Economy

The Age of Elononomics

The other day, on my way to India Gate, I spotted two E-charging kiosks on Google Maps. Next day, I woke up to the news of the RBI introducing CBDCs in India. Later in the evening, I came across a humanoid robot capable of doing much more than a human can. What a time to be alive. We are witnessing a revolution. And this revolution is a product of Elononomics.

Cryptocurrencies were introduced in 2009 and it’s surprising how cryptocurrencies have gathered steam in 2021. It all started with Tesla investing in $1.5 billion worth of bitcoin. Thereafter, Tesla’s decision to accept payments in crypto was an extremely powerful step that contributed to a massive price surge. Be it Elon Musk’s tweet about his love for the viral YouTube video “Baby Shark” or his tweet about falling out of love with Bitcoin, his tweets have contributed to some extreme wild swings in the crypto market. It’s magical how a financial instrument which has no intrinsic value and is solely governed by the tweets of a tycoon, has come to be so widely accepted in the investor community.

1.5 crore crypto investors in India turned a blind eye to the volatility in the market. One day, Musk was a staunch proponent of the usefulness of crypto and the next day he was denouncing bitcoin for the environmental hazards of mining. Be that as it may, people paid no heed to the volatility and continued supporting crypto, so much so that there was a tweet making rounds on social media about an auto driver accepting cryptocurrencies as payment for the ride. One man has shaken the world of 7 billion people, making people believe in a currency that has not even received the status of being a legal tender. We truly are in the age of Elononomics.

Cryptocurrency is decentralised money with a regulation free nature. This means its rise is a possible threat to the traditional banking system that operates under the purview and control of a country’s central bank. When you transfer money online from one account to another, your bank works as a middleman, overseeing the transaction, recording it, and completing the money transfer. But when you start making payments in cryptocurrencies, the middlemen are eliminated. As you can expect, this raises the likelihood of frauds, something the central authority of a country would never tolerate. Despite their opposition to decentralised money, the RBI and other Central Banks from other nations were obliged to investigate the issue. Central banks never imagined that people would warm up to a currency with no inherent value only because Elon Musk believes in it.

To bring in the best of both worlds—the convenience and security of digital forms like cryptocurrencies, and the regulated, reserved-backed money circulation of the traditional banking system, the Central Banks are exploring the possibility of CBDCs.

CBDCs will transform the economic system of settlement mechanisms for good. With CBDCs, there won’t be the need for inter-bank settlement, your digital payments will be the final transactions thereby reducing the transaction cost. CBDCs will help Central Banks achieve their ambitious goal of financial inclusivity. It can be used directly through mobile phones. It doesn’t necessarily need to be linked to a bank account to hold it. This will convert a mobile device into a wallet thus fast tracking financial inclusivity in India. More than anything, the banks will heave a sigh of relief with the advent of CBDCs. Indian banks are drowning under the burden of NPAs. While banks can undertake due diligence on the character and capability of the person applying for a loan. There is only so much they can do to guarantee that the money is used for the intended purpose. However, with the advent of CBDC, if a farmer wants to take out a loan to buy fertiliser, the government will be able to programme it such that it may only be used for fertiliser and not a vehicle.

While Central Banks are grappling with cryptocurrencies, Elon Musk has set out to make a dent in another space- Electric Vehicles. We all know the clock is running low on fossil fuels. We Indians spend more than 76 percent of our average income on fuel and the average price of petrol in India is as high as Rs. 100 per litre. With the scarcity of resources, the situation will only get worse from here. Tesla has once again saved the day. Tesla has had the vision of undoing the harm we have done to our planet. Tesla initiated the electric car revolution for the social welfare of the society, just as we are on the approach of depleting all of our fossil fuels.

Compared to gasoline powered internal combustion engines, EVs can travel the same distance using 24% less energy. The advent of EVs would certainly solve issues related to climate change, zero emission and carbon neutrality but in turn it would add an additional burden on the electricity demands of the country. However, that’s not a cause for worry, today’s electricity system of generation, transmission, and distribution operates at a capacity factor of less than 50%. The system’s low usage factor is a great opportunity for capturing EV savings, by generating more electricity from existing power plants and by pushing more electrons through substations, transformers, and feeders. If this is done off peak – encouraged by the right time-of-use or other dynamic price signals – there is no additional cost to the distribution network and only the marginal operating cost of the power plants.

Taking note of the immense potential in this sector, businesses across the world are looking to tap the market. To have a first mover advantage, companies in India are hoping to launch their innovation before Tesla can enter the market and steal their share. On August 15th, Ola announced the launch of the much anticipated Ola Electric Scooter, which crossed 100k pre-bookings in under 24 hours. According to a survey conducted by EY India, nearly 90% of consumers in India are willing to pay a premium for buying an electric vehicle with over 40% respondents ready to pay a premium of up to 20%. This demonstrates that it won’t be long until we see electric automobiles everywhere.

This disruptive innovation will change the face of our economy. India’s oil imports are approximately $101.4 billion, EVs will reduce fuel costs and shift consumption away from imported oil to more locally produced electricity sources. Imagine the amount of money our country will save. And now imagine how this reduced expenditure by the government will contribute to the development of our local economy. Not only will the government have a more appealing budget, but the money we save on fuel will boost our spare income. And a rise in our expenditure will immediately result in the creation of new job possibilities and an increase in the income of individuals from all industries. Businesses will let out a sigh of relief with the savings they make on fuel. Amazon recently hiked logistics fee on account of the recent hike in fuel prices which led to higher delivery costs. This fee was levied on the different merchants on the platform who in turn will pass this burden onto the consumers, thereby leading to inflation. EVs will shield us against this added burden.

To put it into perspective, you will soon be able to use digital currency to pay for groceries, you will soon be able to save money on gas, you will soon be able to drive a car driven by the sun’s energy, and you will soon be able to breathe some pure air. Though he isn’t the first person to conceptualize cryptocurrency, Elon Musk deserves an applause for his role in creating and investing in it; even if it’s usage comes with a high amount of risk.

– Janvi Gupta

Picture Credits: foxbusiness.com



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