Should Government abolish paper money and introduce electronic money (smart cards) that can be used on computer devices linked with the central computer of the tax authorities to deter tax evasion and monitor household expenditure?

            Nowadays, the most controversial topic is the issue of having cashless future society. It is a word of mouth that coins and paper money will be replaced by debit cards and credit cards. Most of us would definitely deny it. It seems really difficult to replace paper money with electronic money or smart cards. But it is the reality that increasing issues associated with paper money and increasing trend of smart money in the market clearly indicate that soon the government would have to take the step to abolish paper money and introduce smart cards with electronic money. Here comes the question should the government take such a step? What are the possible consequences and benefits of this step? Moreover, the overall impact on the economy is also a concerning point for this step. The present work will address all these questions particularly focusing on the information about tax authorities and monitoring of household expenditure.

        Paper money basically represents the country's official paper currency that can be used in a country to buy or sell (transaction) of goods and services. Central banks publish and issue paper money in accordance with market demand and trading prediction. In fact, the central bank controls the flow and issue of paper money in line with the monetary policy to keep the optimal flow and circulation of money in the country (Cochrane, 2017). Paper money is easy to destroy as burning and tearing can support in abolish process but paper money is relatively difficult to be replaced by the electronic money as the whole economy and trade in under-development and developed countries are still based on the paper money. Paper money is in use of the trading process from 618 AD.  Historical analysis indicates that paper money was invented in 618 AD by the Chinese government with the purpose to make the trading process easy. Since now paper money is involved in the trading process. In accordance with the market analysis, more than 70% of transactions made in India are done with paper money. While in the US only 15% are done with the paper money remaining all are supported by the credit cards and smart cards. The deep involvement of paper money in the trading process indicate that it would be difficult for the government to completely replace paper money with electronic money immediately. Somehow, it should be in the long term vision and goals of the Government to replace paper money with safe electronic money in order to avoid negative issues linked with the paper money use (mashable.com, 2019).

        The government can replace paper money by electronic Money by facilitating banks to promote smart cards with attractive offers on transactions and trading. Electronic money is basically getting common in society. A major role in promoting electronic money is played by the social media, e-commerce and online transaction systems. People all over the world are using the credit card and debit cards for online transactions and huge transactions through the bank for physical businesses. Basically, electronic money is safe for the huge transaction as it goes from bank to bank that reduces chances of theft and frauds. Electronic money exists in the banking computers systems and can be accessed by using smart cards. Linking these computers with the tax authorities can make ease for tax authorities to deduct taxes and get a clear overview of the taxable income of a person (Bandiera, 2004).

        Government decision of replacing paper money with electronic money should be evaluated on the basis of advantages and disadvantages to reach the right and appropriate decision. The following table will represent the advantages and disadvantages of replacing paper money with electronic money:

            In the light of the above-mentioned analysis of Advantages of replacing paper money with electronic Currency and Disadvantages of replacing paper money with electronic Currency, we can say that advantages are more than disadvantages, therefore, the government should take this step. Tax authorities face problem in calculating taxable income and determining tax evasion, therefore, they need the exact amount of income and expenditure of a person (Cochrane, 2017). Electronic money and smart cards linked with the computer system of tax authorities will help out them in monitoring activities of an account and thus they would be able to deduct the appropriate taxes from income. Research findings indicate that in India each year billions of dollars in taxes are avoided by the natives and residents because of excessive use of electronic money in the trade and transactions. While on the other hand, tax evasion is no more problem in developed countries like the US and Germany as electronic money and smart cards make them able to trace transactions and deduct taxes on each transaction. A research finding suggests that overall tax evasion in the world cost governments around $3.1 trillion on an annual basis. Governments can reduce tax evasion by eliminating cash transactions through paper money. Considering the importance of taxes the German government has presented a draft law to the cafeterias and restaurants refuse paper money.

        A research study conducted by the University of Missouri concludes that government decision to abolish paper money can reduce theft and robbery in the country. According to the findings, street crimes can reduce by 10% by switching paper money to debit cards and credit cards. Moreover, smart currency can also benefit the government of a country by providing a clear overview of the expenditures. The government makes budgets and develop economic policies in light of the historical information available about the expenditure in one fiscal year (Hespeler, 2008). Electronic money involved in the transactions will provide clear details of the expenditure made by a single household in a year. Thus by collecting information about all households and overall country expenditure in a year Government would be able to make right and appropriate strategies and policies for future operations and development plans in the country. By getting information and monitoring expenditure of households government would be able to make a realistic budget for the whole country (mashable.com, 2019).

        On the contrary, the law enforcement agencies and the government have improved and better control on the electronic money that is relatively easy to trace instead of paper money. The best example is the German currency system, the German consumers still prefer to use a cash deposit instead of smart cards because of different advantages in the market. Depreciation is mainly a fall in the external value of the currency and majorly it occurs due to major exports of the country. The depreciation cost of paper money will reduce, and it will have a significant impact on the economy of the country.

        The replacement of smart cards with paper money will reduce the use of paper and paper waste will be decreased. Paper waste has an adverse effect on health and causes diseases. By the replacement, the probability of disease will decrease. The use of credit cards can be good for the earth because it is reusable and reduces paper consumption. Smart cards are environmentally friendly because it eliminates the usage of paper. Therefore, smart cards are eco-friendly products and cash can be transferred to green credit cards.

        Swapping the card and paying through the smart cards is a time taking process. All it means is that shopping or purchasing by smart card makes it harder to cut down the time. The complete replacement of smart currency will take time in the process.

        The biggest disadvantage of using credit cards instead of money is that it encourages people to spend more and more money because most of the credit cards do not require any payoff balances each month. The data security, as well as threat of fraud, is higher in the case of swapping traditional smart card system. Even the process provides fast transaction services with more reliability, but it has a low cost per transaction. The process used for the complete replacement of system will take time and eventually it could lead to a negative impact on the economy. The trading system may face difficulties in trading with other countries. The online system is often hacked by the professional hackers, therefore, the possibility of online data breaches and cybercrime is higher with smart card and e-money system

        After analyzing research findings and discussing the advantages and disadvantages of paper money replacement with electronic money I would support the decision to take the step for the use of electronic money in the country. In my opinion, the government cannot replace paper money all of sudden therefore they need to pay attention to the promotion of electronic money in the country. Offering special discounts on credit purchases can support them in increasing the use of credit and smart cards in the trading process. Somehow, I would suggest that the government should not totally eliminate the paper currency system as it would cause some serious issues and difficulties in the trading process.