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India: cash comes back

Cash

What’s happening in India? The people are clearly rolling back the recent move of the Indian government to basically abolish the cash economy: the amount of cash is, at the moment of writing this, increasing at a hyperinflation rate of 8,5% per fortnight (according to the Reservebank of India data). But the amount of cash is still way below last years’level. Bank deposits are 12% higher than last year but have been flat since December.

The question is why cash was abolished. Read here, on this blog, Norbert Häring about the reasons why: it’s good for foreign fintech. And yes, it was a conspiracy. It’s not yet clear what this did to the poor and illiterate, who are living in an ad hoc cash economy (see also Alex Tabarrok about this). Alex Tabarrok also noted that the total Indian economy witnessed sturdy GDP growth in the las tquarter of 2016. Which might mean that the abolishment of cash mainly affected the ‘street economy’ of the poor. In such an economy especially transactions with people who you do not know require: cash. In depth information about (based upon the economy of the pre-war French prison system) such an economy can be found in the autobiographical novel Papillon. It’s all about relations. And trust. But cash is king. Comparable novel about India: Shantaram. The first 100 pages of Dostojevski’s Crime and Punishment also give a vivid idea of such an economy. You need relations, you have to build trust – but cash is king (though a little less so than in the French prison system and the Indian slums of Shantaram). Anyway – a lot of wealth was evaporated, by the government.

  1. March 10, 2017 at 9:50 pm

    Some kind of cash economy will re-emerge automatically, whether in India or elsewhere, irrespective of any government decisions. Because “cash” is an integral part of the human psyche.
    Only a stupid government, ignorant of its own limitations, will try to suppress cash.

  2. March 13, 2017 at 10:36 am

    Economists tell us a dollar is a dollar. They are wrong. It is part of the culture of our time that money is a single, impersonal instrument that impoverishes social life by reducing social relations to cold, hard cash. Social scientist Viviana Zelizer argues against this conventional wisdom. In her book, “The Social Meaning of Money: Pin Money, Paychecks, Poor Relief, and Other Currencies” she shows how people have invented their own forms of currency, earmarking money in ways that baffle market theorists, incorporating funds into webs of friendship, civic life, and family relations, and otherwise varying the process by which spending and saving takes place. Her data underlines money as a social invention, intended to meet the goals and expectations of various cultural groups. In this instance some of the people of India re-invent money for their purposes and needs. Leaving the government and other groups behind to cope with the consequences.

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