A proposal about a new banking like system relying on instruments like tips (treasury inflation protected services) in the US and particularly Inflation Indexed National Saving Securities-Cumulative in India. I feel like a better catchy name for this could be in my honest opinion "What if banks could protect your money against inflation - a prop…

Proposal.md

Proposal

Note: The author is from India , So He is saying things in the context of India.

This is just a proposal for what I believe to be a radical idea. Suggestions would be helpful.

What if we can have a bank which can be completely fin-tech (ie. not operate any branches) and not provide any loans but rather it invests all the money that user provides into a financial instrument directly into or similar to Inflation Indexed National Saving Securities-Cumulative provided by the RBI. (Note: For USA , its known as TIPS )

Currently it is sold by banks themselves , and in my limited understanding , it seems that you can't trade them on secondary markets or even gift / trade them. But since banks are the one who incorporate buyers of this scheme , it seems that they are an exception to this behaviour.

These Inflation Indexed National Saving Securities-Cumulative , IINSSC for short are also not liquid , they have 1 year period for elderly people (greater than 65) , and 3 year minimum period for people younger than age of 65 , and even then , these are the minimum period , and after this minimum period , you can withdraw it but with a expense in terms of the last interest rate payment , you can only withdraw it without any effects after 5 years I suppose and its maximum duration is 8 years.

One benefit for IINSSC is that , in my current understanding , they provide an additional interest rate on top of inflation , so you are guaranteed to beat inflation , in times of deflation , it has hard floor of 1.5%

IINSC also have restrictions on minimum and maximum amount (5000 INR is the minimum limit and 10 lakh inr (1 million) per annum for individuals and 25 lakh (2.5 mil) INR for institutions such as Hindu united family , charitable trust etc.)

What I want to do is create a new financial instrument / secondary market for a financial instrument similar to IINSSC which can fix the challenges listed above:

1. It has to be liquid (for day to day purposes and transactions) ie. converted to ruppees of the inflation adjusted almost instantly
2. It has to have no upper and lower limit
3. It can be used by foreigners as well.

This is the main issue with my proposal. I am not quite understanding how I can create such financial instrument. This is where the work needs to be done

I also want to create a not for profit foundation where people can deposit their money through UPI / cash them mail / using existing banks and then this non for profit invests in the financial instrument and basically acts like a bank where we deposit money except has the following benefits:

1. Your money is inflation protected (in some sense)
2. You would be given a UPI id as well where you can transact like usual , using any UPI apps while still getting all the previous benefits as I had stated above.
3. You can pay to any bank account etc. , basically act as a bank.

I want such a foundation to have very minimal costs and be very cost effective and only takes a very very small cut on the interest rate or completely run by donations. I want the user to earn as much money as he can while the bank earning none. This is personal opinion of the author that the fact that banks are so profitable and yet we trust them , we as a society have assumed that of course most of the banks would be profitable , but I believe that we can do better than this as a society using the above structure.

I also wanted to create this where people can trust on such instruments for using UPI as the intermediate of payment trasactions instead of VISA or Mastercard. But this hasn't particularly happened yet , in my honest opinion , the fact that India has a great inflation partially influences that as well.

I also believe that there might be some other ways , I had actually come to this idea from the idea of having it gold backed , because silly me thought that gold always beats inflation , but gold can in fact lose value as well.

I think that we need to talk about such financial systems. I am not anybody involved in the banking , aside from my 2 years studying banking in my 9th and 10th class when I got obsessed with learning about such things.

I am completely open to suggestions / feel like there might be other more country specific financial instruments which can also help in development of such ideas.

Most of what I say are ideas , I don't want any credit for ideas , but I feel ideas are worth something if people can discuss and iterate upon them untill someone willing to implement those ideas come along.