Bhaskar Chakravorti
Title: Senior associate dean for international business and finance at Tufts University
Age: 53
Experience: More than 20 years
A study from Tufts University’s Fletcher School released last month reveals that while there are hidden costs to using cash, the transfer to digital banking will happen slowly. Banker & Tradesman sat down with the one of the study’s authors and the senior associate dean at the Fletcher school, Bhaskar Chakravorti, to discuss the findings from the first in a four-part study on the costs of using cash.
Q: First, what led to the idea for this study?
A: The origins came from an investigation to understand the process of goods and services that are inherently information goods and the process by which they are being transformed from this physical form to a digital form. We have seen everything from shopping to movies to music to books going digital, and the natural question is what is it about money that potentially makes it different from movies and music and books?
Q: One of the things that that you found was that using cash is actually very inefficient for consumers, businesses and the government – why is that?
A: For consumers, getting cash is a fairly significant source of cost. For some people who have access to bank accounts, they can go get cash from an ATM, but there are others who don’t. Then, they have to wait in line to get their payday checks cashed. People who are underbanked (anyone who doesn’t maintain minimum deposits that the bank often requires to get all of the services), must pay high fees in order to access cash.
Interestingly, for businesses that have a significant amount of cash-based operations, retail theft is the biggest source of cost. From the perspective of government, not surprisingly, the biggest source of cost is unreported or underreported taxes, because cash is not traceable.
Q: Are there any groups that you found were harder hit by these inefficiencies?
A: Yes, a group that is bearing a disproportionate share of the cost is the people who are at the bottom of the income scale. That group of Americans can have anywhere from three to four times the cost for using cash than people with bank accounts.
Q: What are some of the solutions that you would recommend to individuals, businesses and the government?
A: We should have more initiatives that promote greater financial inclusion, or inclusion of a wider segment of the population. If we introduce new payment systems, we have to also try to understand what the costs are that people face switching away from cash to alternative forms of payment and whether those switching costs are real or psychological and behavioral.
Another important indication is that our federal government has spent a huge amount of time and energy on finding ways to reduce the budget deficit. When we look at the lost tax revenues due to the resistance of this enormous cash-economy, more should be done in Washington to potentially limit the size of the cash economy and find ways to create limits on the use of cash. That would bring some of the revenues back to the government.
Q: This is the first in a four-part, four-country study – have you found anything interesting that you can tell us about the use of money in Mexico or India?
A: Mexico is in the rather unusual situation of being neighbor to the United States and is, obviously, heavily influenced by their adjoining neighbor. Understandably, there is a flow of it repatriations from the United States to Mexico. Another aspect which is quite significant is that Mexico has a large part of the economy that is underground, which is operated by the drug cartels or other groups using unrecorded transactions.
India is very different – India is one of the countries that was going through a period of rapid growth that has slowed down. The Indian rupee has devalued quite significantly over the last year, and it’s lost 10 to 20 percent of its value. That has caused an enormous amount of anxiety about holding on to currency and the local rupee. India also has an interesting relationship with not just the United States, but other parts of the world where there’s the ability for an Indian task force to leave and bring money back to the country.
So, these countries (both Mexico and India) and other developing countries are primarily cash oriented countries. They’re close to 90 percent in cash and alternatives haven’t really penetrated.
Top Five Favorite Books:
- “Americanahm,” by Chimamanda Adichie
- “Poor Economic,” by Abhijit Banerji and Esther Duflo
- “Into the Wild,”by John Krakauer
- “Speak, Memory,” by Vladimir Nabokov
- “Three Men in a Boat,” by Jerome K. Jerome
