NEED FOR THE ELECTRONIC –CURRENCY SYSTEM

The device will be like prevalent electronic diary/calculators for making any transaction. Such electronic devise will have a unique ‘code’ allotted to every individual. Unique code numbers will be similar to ATM unique number through which the transactional communication between the persons and individuals and banks will be made. Transaction between different banks will have separate code numbers.

Electronic Currency System will be operated through a handheld electronic diary like instrument. This instrument shall be allotted to each responsible citizen by the Government. On becoming a legal tender every monetary transaction will be performed through such electronic instrument called electronic currency pad. At the time of implementation of the electronic currency system, every citizen of the implementing country will be required to deposit their money with the Banks and this will enable banks to transfer that money to the respective electronic currency pads of the different owner citizens. The issuance, operations and all types of controls will be under the strict Government Regulations and watch. Their shall be three level control checks for making the system fool proof viz., (i) A unique code number allotted and imbibed in the electronic currency machine itself, which could be verified and confirmed automatically through its own mechanism, (ii) A password operating system e.g., thumb print sensor system and (iii) transaction code for controlling every transaction. These checks will make the electronic currency system most secured and fool proof. Any Monetary transaction in E currency System shall be initiated by payment maker making a payment to the receiver. Transaction means the give and take process. If there is payer then there will be a receiver also. That means for making any transaction effective their shall be involvement of two persons i.e., electronic currency machine of the payer and electronic currency machine of the receiver. Prerequisites for such electronic currency system shall be computerization and internet at the bank’s level, electronic currency machine hard wares and software and necessary computerized machines with the bank for recording the transaction and other monetary details in the bank-computer. Broadly speaking their shall be two types of transactions in this system viz., (i) cash transactions and (ii) bank transactions for the individuals operating from a distance. Cash transaction shall be made when both payer as well as receiver are in close proximity to each other i.e., both are with in the permitted range. All transactions other than cash transactions are bank transactions. Here it is to be noted that though for our convenience we have used the word "cash transaction" to contrast it with the institutional transaction namely "bank transaction" but in fact as all transactions are made electronically, practically the cash currency is not involved in the transaction process. Thus in this ‘electronic system’, no money will ever be out of its fold while in the ‘paper currency system’ there is every possibility for the money to come out of the system and contribute to its non-systemic haphazard growth.

For making the transaction possible, both payer and receiver should bring their electronic currency pads with in the operative range. They will switch on their machines. Their machines will exchange their unique code numbers and thus become ready for transaction. Their unique code numbers will be verified, the payer shall press the cash payment button, which will make cash transaction code appear on the screen of the payer’s electronic machine and payer shall feed the payable amount in the machine and shall again press the button to make the transaction code as well as the payable amount transferred to the receiver’s machine. Receiver’s ECP after verification shall update the balance with the received amount. Similarly payer’s balance amount shall also be updated simultaneously. Though the allotted ECP are not connected through internet still their balances will be immediately updated with received/ paid amount through remote sensors connecting only two electronic currency machines at that point of time. These electronic currency machines will be required to be brought to their bankers periodically for issuance of new cash/bank transaction codes, which is similar to the currently prevalent issuance of the new cheque books on exhaustion of the earlier cheque book by the bank. At the time of issuing of fresh transaction codes, bankers will download on to their computers all the transactions from the electronic currency machines. This will make bankers to have proper control over the currency and accounts and thus, simultaneously make all the money belonging to the respective individuals always deposited with the bank. This will make liquidity as good as paper currency cash. In other words, though banks have all the money always deposited with them still electronic currency machines have the currency liquidity to the extent that they can transact any amount standing to their credit any time subject to the availability of their money balance. Transaction is possible to any decimal details and so any amount without any fractional denomination details can be transferred by pressing one button. For example, as for transferring Rs. 50,000/-, under paper currency system one will have to determine the combination of denominations of paper currency to arrive at Rs. 50,000/- figure –for example Rs. 100 x 500 i.e., 500 notes of Rs. 100 will amount to Rs. 50,000/-, in e currency system you just have to write Rs. 50,000/- without any denominational details of the currency numbers for getting it transferred to the receiver’s account through the electronic currency machine.

These have been explained with the help of illustration. Only relevant functions of Electronic Currency Pad have been shown in diagrammatical representation.

Figure 2A shows the money balance in hand in electronic currency pads of both the manufacturer and buyer respectively, before the transaction. Figure 2B, shows transaction through electronic currency pads. In figure 2B, X has brought his electronic currency pad with in the range of Y’s electronic currency pad. Now X has signaled his electronic currency pad’s unique code number. Y’s electronic currency pad will verify for the validity of X’s unique codes number with the help of its memory. On verification Y’s electronic currency pad will signal ‘OK for transaction’. Now X will press payment button. Immediately cash transaction code will appear in X’s electronic currency pad’s screen. X will now feed the payable amount manually on to his electronic currency pad and then will again press payment button. Now this cash transaction code along with payable amount will be transferred to Y’s electronic currency pad. Now on pressing Receipt button, Y’s electronic currency pad will verify for the validity of Cash transaction code with the help of its memory. Figure also shows TC that means cash transaction code along with transaction amount appearing in both electronic currency pads’ screen. On verifying cash transaction code, the transaction will take place. Figure 2C shows the updated balance position after effecting the transaction.

BANK TRANSACTIONS:

Bank transactions are those monetary exchanges where payer and receiver are not with in the permitted range for cash transactions. These bank transactions will be treated as provisional till they are finally updated by bank through internet clearing process. After clearing, bank will update the provisional transaction adding the received amount to the money balance of the receiver and deducting the payment from the payer’s money balance.

For making bank transaction in electronic currency system, payer has to press the bank payment button of electronic currency pad. Immediately bank transaction code will appear in electronic currency pad. Now payer will feed the payable amount. Payer will note this bank transaction code and the payment amount manually. This bank transaction will be recorded as provisional payment and will not be adjusted immediately to the money balance belonging to the payer through pressing bank payment button again. Payer will communicate the bank transaction details (bank transaction code number and payable amount) through e mail, telephone, fax to the receiver. Receiver will feed manually the communicated receivable amount and bank transaction code to his electronic currency pad in ‘bank receipt mode’. This receivable amount on feeding manually will also not be updated immediately but will be recorded as provisional bank receipt in the electronic currency pad of the receiver. Now both payer and receiver will approach, with their electronic currency pads and bank transaction details, to their bankers for updating of the said bank transaction to their respective electronic currency pads through normal internet clearing procedure. Bank will update the balances of both receiver and payer after clearing (just like cheque clearing procedure by banks in the present banking system) the said bank transaction through internet.

Figure 4 - Money Balance in Hand in Electronic Currency Pads

Figure 4 shows money balance in hand in electronic currency pads of both X and Y respectively. This balance is, before the transaction. Figure 4B shows bank transaction code along with the transaction amount. Here, X who is payer has pressed ‘Bank Payment Button’ on to his electronic currency pad. Bank transaction code has appeared. Now he has fed the amount required to be paid and then has conveyed both bank transaction code and payable amount to manufacturer through Fax, email, Telephone etc. Y, on the other hand, has pressed ‘Bank Receipt Button’, and then has fed both bank transaction code and receivable amount on to his electronic currency pad. Figure 4C shows provisional bank receipt amount and provisional bank payment amount along with the balances in Y’s and X’s electronic currency pads respectively. Figure 4D shows that on approaching by both Y and X to their respective banks, banks has updated their electronic currency pad through normal bank clearing procedure. Hence, transaction is effected. Therefore, updated balances after effecting the transaction are shown.

Other forms of bank payment like honoring bills of exchange can also be monitored through this system. Suppose X draws Y a bill of exchange promising to pay after 30 days. Now Y has the option to get the bill discounted from bank. Y may approach his bank for discounted money. Bank, in this case, will update Y’s electronic currency pad with the discounted money. This will be done through bank’s own transaction code. Now after thirty days, X will pay to Y’s bank, pressing his electronic currency pad’s bank payment button. Immediately bank transaction code will appear in X’s electronic currency pad. X will intimate his bank transaction code to Y’s bank. This provisional bank transaction code along with amount will be updated by X’s bank completing the transaction in all respect.

Payment through Demand Draft will not be required as payment through ordinary bank transaction code will be much faster; resulting in huge savings for the banks and business houses. In fact, under the electronic currency pad system, bankers will find themselves into altogether different economic environment. Automation will be to the highest level. Paper work will be reduced to almost negligible proportions. Bankers’ operating cost will be reduced. This system will be advantageous for even blind and illiterate people as the ‘speaker’ in the electronic currency pad will speak for every aspect of transaction. This will save them from getting cheated.

FIGURE 5 - Bank Transaction Process Explained Through Flow Chart

GENERATING INCOME CYCLE

Government will have sufficient finance available from internal sources for all kinds of Government expenditure including development expenditure. As every citizens’ entire money will be with banks without hampering their money transaction liquidity, banks will find themselves in a position to advance this money deposits to Government or needy people.  Government will be able to use this advanced money for development works and other expenditure which will ultimately increase people’s income in the form of remuneration for their services to those projects. Again this will automatically increase peoples’ bank deposits because all money is always deposited with banks. This increased bank deposit base will enable banks to finance the Government and the needy people both, which will again enable government to get loans for its projects and development works resulting ultimately in increase in peoples’ earnings. This process will continue resulting in creation and rotation of income cycle making people and the country self-sufficient and richer. This will also have positive impact on generating employment amongst the youth. This process can be illustrated in the following diagram.

In the diagram G stands for Government, B for Bank and C stands for citizen of the country. This is already stated that all citizens’ or Govt.’s money will always be deposited with Banks. Now let us assume that citizens have 1000 units of currency e.g., Rupees/dollars, as total money. In electronic currency system these 1000 units (Rs./$)will always be with the bank i.e., money will always remain within the orbit of the banking system. The above diagram demonstrates as to how the income cycle will be created and rotated within this system among the three components viz., G, B, C.

As shown in the diagram1000 units of money are with Bank ‘B’. As money will never be out of the system, bankers will be in a position to loan out these 1000 units to Govt. /Public/ Business Houses as the case may be, for any kind of development or business project. Now these advanced 1000 units will be ultimately transferred to citizens ‘C’ in the form of payment for services/labor etc. Citizens earnings will be augmented to the tune of 1000+1000 i.e., 2000 units which means 1000 units have now grown to 2000 units. As citizens’ money has increased to 2000 units and the entire money is always deposited with the bank i.e., available in the banking system, the liquidity is always as good as cash in the traditional paper currency system and bank deposits will also increase, along with citizens’ money by 1000 units thus, totaling to 2000 units. This will result in increase in bank’s capacity to advance 1000 units more in addition to its initial deposit of 1000 units. Again bank now will be in a position to loan this increased deposit further to the Government ‘G’. This dynamics between the three components i.e., "B, C and G", generates an "Income Cycle" in the integrated system replicating this cycle ad infinitum, resulting in redressing many of the economic problems like unemployment, poverty, inflation, unaccounted money etc to a considerable extent. It may be noted here that money generation through Income Cycle in e-currency system can grow limitlessly, subject to its rotation by the Government among its three constituents viz., ‘G’, ‘B’ and ‘C’, in other words, for example, if Government or the Apex Institute could rotate the income cycle fifty times the initial 1000 units of currency will increase to 50,000 units, whereas, in paper currency system it is not so because Government can generate 1000 units of money up to maximum 10,000 units only, if the money reserve ratio is 10%. Money, therefore, in e-currency system, need not have the constraint of keeping money reserves and therefore can multiply up to any number of times, creating unlimited money power through the rotation of income cycle.

I. Let’s suppose in a country having e currency system, there are two citizens A & B. A has $ 500 and B has $ 500. Now as I have already explained whatever the money people have will always be kept deposited with the Bank without affecting the liquidity of the monetary transactions. Here. Bank will have $ 1000 as total deposit. Thus, Banks’ records will depict as follows:

II. Now, Bank, we suppose, can grant this deposited money as loan to the Government for its various projects. Let’s presume Bank has advanced $. 1000 to Government, as bank is not required to keep any reserves in e currency system. Now, Bank, Government and Citizens record will depict the following picture:

Figure 8--Bank Records

Bank’s Books

Government Books

Citizens Book

III. Now let’s again presume that Government has incurred this Bank Loan on its various projects. This is obvious that whatever amount government incurs the ultimate amount will go to the citizens who would be working for Government in its various projects in the form of employee/contractor/supplier etc. Government’s investing the money will bring citizen, income for their labor as remuneration, salary, wages etc. Now in our example, on Government investing $ 1000, Citizens A & B will get remuneration say A gets $ 500 while B gets $. 500. Now Citizens, Government and Banks records will give the following picture:

Figure 9--Citizens Books

Now Citizens will approach their Banks for periodically updating and feeding of fresh transaction code series (Transaction codes are codes generated by Bank’s computer for every transaction like any paper currency denomination, making the transaction unique and non copy able). Bank at this time will download all the monetary transactions on to its computer updating its records. In this example Bank will download the transactions i.e., between Government and citizens on to its records resulting in the following:

Figure 10--Bank’s Books

Government Books

Now we have seen that Bank’s deposit base is increased due to Citizen’s increased earning through Government. Now this increased earning will enable Bank to further advance the balance in hand i. e., $ 1000 to Government for its various projects. Let’s suppose Bank has advanced $ 1000 again to Government Now Government will incur this loan amount on to its projects. Citizens will be the people executing these projects hence they will get the benefits in the form of remuneration. Now suppose Citizen gets $ 1000 again as remuneration. The Government, Citizens and Banks records will be as:

Figure 11--Government, Citizens and Banks Records

Citizens Books

Government Books

Bank:

Now citizens will again approach Bank for updating and fresh issue of transaction codes. Bank at this time Bank will unload all the transaction details on to its records updating bank’s records. Now Bank’s updated records will be as follows:

Figure 12--Bank’s Updated Records

Liabilities
Deposits A’s A/c Previous Balance	$1000
New Deposits (received through Government in the form of remuneration)	$ 400
Total (A’s A/c Deposits)	$1400
B’s A/c Previous Balance	$1000
New Deposits (received through Government in the form of remuneration)	$ 600
Total (B’s A/c Deposits)	$1600
Total Liabilities($1400+$1600)	$ 3000
Assets
Loan to Government
Previous Balance	$1000
New loan	$1000
Total Loans	$ 2000
Money Balance in Hand	$ 1000
Total Money	$ 3000

Now we can see this increased deposits with Bank will enable Bank to further advance this increased money to Government for its project. Government will incur this money loan from Bank to its project making citizen receiving remuneration for their services in these projects. This process will keep on repeating resulting in creating and rotating the Income Cycle to nth time. This can be deduced that you can increase any amount as loan to Government, the resultant Bank Money/ Actual Total Money will be constant K $1,000.00 in the above example. The higher the Loan amount the higher will be the Citizens’ money making Government take adequate finance through their own Bank internally and in this way becoming autonomous country in at least monetary aspect. This will help in eradicating unemployment problem, poverty problems can be solved, standard of living and per capita income of the citizen will increase with other immense socio-economic benefits.

This process can also be explained through equations format as:-

Let:

Gm= Government Money
Bm= Bank Money (Deposit Money)
Cm= Citizen Money (All Money other than Gm and Bm)
Tm= Total Money
K= Constant
Rm= Reserved Money (As per Reserve Ratio)
Crm= Credit Money (Money created by Bank)
Im= Initial Money at the time of introduction of e-currency system, all to be deposited with Bank. Therefore, Im will be equal to Bm and Bm will become constant ‘K’.

Now as we know Gm+Cm=Tm (Because in a country there are only two constituents of money that is with Government/ Entrepreneur and with the Citizen of the country.)

Bm-Rm=Crm

In e-currency system, there will not be any need to keep reserves as all the money, without hampering the liquidity of the transaction, will always be deposited with the Banks.

Bm-0=Crm
Bm=Crm
Bm≥Gm+Cm

Where Bm is constant K

When

Gm→ (-)∞ (tends to infinity/n)
Cm→ (+)∞(tends to infinity/n)
Bm=Crm=Gm+Cm
Bm=Crm= (-)∞(+)[∞+Im] (At the optimum stage)
Gm+Cm=Tm
(-)∞(+)[∞+Im]=Tm
Bm=Tm

Where Bm=Im=K(Constant)=Total Actual Money

Putting the values shown in table above:

Suppose, there are only $1,000.00 initial money (Im), the total money deposited with Banks, at the time of implementing the e-currency system. This can be depicted as

Im=Bm=Gm+Cm=$1,000.00

Now as Bank would not have to keep any reserves (i.e., CRR), all the amount with Bank i.e., $1,000.00 can be advanced as Loan to Government/Entrepreneurs.

Bm-Rm=Crm

$1,000.00-0=$1,000.00

After advancing to Gm the equation will be

Bm=Tm=Gm+Cm

$1,000.00(Total Money with bank minus money advanced as Loan)= [-$1,000.00 + $1,000.00 (advanced money to Gm, all to be with Bank without hampering the liquidity of transactions)]+$1,000.00.

Now Government will spend/invest this Loan amount of $1,000.00 on to its projects. As Citizen(Cm) will be involved in the projects in various capacities they will get returns in the form of remuneration/rewards. Thus, this $1,000.00 after investment will reach to Cm as their rewards. And all the money will always be deposited with Banks without hampering their liquidity in e-currency system.

Now Equation will be

$1,000.00= -$1,000.00+$2,000.00(Cm=initial $1,000.00+$1,000.00 as rewards).

Now Bank has still $1,000.00 as deposits making Bank able to further advance $1,000.00 to Government. Government will invest again the fresh loan amount of $1,000.00 to its projects. The beneficiaries will again be Cm i.e., citizen getting rewards of $1,000.00 in return. This can be shown in the form of equation:

$1,000.00= -$2,000.00(Total Loan Amount $1,000.00+$1,000.00)+$3,000.00

We have observed that though Bank Money being Total Money is constant at $1,000.00, due to equation manipulations Citizen money ‘Cm’ has become $3,000.00 from initial amount of $1,000.00. Now this can be further explained as:

GM= $-2,000.00 i.e., represents credit/Loan money from Bank to Government and Entrepreneur

CM= $3,000.00 i.e., initial $1,000.00+$2,000.00 received from Government in the form of remuneration/reward as return for doing various categories of jobs in several capacities.

BM= $1,000.00 i.e., actual/net money with banks denoted as distributed among citizen $3,000.00 and Government sector -$2,000.00(Loan to Government).

Above can be summarized in equation form as:

BM=GM+CM

$1,000.00=$-2,000.00+$3,000.00

BM will be always same i.e., constant K, irrespective of the algebraic manipulations among GM and CM.

As,

Gm= $-2,000.00

Bm= Bank Money (Deposit Money)=$1,000.00

Cm= $3,000.00

Tm= $1,000.00

K= Constant

Rm= Reserved Money (As per Reserve Ratio)=0

Crm= Credit Money (Money created by Bank)=$1,000.00

Now Gm+Cm=Tm

Bm-Rm=Crm

Because in E-currency System all the money will always be deposited with the Bank, hence Bm=Tm. And as all the money can be advanced without worrying for the cash reserve ratio, therefore Bm=Tm=Crm.

Now Suppose Gm= -$200,000,000.00 (Bank has advanced to Government and Business Sector. This is possible as Reserves Ratio is Nil and Bank will not have to pay anything which goes out of the e-currency (Monetary System) system, as in the case of paper currency system, where, when we take money out in the form of cash from Bank that money goes out of the system/ Income Cycle.)

Cm will be $200,000,000.00+$1,000.00(initial amount) because

Bm=Gm+Cm

This implies that Tm/Bm will remain constant to the figure at the time of introduction of the e-currency system. This means that though the actual money is only $1,000.00 but due to the equation manipulation between Government Money [Gm] (in the form of loan/credit money) and Citizen Money [Cm]. Citizens’ money has gone up by 200,000 times the original money that is the money/income cycle creation. This money creation can go to any extent, to infinity. This can be presented as :

Bm=Tm=Gm+Cm

This implies that Bank can go on creating credit money to any extent in e-currency system as irrespective of credit money (advanced as Loan), bank money will remain unaffected i.e., if bank creates credit of two times the money deposited the bank money will be K (Constant) and if Bank creates credit by granting two hundred times (i.e., by rotating the Income Cycle among the three major constituents Government, "G", Bank "B" and Citizen "C" to two hundred times)the money deposited, still the bank money, in total, will remain unaffected i.e., K (Constant).

In addition to generating a continuous flow of Income Cycle, many other social and economic aspects like illegal ‘hawala’ money for the terrorists, drug trafficking, counterfeit currency, payment of dowry and related problems, all types of social and economic crimes due to spurious money can be effectively controlled to a great extent through this e-currency system.

In the new post industrial age, market has seized to be merely an economic structure with a localized, regional or national character. It is a fast changing institution where exchanges are much dynamic with deeper social implications.

Money essentially is a means to achieve other utilities of life but when its purpose becomes blurred it loses its real goal and becomes an end in itself. People get so much attached to the money that instead of using it as a means, start accumulating it as an end in itself and treat it as a part of their permanent assets and property. Feeling of insecurity is the main cause of this among its possessors giving rise to many social, political, economic, and psychological evils in the society. In order to undo this socio-economic strain caused due to the stress between the traditional monetary system and the fast changing economic-institution of the market and the corporate life and trends in consumerism it has become inevitable to make a proper alteration in the system which could be never short of a paradigm-shift from the paper currency system to the electronic currency system. It is quite interesting to note that in this era of post-industrial cyber society, regional or national markets co-exist with the Global market system, which are quite antithetical in nature and await for a new kind of synthesis to occur. As compared to the traditional ‘fiat paper currency system’ where the risk of depletion in the value of money is always involved, an integral-pluralist kind of ‘e-currency system’ is an urgent necessity for such a synthesis. The new currency system which would be a paper-less electronic currency system so comprehensive and flexible that it will have the inherent potentiality to take care of the ‘particularistic’ (national/regional) as well as Global i.e., transnational economic needs of the today’s World society. Such a currency could only be a paper less electronic currency broad enough to cater to the exchange requirements at the international level and geared to the particularistic needs at the regional or national level when required for this.

The close economic relationships between nations in the today’s World make it virtually impossible for any individual national government to manage its economy independently and resist the pressures of the hard currency of the developed nations or to check inflation internally. As Toffler rightly points out the growing menace of the super currency of Euro-money is "beyond the power of any individual nation to regulate. National politicians who claim their domestic policies can halt inflation or wipe out unemployment, are either naïve or lying, since most economic infections are now communicable across national boundaries."⁴

The present write up thus seeks to convey as to how transactions in the e-currency system will not only provide a fool proof security system to a nations’ economy and control the unpredictable forces hindering its healthier growth but also make the routine business transactions friction free.

It need not be overemphasized that the present day post-industrial Globalize World where every sector of social life tends to seek its own course of change, it is very difficult to manage such changes merely through moral preaching and traditional technology. The only course left to be exercised is to control them through electronic devices and commensurate management system. This is the only futuristic alternative which could help in solving problems of the today’s post modern World of unpredictable changes effectively.