trade, a little later gold and silver coins came in to be the medium of exchange. First use of paper money as medium of exchange was also not too far from the Stone Age. Since ages world has been changing in every aspect of life, but with exception to use of paper money, subject to some insignificant changes like design and size of currency notes and coins. Why paper money is not replaced with something better than that?

WHAT IF WE DON’T HAVE PAPER MONEY 3. Can we financial affairs of our daily life without paper money? This question must have come to many minds but its answer would have created a chain reaction of series of questions which might have been the reason for not thinking further on these lines. Just think for a while that there is not even a single currency note or coin in our country. What will happen? How ladies will do shopping? How businessmen will do business deals. How stock market will work? What will be use of cash counter in banks and business houses? How illiterate or less educated people will do their small business like vegetable or fruit shops, small grocery stores, bakeries, hawkers etc? What will be role of state bank and commercial banks? How monetary policy will be formed? What will be legal tender money of Pakistan? What will be use of ATM machines? and so on. In this article I will try to provide suitable answers to these questions.

WHY SHOULD WE ELIMINATE PAPER MONEY? 4. The root of the idea which I am going to explain in succeeding paragraphs is derived from the current economic situation. At present our beloved country is at critical economic situation. Heavy foreign and local debts, limited reserves, unfavorable balance of international trade, low national income, low purchasing power, high inflation, low per capita income, low income from taxes inspite of high sales and income taxes rates, money laundering and black money are the challenges which are faced by our economy. Best brains of the country have been trying hard to find solutions to the indicated problems but results of the efforts put in by now are obvious. Life of a common person has become miserable, business class is suffering heavy losses, industries are at shutdown point and country has proved its inability to retire its debts. I have been thinking since last couple of years to find out a single solution to all the mentioned problems. Ultimately I have come up with a brand new idea which involves changes in existing system at large. Big challenges call for big decisions. It will be really a very big decision for the Government to take.

e-MONEY IS THE ALTERNATE OF PAPER MONEY 5. It is proposed that all existing paper money should be turned into identified e-money. After making necessary arrangements and implementation of the new system the existing paper money will be declared obsolete. Detail of benefits of doing this will be discussed later in this document; however the most important of those is broadening the tax base. Govt can generate many times more than present tax revenues even after giving relief to the nation in terms of reduction in rates of different taxes including GST and Income Tax. This will be a biggest breakthrough toward provision of relief to the nation. Moreover every person (from beggar to billionaire) will come under tax net after implementation of the proposed idea.

HOW PAPER MONEY WILL BE TURNED INTO e-MONEY? 6. Following steps will require to be taken to turn paper money into e-money.

(a) A secured, fire walled and encrypted intranet will be established with in Pakistan to link all commercial banks and NADRA database with main server of State Bank of Pakistan. Users accessing intranet from their personal computers/PDAs/Laptops will be restricted to connect internet and intranet at the same time. The intranet will not connect if the system detects an internet connection. In the same way intranet will automatically disconnect, if a user will try to connect internet while he is already connected to intranet. This arrangement will safeguard the system from cyber intruders and hackers.

(b) A uniform software will be developed for use of State Bank and all commercial banks. Preferably, it will be a web based application which will be accessed by all banks to update their relevant data, however all data will be saved in server of State Bank. In order to develop this software, Govt can avail services of IT specialists of highest profile, which are luckily available in Pakistan. Example of development of NADRA systems is before us.

(c) Public/Private-key cryptography and digital signatures may be used for all financial transactions.

(d) State Bank will arrange to replicate data on at least three distantly located parallel servers, so that physical destruction of any bank or state bank itself should not cause any damage to the data.

(e) Keeping of bank account will be declared mandatory for all CNIC holders. To start with, State bank will compare the data received from banks with NADRA database to find out CNIC holders those are not maintaining bank accounts.

(f) Bank accounts of all such persons will be opened at once with nearest branches of NBP as per addresses given on the CNICs. This process will not require any other documentation. The individuals concerned will be informed about their bank account numbers through letters at first stage. However, NADRA will be advised to issue fresh CNIC cards to all existing CNIC card holders with bank account numbers printed on them.

(g) Fresh account holders will be required to get their accounts activated from concerned bank branches. The Bank will issue PIN codes and the accounts will be activated.

(h) While getting their accounts activated, the account holders will be required to give their mobile numbers which will be entered in the system by concerned banks to recognize the source of transaction done through any mobile device and will be used for system generated mobile alerts.

(i) Accounts holders those will not be using any mobile phone will be issued with hand held financial devices by the concerned branches of banks. These hand held devices will be specially designed with Urdu and English interface for operation of accounts remotely.

(j) A bigger electronic cash register type machine with dual display and printing facilities will be designed for use of business houses, super stores and common shop keepers.

(k) After doing all of the abovementioned actions, all population of Pakistan will be informed through media adds to deposit their paper currency in their accounts. Any amount of currency, not deposited in banks till expiry of dead line will be declared obsolete.

(l) After doing this much the wheel will start spinning. People will start using mobile phones and financial devices to operate their accounts. Mobile application will provide following facilities to the users:

           (i)         Transfer of money from one account to other.

           (ii)        Individual to Individual and Bank to Individual loans with facility of entering no of installments and the amount of installment.

           (iii)       Investment screen to fix any amount in any bank as an investment for agreed period of time on agreed rate of profit.

           (iv)       Hire-purchase interface to enter the amount and name of purchased item, along with no of installments and the amount of installment.

           (v)        Special screen to interact with stock market.  The account holders will be able to use any amount of money available in his account to purchase shares directly from his mobile device.

           (vi)       A screen to submit request to remit funds to foreign countries for payment of fee of children studying abroad or for any other legal purpose.

           (vii)      Various other screens as per requirement.

           (m)      Loss of mobile device by any user will be immediately reported by him to his bank through personal visit, telephone call or nearest ATM.  On registration of the complaint the account of user will automatically be freezed. At the same time the user will get necessary amount of cash coupons (will be explained later) issued through bank or ATM to meet his day to day cash requirement before obtaining a new mobile device.

HOW WILL IT WORK? 7. Person to person cash transactions including shopping, personal loans, credit purchase etc will be done through hand held devices/mobile phones. As soon as the customer will transfer money to the account of shop/store/other person, the man on receiving end will receive message showing amount received, name of sender and his current balance after receipt of any amount. Since shop keepers will be having facility of printing reports, therefore customers will be able to get any report related to their bank accounts printed from any store against nominal charges. In the same way all financial transactions will be completed without using paper money and without visiting concerned banks. Banks will however provide facility of receiving complaints regarding any financial matter of their concerned accounts holders through personal visit, telephone call or nearest ATM. Apart from doing routine sale/purchase on as and when required basis, people will also be able to use their bank balances to purchase shares from stock markets and to do online shopping from intranet based Pakistani web sites.

WILL IT BE SUFFICIENT? 8. Will these arrangements be sufficient to discontinue the paper money at once? The answer to this question is “NO”. The new system appears to be based on assumption that 100% CNIC holders will be able to operate their accounts through mobile phones, hand held financial devices, ATMs and web. The reality is however a bit different. A considerable portion of population is illiterate, living in villages and far away from modern cities. Think of a man who is living in remote village of interior Sindh or Balochistan. Think of a man who inspite of living in developed city is not able to even write his own name. Think of small vendors like fruit and vegetable sellers on road side. Think of the local transporters, tuck shops, tea stalls, hawkers and beggars. How these people will be a part of the system? This is really a big question mark.

A PARALLEL SYSTEM OF CASH COUPONS 9. In the early days of advent of mobile phones, it was thought that people mentioned in previous paragraph will not be able to use the mobile phones but now we can see that even sweepers and beggars are using mobile phones. Moreover they are well aware of characteristics of various mobile sets and mobile connections. People are now accepting the change. After experiencing the popularity of mobile phones, we can expect that with in a year or so, most of the population will understand the system and will start operating it. To start with, I have devised a parallel system of cash coupons which will work like anonymous e-money keeping in view the limitations of mentioned above categories of the population. This sub-system is explained as under:

(a) Bank will be provided with limited quantity of cash coupons by the State Bank (just like paper money).

(b) The coupons will be machine readable with magnetic tape on them and in various denominations like, Rs 5, 10, 20, 50 and 100.

(c) Account holders will be allowed to get issued desired amount of coupons from any bank or nearest ATM. The bank/ATM will debit concerned account with equivalent amount and will issue the cash coupons.

(d) All coupons will be timed and expiry date of a coupon will be printed on its face as well as stored in magnetic strip of the coupon.

(e) The coupons will be used for purchase of goods from small shop keepers, for payment of fare in local transport, as pocket money of minors, as charity to beggars and in all such situations where connectivity to the main system is not available.

(f) Account holders will be allowed to deposit the cash coupons in their accounts through any branch of any bank, any ATM or any store provided with online financial machine. As a result of swapping a coupon in any financial machine, the amount will be credited in the keyed in bank account and the machine will make a hole in coupon, so that the coupon stand void for further use.

(g) Role of ATM machines, after complete elimination of paper money will be changed with slight modifications in hardware and software. The ATM machines will be used to draw and deposit cash coupons, to view/print bank statements, to apply for loan, investment or foreign remittances, to purchase insurance policies, to register online complaints, to buy/sell shares from stock market and to do other similar tasks as required. In addition, ATMs will also be used to access intranet based local web sites by linking the ATM machines with intranet.

WHY CASH COUPONS? WHY NOT PAPER MONEY? 10. One can think that cash coupons will be working more of less same like paper money; therefore it should remain in use instead of advent of cash coupons. In fact cash coupons and paper money are not alike. Paper money is not only out of the tax net but also can turn into black money. But coupons will be timed instruments. They will be valid for a stipulated period of time written on them, after which they will expire. If a coupon expires before it is deposited in any account, it will become the income of Govt, because the value of that coupon was already received by the issuing bank at the time of issue. For example a coupon having life of 1 week has to come back in some bank account before 7th days of its issue otherwise it will become an income to the Govt. Recycling of cash coupons with banks will bring 100% money earned/spent in tax net. Moreover the cash coupons will be machine readable. If a shop keeper receives 200 coupons of different denominations in a day. He will just swap these coupons in his cash machine as and when received or at end of the day. As a result his account will be credited with the amount equal to total value of 200 coupons and the coupons will stand void for further use. A beggar who collected 50 coupons of Rs 5 each in a day will surely find some ATM or any financial machine to slide his coupons and to get a credit in his bank account before expiry of his collected coupons. He will surely use a part of his collected coupons for purchase of his daily use items and will deposit the rest in his account. Thus, people who will not be able to use any electronic device or intranet/ATMs will also be made part of the system.

MONETARY POLICY AND ROLE OF STATE BANK

11. Apparently it looks like such a system which will loosen the control of state bank on regulating the money aggregates, money in circulation and inflation but actually it is not the case. Following controls will remain with state bank even more effectively in comparison to current monetary system:

(a) State bank is bank of the banks. As per its role and task, it has to control the quantity of reserves that commercial banks hold. The integrated system will enable state bank to place system based checks on banks so that they should not exceed their reserve limits.

(b) Automated implementation of federal fund rates and discount rates will not only increase control but also revenues of the state bank.

(c) In order to keep the inflation rate under control, state bank need to calculate and regulate amount of money in circulation and the money aggregates (M1 to M3). Under the proposed system control of e-money in circulation will remain under direct supervision of state bank. For example if state bank allows account holders to spend only 80 rupee per day out of each 100 rupee deposited with bank, the e-money in circulation will decrease by 20%. This process will work like saving bank accounts where account holders are allowed to draw limited amount of money over a period of time.

BENEFITS OF THE SYSTEM 12. Economic Benefits:

(a) Since the there will be no requirement of paper money, the cost of printing of money will reduce considerably. Cost of printing coupons cannot be compared with the cost of printing of paper money. The cash coupons will be somewhat similar to mobile scratch cards which are printed on ordinary paper.

(b) The inflation will decrease and the value of money will increase.

(c) National income is calculated either through expenditure or income method. In either case the exact amount of National Income will be calculated which will remain in the hands of Government. The unspent bank balances of all accounts holder will create a gigantic pool of money, a safe portion of which can be used by Govt on development projects of the country. It is expected that money under control of State Bank will be so much in quantity that Govt will not need any internal or external debts. Budgets will go in billions and trillions of surplus instead of going in deficit.

(d) Account holders will be given liberty to make purchases even more than their existing bank balance. In this case concerned banks will charge service charges on money used in excess of existing balance of account holder. State bank will electronically get a share out of it from all commercial banks. Thus Govt will be able to generate extra revenues apart from tax income. Govt will be able to reduce the taxes to minimum or even can totally exempt conveniently.

(e) Purchasing power of the general public will increase which will give boom to their living standard. Increase in demand will spin the wheel of industry. GDP, GNP, NNP and per capita income will increase and economy of the country will prosper. Through achieving the optimum level of production, targets of favorable balances of trade and payment will be achieved. In order to fulfill the increased demand, new industries will come in, which will be a source of achieving full employment. Increase in demand of manpower will increase the salaries to manpower two to three times.

(f) Govt will be having exact data of receipts and payments made during a year, thus the taxation will be implemented correctly and tax recovery will be made directly from the bank accounts (on income or expenditure method which ever is applied). As a result huge tax revenue will be collected. Moreover Govt expenditure for establishment, regulating and monitoring of tax collection infrastructure will reduce to minimum. Due to heavy incomes, Govt will be able to increase salaries of public servants and armed forces personnel from two to three times very conveniently.

(g) As per a hypothetical analysis, if there are 14,000,000 bank account holders and each account holder does a transaction of Rs 100 in a day on average. If Govt charges Rs 1/- per transaction, it will receive a revenue of Rs 14 millions in a day, Rs 420 millions in a month and Rs 5.04 billion in a year only in one head. If Govt charges just 5% sales tax on all consumer goods, the amount collected will be surely many times more than the amount which is being collected presently by charging 16% GST.

(h) The system will not allow even a single rupee of black money; therefore all money will be white money which will be with in the tax net.

(i) Nobody will be able to transfer any amount of money outside Pakistan without prior approval of the Govt. The legal and mandatory outward remittances will be arranged by banks after receipt of request of account holder through his mobile device, ATM or intranet based web.

(j) It is observed that reverse accounting, window dressing and tax evasion have become culture of corporate sector of Pakistan. Under proposed system there will be zero possibility of tax evasion at any level; may it be corporate level or individual level.

13. Income from the system itself:

(a) A part of Govt savings can be issued to desirous borrowers on loan against nominal markup, which will be an other source of income for Govt. These Govt loans will be in addition to Bank loans. Bank loans will be issued by the concerned banks from their own authorized reserve limit.

(b) Govt can earn service charges income by providing facility to all such institutions/individuals which are collecting a fix amount from different persons on account of monthly rents, insurance premium, hire purchase installments etc. Their amounts will be directly credited by the Govt out of the concerned user’s account.

14. Users Convenience:

(a) Users need not to carry paper money which is not only unsafe but also difficult to handle.

(b) The money of users will remain in safe hands and yet accessible by the original owners as and when required.

(c) Users will be provided with country wide roaming facility. Thus account opened at one place will be operational from all locations with in the country.

(d) Convenience in regular monthly payments to various persons/agencies.

(e) People will enjoy unlimited purchasing power. They will be able to purchase anything they need even if the cost of that item is more than the available bank balance.

15. Political benefits

(a) Govt will be able to monitor the transactions / fund position of required personnel.

(b) Govt will be in position to monitor the flow of funds between different agencies and personnel, which can be a clue to find out anti-state activities.

(c) Details of relatives of persons with ‘grey’ security status or involved in suspicious financial transactions can be obtained though NADRA database. This information will help the investigating agencies to reach the required person.

(d) If desired Govt can cease the account of any person/group of persons for receipt, payment and transfer of funds. In the culture of e-money no one can survive even for a day without having his account open.

16. Benefits to Commercial Banks

(a) Since keeping of bank accounts will be mandatory for all CNIC holders, therefore the commercial banks will be maintaining large number of bank accounts and will be enjoying very high level of deposits.

(b) As explained earlier, all accounts will be operated by account holders remotely; therefore it will be very easy and cost effective for banks to maintain even large number of bank accounts with less manpower.

(c) Role of cash counter established in banks will be minimized to receipt and issue of cash coupons, therefore less manpower will be required.

(d) Cash handling, transporting and storing costs will be zero. Same activities for cash coupons will exits but cost of it will be far less than that was in case of cash.

(e) Banks will be receiving more investments due to easy investment process and attractive return rates.

(f) Manpower required for processing, clearing, verification and recording of cheques, drafts, MTs, and traveler cheques will not be required.

(g) More profits through offering e-loans and charging service charges of different transactions.

(h) Physical cash was never secure in banks even after placing it in heavy strong rooms. Examples of destruction of bank branches and robbing of banks are before us. However under new system there will be no issue of physical security of cash.

17. Benefits to Business Sector

(a) Availability of all listed companies and registered partnerships will be made mandatory on intranet through interactive web sites. The companies will not only avail the facility of PC banking but will also get more business from local markets through intranet. On confirmation of receipt of goods/services by the buyer, bank transaction will take place automatically debiting the account of buyer and crediting the account of seller. At the same time sales tax will be credited to CBR account automatically. A sudden boom in business sector is expected after implementation of the system.

(b) Under the present circumstances, most of the time it happens that an industrialist finds himself unable to purchase raw material on credit. The supplier remains in doubt about receipt of his sale proceeds on promised date. The proposed system provides solution to this problem. Now the seller will enter a proposal through his mobile device that so much money will be credited to his account by the purchaser after so much time. Once the buyer will accept the proposal, the system will record the deal. On the promised date the seller will receive credit in his account irrespective of the fact that the buyer was not having sufficient funds in his account on that date. In fact the buyer will automatically enter into a loan contract with Govt/Bank. This arrangement will build confidence among business class and they will start doing business deals without any fear of bad or doubtful debts.

(c) Web based interactive facility will be provided to importers/exporters for opening LCs incase of international trade. Banks will stand responsible for collection of foreign remittances.

(d) Corporations will be able to raise e-bonds to increase their working capital, which will have two fold positive impacts; from the business and investor’s prospective.

17. Miscellaneous benefits

(a) Fake paper money is an all time problem, which causes inflation and leaves bad impact on economy. With the implementation of paper money less system, the threat of fake money will be eliminated.

(b) There will be no concept of black money under this system. Before implementation of the system all money (black or white) will be deposited in banks.

THREATS

18. Threats and opportunities always go side by side. Proposed system will be also subject to some threats, which are listed below:

(a) Whole system will be based on networks and software, therefore it will be highly vulnerable to hackers and cyber intruders. As discusses earlier, suitable security arrangements like fire walls, encryption and isolation from internet can fight against this threat. At present nearly all banks are depending on networks and software, yet they are running successfully. Same is the case with ATM networks. It is sufficient to prove that proper security arrangements will neutralize this threat.

(b) Inflation is the other threat. The system will increase the purchasing power of general public. Therefore people will be willing to pay more to purchase a less valued item, which can cause price hike leading to increase in inflation. This threat can be dealt with through Govt policies regarding limited access of public to e-money in circulation. Moreover investment treads are expected to increase under new system which will be an other source of decreasing inflation rate. Inflation decreases with increase in saving trends. Govt will be able to conveniently regulate the inflation through changing the rate of return on investments.

19. At the end I would like to highlight that this is a brand new idea. So far, no country of the word has implemented this approach nationwide. Isn't it strange that over a period of last 1000 years paper money is continuously in use with no significant changes except size and designs of currency notes, whereas rest everything is changed. Therefore I can say that so far as currency system is concerned, we are still in Stone Age. Sooner or later we have to say good bye to paper money. Allah knows which country comes first to do this. What I foresee is that Pakistan is very good at importing the technologies from other nations. Once this approach will be implemented in some other country successfully, Pakistan will surely import the technology and its experts from that country, obviously with kickbacks.

Big changes call for big decisions.

Muhammad Munir Qasim Kohat Cell No 0333-4349414 21 Feb 2009

Note: The article was originally written in 2006 when Govt of Pakistan asked proposals for e-governance. The article was e-mailed to Govt on published e-mail address but no consideration was given at that time. Recently, I have read an article in midweek edition of daily Jang dated 5 Mar 2009 consisting Dr Niaz Ahmed’s proposal of cash coupons. I appreciate the work of Dr Niaz Ahmed but his system looks like traditional MLM systems which will be handled by private coupon distributing agents. Scope of his system is very limited which will yield the projected benefits subject to acceptability of coupons by general public. Contrary to that, my system will take all population along and will yield many times more benefits than that system. Moreover that system is totally manual system where as I have used the technology at its maximum.