9.15 — Money Today: Banks, Cards, Crypto

You tap a card in a shop in Pune. The transaction is approved in under two seconds. What happens in those two seconds involves at least five organisations, and the shopkeeper pays for all of them.

The terminal sends the card details and amount to the acquiring bank — the shop's bank. That bank routes it to the card network — Visa, Mastercard or RuPay. The network routes it to the issuing bank — yours. Your bank checks the balance, the credit limit and the fraud rules, and returns an authorisation. The answer travels back down the chain.

And then nothing else happens for a day or more. Authorisation is not settlement. The actual movement of money happens in batches overnight, through the banking system, and the shopkeeper's account is credited a day or two later.

Who pays. The shop pays a merchant discount rate, typically a small percentage. Most of it goes to the issuing bank as an interchange fee, some to the network, and some to the acquirer. The shopkeeper cannot legally charge you more for using a card in most jurisdictions, so the cost is embedded in the price everyone pays, including cash customers.

That is the system UPI was designed to bypass.

UPI, and why it is genuinely unusual

India's Unified Payments Interface, launched in 2016, is a public payments infrastructure, and it is worth understanding because it is the clearest example anywhere of a state building a utility instead of regulating a market.

How it differs. It is a public rail, not a private network. It is run by the National Payments Corporation of India, a not-for-profit company owned by banks and overseen by the Reserve Bank.

It is interoperable by design. Any app can pay any other app, and any bank can reach any bank. You are not locked into a wallet.

It settles in real time, unlike card batch settlement.

It uses an address rather than an account number — a virtual payment address or a phone number — so you never hand over your bank details.

And it was mandated to be free for person-to-person transfers, with merchant transactions on the basic form also zero-cost, which is a policy decision to treat payments as infrastructure rather than as a product.

The volumes are the evidence. UPI processes billions of transactions per month, which by transaction count makes it one of the largest real-time payment systems in the world.

Why it worked, and the sequencing matters. It sat on top of two things built earlier: Aadhaar, the biometric identity system, which solved the problem of proving who someone is; and the Jan Dhan programme, which opened hundreds of millions of basic bank accounts. Identity, then an account, then a payment rail. Each was necessary for the next.

And the honest criticisms. Aadhaar's privacy and exclusion problems are real — documented cases of people denied rations because of authentication failures, and a long constitutional argument that the Supreme Court settled in 2018 by upholding the scheme for subsidies while restricting private use. The zero-cost model means the system is funded by banks and the state rather than by users, which raises a sustainability question that has not been resolved. And two apps now handle the large majority of UPI volume, which is a concentration problem inside a system designed to prevent concentration.

Cryptocurrency, assessed carefully

Bitcoin was launched in 2009 by someone using the name Satoshi Nakamoto, whose identity remains unknown, in the immediate aftermath of the financial crisis. The first block contains a newspaper headline about a bank bailout, which states the political intent unambiguously.

What problem it actually solves

The technical problem is real and it had not been solved. How do you have a digital currency with no central authority, such that nobody can spend the same unit twice?

With physical cash, handing over a note means you no longer have it. With digital files, a copy is trivial. Every previous digital money required a trusted central party to keep the ledger.

The solution, in outline. A public ledger — the blockchain — replicated across thousands of computers. Transactions are grouped into blocks. To add a block, a participant must solve a computational puzzle that is hard to solve and trivial to verify — proof of work. Each block includes a fingerprint of the previous one, so altering an old block would require redoing all the work since. The honest chain is the longest one, so an attacker would need more computing power than the rest of the network combined.

It works. Bitcoin has operated continuously since 2009 without a central authority and without a successful double-spend on the main chain. That is a genuine computer science achievement and it should be acknowledged before the criticisms.

What it costs

Energy. Proof of work is deliberately wasteful — the security comes from the cost. Bitcoin's electricity consumption has been estimated in the range of a mid-sized country's. Ethereum switched to proof of stake in 2022 and cut its energy use by over 99 percent, which demonstrates that the waste is a design choice rather than an inherent property of blockchains.

Throughput. Bitcoin handles single-digit transactions per second. UPI handles thousands. Layer-two systems address this and add complexity.

What it has not become

A currency, on the evidence.

Chapter 9.1 gave three functions. As a unit of account, it fails — nothing is priced in Bitcoin. As a medium of exchange, it is marginal — El Salvador adopted it as legal tender in 2021 and usage remained low, and the policy was substantially reversed in 2025. As a store of value it is extremely volatile, with repeated drawdowns exceeding 70 percent.

A store of value that can halve in a quarter is not performing the function, whatever its long-run price path.

What it is used for, honestly. Speculation, principally. Cross-border transfers where the banking route is slow, expensive or blocked, which is a genuine use case in countries with capital controls or sanctions. Ransomware and darknet markets, which are real and are a smaller share of volume than critics claim and larger than advocates admit. And as a hedge against currency debasement in countries experiencing it — adoption is measurably higher in Argentina, Turkey, Nigeria and Venezuela, which is the strongest thing that can be said for it.

The claim that it is an inflation hedge failed its test. In 2022, when inflation reached multi-decade highs in the rich world, Bitcoin fell sharply, trading as a risk asset rather than as a hedge.

Stablecoins and what they actually are

A cryptocurrency pegged to a conventional currency, usually the dollar, backed by reserves.

They are the part of the sector with real transactional use — most crypto trading is denominated in them.

And the design problem is that a stablecoin is a bank without banking regulation. It takes deposits, holds reserves, and promises redemption at par. Chapter 9.2 explained why that arrangement is prone to runs, and it has run: an algorithmic stablecoin, TerraUSD, collapsed in 2022 destroying tens of billions of dollars of value, and questions about the reserve composition of the largest asset-backed stablecoins have recurred.

The wider ledger claim

Blockchain as a general technology for records — land titles, supply chains, certificates — has been proposed constantly and delivered little.

The reason is worth stating. A blockchain solves the problem of maintaining a ledger without a trusted authority. Most real problems have a trusted authority available and their difficulty is elsewhere — getting accurate data into the system in the first place. A land record on a blockchain is only as good as the person who entered it, and the hard part of Indian land records is that the underlying documentation is contested, incomplete and decades out of date. A tamper-proof record of a wrong fact is a wrong fact.

Central bank digital currency

A digital form of central bank money, issued directly to the public. The Reserve Bank of India has been piloting a digital rupee in both wholesale and retail forms since 2022, and around a hundred countries are at some stage of exploration.

What it would offer: central bank money in digital form with no credit risk; potentially offline capability; direct delivery of benefits without leakage; and lower cross-border payment costs.

And the objections are serious.

Privacy. Cash is anonymous. A digital currency is not, unless deliberately designed to be, and a state that can see every transaction has a capability no state has previously had. The design choice about anonymity is the whole question and it is a political one.

Disintermediation. If people hold money directly at the central bank, they may move deposits out of commercial banks, particularly in a crisis — which would make bank runs faster rather than slower. Most proposals include holding caps for this reason.

And the case for it in India is weaker than elsewhere precisely because UPI already delivers instant low-cost digital payment. The problem a retail CBDC solves is largely already solved.

Where the actual problems are

A chapter on modern money should end on what is not fixed.

Cross-border payments remain slow and expensive. The global average cost of sending a remittance is still around 6 percent, against a UN target of 3. India receives the largest remittance inflow in the world — over 100 billion dollars a year — and every percentage point of cost is billions of dollars taken from migrant workers and their families. This is the largest unsolved problem in payments and it is a correspondent banking problem, not a technology problem.

Credit access. A UPI transaction record is data, and lending against it — cash-flow-based lending to small businesses without collateral — is the genuinely promising development and it is early.

And the distress-lending question from Chapter 9.1 has not gone away. Digital lending apps in India have produced documented cases of predatory rates, harassment and suicide, which prompted regulatory intervention. The technology lowered the cost of making a loan and did not change what a distress loan does to a borrower.

Where this shows up in your life

Every payment you make. And the question worth asking of any new financial product is Chapter 9.1's: what is being recorded, who keeps the record, and what happens if they fail?

Money is a ledger (Chapter 9.1). Cash is a ledger you carry. A bank deposit is a ledger a bank keeps. UPI is a ledger a public utility coordinates. A blockchain is a ledger nobody owns. The question in every case is who you are trusting and what they can do to you — and that has not changed since a Mesopotamian scribe pressed a debt into wet clay.

What Part 9 established

Money began as a record of debt, not as a convenience for barter. Banks create money when they lend, and public debt — the ability to make a credible promise about the future — decided who won wars and built states. Companies with transferable shares and limited liability made large enterprises possible and produced the first bubbles, whose pattern has not changed since 1720. What makes a country rich is not resources, geography or culture but institutions and the human capital they build. The Industrial Revolution happened in Britain because of a specific and largely accidental combination, and it opened a gap between countries that had never existed. Capitalism and socialism each got real things right and wrong, and every rich country now runs a mixture. Central banks manage money and the danger is always the monetisation of deficits. Depression and hyperinflation both destroy political systems. Trade raises output and concentrates the losses. And four East Asian countries showed that the gap can be closed in a lifetime by a specific, copyable, difficult sequence — which India did not follow, for reasons that were choices.

What the next Part covers

Part 10 goes back to the eighteenth century and follows the political thread: how the English established that a king is subject to Parliament; how thirteen colonies turned a tax dispute into the first modern republic; how France's revolution went from a declaration of rights to the guillotine to an emperor; how the only successful slave revolt in history created Haiti and was punished for it for two centuries; how Latin America broke from Spain; how nationalism remade the map of Europe; how slavery was abolished and how the United States fought a war over it; and how, after 1945, the European empires ended within a single generation.