Why Billionaire “Philanthropist” Bill Gates Loves India’s Demonetization Program by Don Quijones
The profit motive in the War on Cash.
For the last 12 days, India has been turned into the world’s biggest open-air laboratory for extreme financial experimentation, after the Modi government decided, at the drop of a hat and apparently without warning even the banks, that the two biggest denomination notes were all of a sudden worthless, to be replaced by new notes.
Before Modi’s fateful decision, on Nov. 9, the 1,000 rupee ($14.67) and 500 rupee ($7.33) notes accounted for 86% of India’s cash economy, which itself represented well over 90% of the country’s retail transactions. The result has been widespread financial and economic chaos. Consumption in the cities dropped considerably. In the countryside, where bank branches are few and understaffed, the economy has ground to a shuddering halt. As the WSJ reports, for many the last remaining lifeline has been the barter economy:
Rice, abundant after the autumn harvest, has become a common medium of exchange. Rice for lentils, rice for potatoes, rice for cooking oil, rice for salt.
As is now abundantly clear, the government did not do all its homework before unleashing this demonetization drive. It completely overestimated the country’s readiness for such a radical move. The newly designed cash bills don’t even fit in the ATMs. “You needed to have almost a military-style remonetization effort” to get the new bank notes out, says Partha Mukhopadhyay, an economist at the Centre for Policy Research in New Delhi. “That hasn’t happened.”
Even Kenneth Rogoff, the Pinceton economist who advocates the abolition of physical currency in advanced economies, has expressed reservations about the government’s methods, arguing that a more gradual phase out of the large denomination bills would have had a much less disruptive impact on an economy in which well over half of the population is unbanked.
But in India, a large cross-section of the professional classes supports the government’s anti-corruption drive, in spite of the disruption it has caused. How long they remain supportive will entirely depend on the legislation’s impact on corruption at the top of Indian society as well as the government’s ability to restore some semblance of order.