Opinion: How Digital Cash Can Lift Gross National Happiness

The tiny Himalayan kingdom of Bhutan, landlocked between the teeming multitudes of China and India, shot to global fame in the 1970s with gross national happiness: a broad measure of overall welfare it prefers over the more traditional metric of gross domestic product, which only includes production of goods and services, even those that ultimately leave us miserable.

More recently, the hydroelectric-powered nation decided to become not just carbon neutral - but carbon negative, its pristine forests acting as a sink-hole to absorb the greenhouse gases released by its coal-burning neighbors.

And now Bhutan wants a digital currency.

Will a new payment instrument make the 800,000-strong, mostly Buddhist society happier than it already is? My answer: It might.

Cash is a relatively new construct in Bhutan. Up until the 1950s, the people were still bartering in rice, butter, cheese, meat, wool, and hand-woven cloth. Even civil servants accepted their pay in commodities. Seven decades later, the Royal Monetary Authority has announced a pilot with San Francisco-based Ripple for a national currency running on distributed electronic account-keeping.

The open-source XRP ledger claims to be carbon neutral and 120,000 times more efficient than proof-of-work blockchains. Unlike El Salvador, which has chosen to use the volatile and energy-guzzling Bitcoin as money alongside US dollars, Bhutan wants to retain the ngultrum, the national currency. The bet is that a paperless version of the central bank's liabilities would be a more attractive alternative to bank deposits for a sparse population scattered across a rugged, mountainous terrain.

Big gains are expected from the monetary authority making its IOUs available to the public directly, as electronic cash that can be spent or saved without requiring a commercial bank in the middle. The goal of 85% financial inclusion by 2023 is a substantial jump over the 67% of adult Bhutanese who have bank accounts. Only a fifth of the population has any credit facility.

Bhutan is moving to test wholesale, retail and cross-border applications of its central bank's tokens, even as advanced nations are still debating their utility. The Federal Reserve is yet to make up its mind; research that will reveal its assessments of the pros and the cons of a digital dollar is eagerly awaited around the world. Among larger economies, China's e-CNY plans are the most advanced.

That creates a bit of a problem for the government in Thimphu, the Bhutanese capital. The ngultrum is pegged 1:1 to the Indian rupee, which also circulates freely. Since India is the main trading partner by far, the arrangement works fine. But already, 97% of the population has access to the Internet, most of them via their mobile phones. Any sudden preference among the people to use the e-CNY because it's convenient to send and receive via smartphones could be destabilizing. With the Reserve Bank of India in no hurry to start offering a digital rupee, Bhutan is perhaps right to press ahead with its own plans.

In fact, the $2.5 billion economy would be doing its 1,000-times bigger neighbor a favor. Bhutan's pilots would be extremely valuable to the Reserve Bank in Mumbai. That's because the digital ngultrum will be an exact representation of the Indian currency - only twice removed. Important questions about the future rupee tokens, such as whether they will rob commercial banks of deposits, can be answered by looking at how the Bhutanese people use them.

Digitizing the currency may only be the first step. A far more ambitious idea, which was discussed in a conference late last year attended by the local financial industry as well as United Nations officials, is to tokenize happiness.

A digital commodity in happiness could be like cap-and-trade carbon credits, with all 20 districts - or dzhongkhags - given quotas based on the gross national happiness index, an aggregate of nine indicators including education, health, psychological well-being, governance and culture. The laggards would have to obtain tokens from the overachievers. The "price" of happiness could create an incentive for the strugglers to perform better.

Far fetched? For now, perhaps. But Bhutan is a neat little laboratory. With just five banks, there isn't much by way of entrenched traditional finance. Only 6.5% of the population has all three: a savings account, insurance and some credit. Bank of Bhutan Ltd., which had roughly 300,000 deposit accounts in 2019, more than any other lender, had only 140,000 mobile banking customers.

The central bank's desire to take cash digital could create opportunities for blockchain-based decentralized finance. Hopefully, it won't use up too much energy and will leave people happier than they are now. Especially in remote places like the northernmost dzhongkhag of Gasa, which has all of two ATMs.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.)   

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