What if the World dealt in Cash Only

Speak to any businessman and his only grouse will be that markets are down and that payments are not coming in time and therefore business is suffering.

Now consider the impact of this situation.  The businessman has sold most of his goods on credit to his customers.  The customers, probably retailers, have sold the goods in c5ash but have diverted the sales proceeds to either buy more stock or for buying property, investing in shares, children’s education, health and medical expenses, house renovation, investment in equity, mutual funds or to buy insurance. 

While the money has changed hands and has moved ahead, the people in the chain behind have got stuck.  The wholesaler who sold his goods is not able to buy more stock because he himself does not have enough capital for that purpose.  Despite repeated follow-ups, he is not able to recover his money. 

Again there are two possible scenarios – either he will buy more goods on additional credit (he will avail credit because he has been a good customer but has not utilised his credit goodwill so far) and then when the credit period is over, he defaults on payment.  Or he will draw upon his personal or business savings which can cause uncertainty of the family’s future financial security.  The other option with him is to utilise additional credit facilities from Banks or Financial Institutions.  The second option will be the last resort but it

comes with an additional cost of credit.  This additional cost of doing business will be passed on to his customer as cost of goods, thereby increasing the selling price leading to further inflationary trends.

What is happening here is that the cycle is getting disrupted somewhere and the chain is not moving further.

On the contrary, if the world only dealt in cash, the world would be a better place.  Yes, this is wishful but realistic and positive thinking approach to doing business.

Possible scenarios if the world dealt in cash basis only:

• there would be no defaults; no successful businessmen would be reduced from riches to rags;
• lesser amount of time spent by businessmen/entrepreneurs on pursuing defaults to recover their funds;
• cost of credit would drastically go down;
• trade and commerce would flourish; also new entrepreneurs would easily enter into business and entry barriers would be reduced;
• businessmen would buy and sell with confidence;
• Businessmen/entrepreneurs, business sectors, corporates and industries, states, countries would never ever witness a recessionary period;
• Banks and Financial institutions would have lower rate of defaulters (the wilful defaulters would in any case default on payments) because the chain would continue;
• Even in the event of a global crisis situation (wars, regional conflicts, draughts, famines and other unforeseen situations, no party in the trade cycle would be affected.  There would be no problems with “balance of payment situations”.

It is therefore advisable in the interest of the economy to switch to “cash basis” and the world can be saved from doom.

With best regards,

Sarfaraz Lakhani

Calibre Creators

www.calibrecreators.com