Sunday, November 13, 2016

The Real Big Data – sources and laundries of black money

The recent demonetization raises interesting questions that can trigger student research. What can we do with currency counting machines that read serial numbers of high denomination notes they handle and send them to a computer? Cash being deposited by customers can be counted and read by them keeping track of which notes are being deposited into which bank account. They can send a list of serial numbers to a computer, to link them to a given account. Payments of any significant amount of money over the counter can also be covered similarly. I will deal with serial number tracking of notes handled by ATMs in my next post; for the moment, assume that those notes can also be tracked.

Will this lead to draconian surveillance? What risks does such a technology pose?

Visualize a currency tracking system in which every bank branch reports serial numbers of notes it issues, or receives from, customers to a central authority identifying the customer involved. This could have many uses. For instance, suppose the police have found 10,000 Rs with a terrorist who was apprehended or killed. If an individual or organization had received those notes from a bank branch in the previous week, investigators would love to have that information.
A single note going from A to B may not mean much; A might have paid his milkman, who bought chappals from B with that money and B might have deposited the cash in his bank account. However, if ten notes had all gone from A to B within about a week there is some probability that A transferred them to B directly. What we are talking about is a system that will show currency flow from any given account A to another given account B over a given period. Flow through random middlemen would not explain a significant number of notes that were issued to A turning up in account B by sheer accident. In any case, a high flow of identified currency notes from A to B could flag it for the attention of Income Tax authorities, even if it is not dependable evidence of wrong doing. 
The research question is this: Can we identify a dozen economically significant applications that would justify the cost of this surveillance? We have thousands of students who are studying the use of big data techniques. They could be students of management, economics or engineering. Some of them could perhaps investigate this question.

A couple of concepts that may be relevant to research. We can define a bank account as a possible source of “black money” if a significant number of high denomination notes issued to it do not turn up in the banking system for a specified period. The presumption would be that A has paid it to someone who hoards cash. Similarly, we can define C as a “possible laundry” if high denomination notes not in circulation for a long time turn up in C’s bank account frequently!

To give an example, it would be worth finding out if employees in specific types of economic activities such as trading in gold and jewellery, or construction, are potential laundries. The presumption is that they could be paid in cash, using (unaccounted) money received in cash from customers. Similarly, if A is a possible source of black money it would be worth asking if he invests a lot in real estate or in jewellery.

Now, come to the feasibility of reading the serial numbers. Automated reading of numeric characters in a few known fonts has always been easy. This becomes easier when those numbers occur in specific locations on precisely cut sheets of paper and are in a unique colour contrasting with the background. In some series, the Reserve Bank of India has printed serial numbers using varying size font instead of uniform height numerals. That does not pose a major problem for automated reading of numbers.

What about the serial numbers being unique or otherwise? It does not matter. We are looking at the probability of a currency note traveling from A to B. Rare coincidences of a large set of notes with the same numbers (as set mentioned above) traveling from some C to some D at about the same time is statistically improbable.

Another research question. Traditionally, currency notes are said to be fungible. The presence of machine readable serial numbers threatens this fungibility. Payments in cash are generally believed to ensure privacy. So, would currency tracking threaten this privacy? If I was a college student buying a bottle of whiskey, would I be worried that the authorities would inform my mom and dad about it? Surely, they have others things to do! I need not worry. Who should? Those who use the privacy of cash flow to evade taxes? Should we protect their privacy?

One last question: What would be the utility of a partial system in which deposits and payments over the counter are the only ones tracked, and that too only if the amounts exceed a certain value? Does the reporting of serial numbers of notes involved in such transactions add value? Or is it enough to identify the bank account holder and the amount involved?
My aim here is to share what I think are interesting questions. Not to provide answers!    

1 comment:

Srinivasan Ramani said...

You should read RBI is now tracking every new note. but the headline is not substantiated by the news item itself; what I find relevant in it is
"Banks are advised to maintain, at the Currency Chest level and at link branches level, a Daily Record of Issuances showing the serial numbers of Mahatma Gandhi (New) Series banknotes in the denominations of Rs 500 and above received from RBI as remittance and issuance thereof to their own branches, branches of other banks and post offices, branch wise and denomination wise on daily basis". There is nothing to indicate that the banks will record which individual customer got which particular note. However, knowing which notes went to which branch will help in investigating people caught holding unexplained bundles of new currency notes.