UPI and Digital Payments: The Beginning of Eco-Friendly Banking
Digital Wallets, Digital Payments, and specifically (in the context of India) have fundamentally changed various aspects of not just our economic interactions but also our social and cultural practices. Whilst many of these changes continue to be debated, research suggests that a switch to digital payments can usher in an era of environmentally sustainable and eco-friendly banking.
Currency notes and coins, which digital payments are trying to substitute, require to be produced and they have an intrinsic value (different than the fiat value that the government allots to them) which depends on the raw materials used in production. Now countries across the world use different materials to produce currency notes, ranging from plastic to different types of paper. Whilst western countries have developed more sustainable currency notes, India continues to rely on paper and uses a production process that has several undesirable environmental consequences.
The production of currency notes increases the presence of greenhouse gases in the atmosphere either through deforestation (if the notes are made from paper) or due to pesticides and fertilizers used in the production of cotton. The Actuaries Organization of the United Kingdom has described the currency printing process to have a significant contribution “to the eutrophication potential, global warming potential, photochemical ozone creation potential, and human toxicity (cancer) potential. In comparison, digital payments require no physical medium and are hence less wasteful than even the most environmentally sustainable currencies.
Besides the environmental degradation previously involved in producing the means of exchange, the other significant aspect of the previous cash economy regime is the method used to dispense peoples’ medium of exchange (cash), a process which is incomplete in the modern world without the Automated Teller Machine. These machines need to be kept on (along with an air conditioner), cooled, and safe throughout the day, even if they are not being used. Now, this process is extremely energy-intensive, as both the machine and appliances that support it require high levels of energy, mostly produced from fossil fuels. In comparison, the energy requirements for digital payments are negligible- because online payments rarely encourage individuals to use their phone more often (even the device used for transactions — the mobile phone requires significantly less energy to operate).
Hence a shift away from cash to digital modes of payments not only make economic activities safer, more convenient, and easier to track it also has a net positive impact on the environment. The focus on the policy should hence be on ensuring that these digital payments are accessible to a larger section of the population, which presently continues to rely on cash due to the lack of socio-economic development
