SM Assignment 2 - Group7 - Section G

CASHING OUT: THE FUTURE
OF CASH IN ISRAEL
Strategic Management Case Study 2
Section G
Group 7
Dheeraj Havnur PGP/23/392
RK Somesh PGP/23/409
Rahul Agarwal PGP/23/410
Rhea Pradhan PGP/23/412
Ritik Maheshwari PGP/23/413
SM Assignment 2
Q1. Identify the key focal issue
The government, commercial banks and the stakeholders with the Bank of Israel were keen to
reduce the amount of cash in circulation in order to save on the printing and the distribution costs,
reduce the forgeries and the curb the black/underground economy.
Q2. Identify the driving forces which will have a major impact on the key focal issue.
 Demand for Fiat Money

 The attitude of the common man
 Retailer/Seller preferences
 Technology Penetration which includes alternative payment methods
 Actions and interventions by the government
 Socio-economic development
 The actions of stakeholders like the commercial banks and other financial institutions.
Q3. Rank the driving forces based on their degree of importance and uncertainty.
1. Demand for Fiat Money

2. Technology Penetration
3. Retailer and seller preferences.
4. The attitude of the common man
5. The actions of stakeholders like the commercial banks and other financial institutions.
6. Actions and interventions by the government
7. Socio-economic development
Q4. Choose the two driving forces which have been ranked 1 and 2 as the critical uncertainties
 Demand for Fiat Money

 Technology Penetration
Reasons:
 The demand for fiat money will be determined by the government policies, whether
they promote expenditure or investments and the production and exchange of
currency. Thus points 1, 3, 5 and 7 can be combined under the heading demand for
money.
 Various socio-economic factors like income, literacy, education, expenditure
patterns, saving patterns, habits, beliefs etc.. influence a person’s money utilisation
habits. These factors also influence the person’s technology use and comfort level at
money transactions using tech. Thus, point 7 is a cause of point 2, i.e., technology
penetration.
Q5. Create a 2 X 2 scenario framework

SM Assignment 2
Q6) Name the four scenarios.
1) Bifurcation among the crowd

2) Everyone favors digitisation
3) Technological prospects are high
4) Worst case scenario
Q7) Write brief narratives explaining each scenario;
Bifurcation among the crowd:
There is a high bifurcation among the people on the line of taking stance between digital money and
physical money. With the upper age population reluctant to digital money, central bank must pave
way for user friendly technology which can be easily adapted by the older generation.
Regulations:
Another way to attract people towards digital economy is to lower the charges for digital
transactions, which will motivate merchants to accept digital payment.
High demand of Fiat money:
Such scenario signals that corruption and tax-evasion is rising
Industry:
SM Assignment 2
With technology on their side, the central bank can impose a capping to the maximum amount for
cash transaction  The investment in cash storage system should be toned down
Consequences:
Once a majority of population has adopted digital transaction, others will eventually follow the
crowd due to rising pressure from young generations or millennials down the line of time.
Everyone favours Digitization
(When Demand of Fiat money is low and Technology Penetration is high): In this scenario people
prefer more to use digital platforms for making payments and there has been declining trend of
people keeping cash with them. Furthermore, government policies are also in favour of digital
payments and going cashless
Regulations:
 Curbing of underground economy, digital transactions are mandated

 Reduction in production costs of fiat money
Less demand of Fiat money:
 Better provisions/offers for households making digital payments

 People are less motivated to use cash because of increase in demand of cashless
transactions
 Young generation is attracted towards cashless transactions and doesn’t want to carry cash
all the time
 It’s easy to measure and maintain online transactions
Industry:
 Industries are moving towards cashless transactions because of government regulations and
auditing
 With increasing use of e-wallets and providing attractive offers, there is a boom in start-ups
featuring these ideas and providing lucrative pitch to investors
Consequences:
 Production cost of fiat money will reduce

 Reduction in tax evasion and increase in tax compliance
 Companies preferring cashless transactions to comply with Govt. Regulations
 Companies using technological advancements like Bitcoin to become more transparent
Technological prospects are high:
In this case, the demand for fiat money is low and current technology is low. Here, there is a great
chance to expand technology and spread digital means as people do not demand fiat money
currently for a number of reasons. They may be doing digital transactions already, or they may just
not be making many transactions.
Population preference:
 People will be more inclined towards digital transactions

SM Assignment 2
Industry:
 Industries are favouring cashless transactions

 It’s easy to measure and maintain online transactions
Consequences:
 No need to further invest in producing and storing fiat money and rather invest more in
technical advancement
 Less investment in production and storage is a good sign for central bank to pursue its
Interests
Worst Case Scenario
It is a regressive situation. The investment in cash storage system has to be toned up as of now. The
technology infrastructure and support for digital payment is low. Also People are reluctant to switch
to digital payment due to reasons like fear of security, saving on taxes, preference for holding
physical money etc. Thus, the circulation of cash is expected to grow and hence investments in cash
storage and development system must be increased to support it.
Public Attitude:
 People prefer holding physical money

 Sceptical about Digital Security
 Sensitive to tax laws and prefer cash to avoid taxes
Government Activities:
 No additional benefit by government to use digital payments

 High Corruption
Technological Developments:
 Alternative payment methods are not popular with masses and are not well developed
Consequences:
 Preference of Cash Transactions

 Expected growth of Demand for cash and investments must be made in cash storage
systems
Q8) Identify the implications and options for each scenario.
Bifurcation among the crowd:
Implications: There will be an increase in both types of usage, with no definite decline in either
digital or cash. The use of digital medium may increase for some payments but other transactions
may still use cash. Thus, cash usage will not go down as needed and thus the purpose of digitising
and removing cash from circulation (to stop black activity) will not be served. There exists a route to
encourage the usage of digital media for transaction.
So, here, people need to be encouraged to use digital payment system.
Options:
SM Assignment 2
 Reduce charges on digital payments.

 Set limits on amount of cash withdrawable or deposit-able in a day.
 Increase savings account rates so more people prefer to have their money sitting idly in the
bank than as cash.
 Allow anonymity of transactions below a limited amount.
Everyone favours Digitization
Implications: The users of cash already have acceptance of digital systems. There is enough support
from the government too. This is a perfect scenario where everything falls in place. As need and
demand builds, technology will further accentuate development.
Options:
 As per the rising need, investments in technology need to be made.

 No major policy changes that would be averse to the digital trend should be made
Technological prospects are high:
Implications: Here, the chances of setting up technology and digital medium is very high as people
are not really into fiat money at the moment.
Options:
 Increase awareness about the benefits of digital payments and transactions.

 Use various incentives to promote the use of these channels.
 Partner with merchants etc to allow and promote digital payment channels.
Worst Case Scenario
Implications: People demand for fiat money and aren’t willing to adopt technological solutions to
payments. They may find it easier to use fiat money of it may serve their purposes, like black market
deals, easy grocery shopping etc… more easily.
Options:
 The investment in cash storage system has to be toned up as of now.

 Increase awareness about the benefits of digital payments.
 Eliminate transaction costs on online payments.
 Assure users of online security, provide proof.
Q9) Assess the future demand for cash based on the scenarios you have identified.
Based on these scenarios, the future of Israel could go either of two ways, where demand is high or
low, depending on the attitudes of its citizens. This demand and usage will be determined by various
government policies and regulations by regulatory authorities, but more importantly, it will be
affected by technological influence and penetration.
Finally, in every case, the Bank of Israel needs to push the people towards adopting digital means,
thus the distant future as per plan will be a digital one, so that future needs to be planned for in
general.

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CASHING OUT: THE FUTURE

Q1. Identify the key focal issue

 Demand for Fiat Money

1. Demand for Fiat Money

 Demand for Fiat Money

Q5. Create a 2 X 2 scenario framework

Q6) Name the four scenarios.

1) Bifurcation among the crowd

Q7) Write brief narratives explaining each scenario;

Bifurcation among the crowd:

High demand of Fiat money:

Such scenario signals that corruption and tax-evasion is rising

Everyone favours Digitization

 Curbing of underground economy, digital transactions are mandated

Less demand of Fiat money:

 Better provisions/offers for households making digital payments

 Production cost of fiat money will reduce

Technological prospects are high:

 People will be more inclined towards digital transactions

 Industries are favouring cashless transactions

Worst Case Scenario

 People prefer holding physical money

 No additional benefit by government to use digital payments

 Preference of Cash Transactions

Q8) Identify the implications and options for each scenario.

Bifurcation among the crowd:

So, here, people need to be encouraged to use digital payment system.

 Reduce charges on digital payments.

Everyone favours Digitization

 As per the rising need, investments in technology need to be made.

Technological prospects are high:

 Increase awareness about the benefits of digital payments and transactions.

Worst Case Scenario

 The investment in cash storage system has to be toned up as of now.

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