India’s recent decision to replace their 500 and 1,000 rupee note with new models, requiring all old cash to be exchanged by December 30, has sparked protests across the country. Concerns cited by the government for the action include counterfeit currency, the use of high denomination bills to fund terrorism or illegal activity, income hidden from taxes, and the use of cash for bribery. The underground economy, from top to bottom, runs on cash, and while terrorism and organized crime are a serious concern for governments, the underground cash economy is also the way the unbanked populations of the world manage their day to day lives.
The European Union Central Bank recently voted to stop production of the large denomination 500 Euro bill. While the bills currently in play will continue to be honored, the bank stated that the concern was the use of large denomination bills for illicit activity. The call for the elimination of large denomination currency is growing across the world and should have a significant effect on banking systems, especially those who have products and services that are trying to bring the unbanked population into the financial mainstream.
There are valid reasons for the move to eliminate large denomination currency, but this may be a first step toward developing global monetary systems. For the unbanked and underserved populations across the world, changes in the informal cash economy will hit particularly hard.
Mobile money accounts, such as the ones used in Sub Saharan Africa, can have a global effect on the number of unbanked and underserved people still living in poverty. The systems work to allow easy and inexpensive transfer of money from person to person and person to business.
Developing emergency savings is also critical for the underserved to move out of the informal cash economy. For many living in poverty, cash is kept or accessed for emergencies. Having easily accessible savings accounts for emergencies in microfinance institutions and credit unions can help bring those depending on the cash economy into the financial mainstream.