Beware digital promise

This year marks 70 years of George Orwell’s evergreen book: 1984. Published in 1949, the book has tremendous appeal today. The premise of the book is based on dystopia where the central authority controls everything related to how people think and act. The authority gives instructions to people from a head mounted on the wall making people think that they are being watched from all corners. Least did Orwell realise how 70 years later, his dystopian vision of the world is close to realisation, thanks to sheer digitisation of world economy. 

With digitisation, people leave a trail of their choices which can be used by the State, making Orwellian world a close reality. This trail was always present in the digital world, but was not considered a problem until now. However, two developments have made this a danger which should make us weary.  

First, the earlier form of digitisation was limited to information seeking but is now gradually including all walks of life. By knowing the payment trail, the State can pretty much manipulate and pressurise its citizens in following its orders. While discussing economics of money, we narrowly focus just on the value of money. However, two highly important attributes of money but least discussed aspects are privacy and anonymity. 

Privacy means how much money one has in the wallet is known only to that person. Anonymity means that in a transaction what matters is the payments are honoured but the identity of the persons remain anonymous. 

In a cash-driven economy, both attributes are present. This explains the huge success of the humble notes and coins. However, in a digital world, not only are both factors missing, but also exposes the holder of money. 

Second, the digital trail captured by many small players is now increasingly being captured by a few large ones. These large players, also called FAANG (Facebook, Apple, Amazon, Netflix and Google), have become the centre of our economic and social world. A more worrying issue, connected to the first point, is that they are entering the payments world too. 

With these big firms keeping data of whatever we do and increasingly of our spending as well, the society is becoming more vulnerable. 

Coming back to Orwell. It is not clear who will be the big boss here, the BigTechs or the State that pressurises for data sharing. 

Given this, it is deeply worrying that Indian policymakers continue to be obsessed with virtues of digitisation while ignoring the voices. India’s approach is different from developed countries where digitisation is demand driven, compared to India’s supply driven push.  Sweden being the best example, where cash demand has declined signific­a­ntly. In fact, they are seeking a legal intervention to ensure people do not refuse transactions in cash. In a demand dri­ven approach public is better prepared as it has experimented enough with the options. Compare this to a supply driven approach where State is pushing public to use digital methods. 

Ever since government pushed demonetisation in November 2016, digital payments and cashless economy have become buzzwords and top priorities for policymakers. This was seen when the RBI instituted a comm­ittee in the first week of January 2019 to deepen digital payments in India.

The Committee recently submitted its report. It has suggested a roadmap to make India a digital nation. It proposed to increase per capita digital transactions from 22 to 220 by March 2022.

It is odd that the Committee pays lip-service to central issues of privacy and anonymity. They point to a 2016 survey done by Visa which says users recognise that cash has benefits of privacy and anonymity. However, it pays little attention on what RBI and the government should do to ensure the two central attributes in digital payments. 

Charles Kahn of St Louis Fed in a must read paper (Payment Systems and Privacy) writes, “Proposals to ab­o­lish cash take inadequate account of th­ese legitimate demands for privacy.” Further, he notes that though central banks can set standards, they do not have comparative ad­­vantage at providing privacy. This implies the private sector will have to come with solutions to solve specific privacy problems. 

In a country with weak institutions, increased digitisation is akin to creating a Jurassic Park with technology becoming dinosaurs once systems are compromised. The policymakers always highlight black money, counterfeiting and money laundering to highlight disadvantages of cash. But they forget that digital payments brings its own set of problems. 
This does not mean that we stop the rise of digital world as it is inevitable. It just means we have to be aware of what we are stepping into and be better prepared. 

Most of the polity makes the digital world look as a bed of roses but forget the sharp thorns which come along.  


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