Demonetisation in India was a great success – for the Better Than Cash Alliance
from Norbert Häring
Two years ago, on 8 November 2016 at 8 pm, prime minister Narendra Modi declared most cash in India demonetised, starting a period of several months of severe cash shortage, which imposed a lot of hardship and suffering on the people. The National Herald India invited me to write a guest-comment on the occasion.
I have been invited to write a comment on the ‘failure’ of the Demonetisation exercise of Prime Minister Modi. True, it was an obvious failure if you judge it by its declared objective of fighting corruption, terrorism funding and tax dodging. Almost all the demonetised banknotes were deposited in banks and thus re-inserted into the legal economy. It was a failure also if judged by the secondary goal of promoting financial inclusion. Rather than helping the poor by giving them access to modern means of savings and payment options, demonetisation disproportionately hurt the poor, as they were robbed of the free means of payment that they used to have at their disposal: cash and which was working well for them. Those well integrated into a social web of support found ways to cope. Those at the margin of society, like migrant workers, suffered tremendously from being temporarily excluded from participation in the monetary economy.
It would be unthinkable for a US-government to take most of the cash out of circulation at four hours’ notice. If it is done in India to Indian people, however, it is alright! Representatives of the US-Government praised the measure. Bill Gates, head of the richest foundation of the world, declared the overall benefits well worth the temporary suffering of the poor. So did the Better Than Cash Alliance, of which the US-Government and the Gates Foundation are the two core members.
The excitement in the US about demonetisation is understandable, if inclusion is taken literally to mean locking-in, i.e. locking-in of all money in the commercial financial sector. In 2015, at the Financial Inclusion Forum in Washington, PayPal’s CEO Dan Schulman explained: “Financial inclusion is a buzz word for bringing people into the system.” And Bill Gates elaborated at the same occasion that the US-government had to make sure that financial flows take place in a digital system in which the US-government can “find those transactions that you want to be aware of or you want to block.”
Gates also said:
“It is certainly our goal to make full digitalisation happen in the next three years in the large developing countries. We have worked directly with the central bank there (India) over the last three years.”
Nachiket Mor is head of Gates Foundation, India. He has also been a member of the central board of the Reserve Bank of India until recently, with responsibility for financial supervision. Demonetisation has been quite successful in bringing Indian people into “the system”, in which they can be tracked. It is not far fetched to assume that this was demonetisation’s real goal. “Our dream is that there should be a cashless society”, said Narendra Modi less than three weeks after the start of demonetisation in his monthly ‘Mann Ki Baat’ address.
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—– look inside —– $5.94 / $20.00
—– look inside —– $4.90 / $8.00
—– look inside —– $15.99
—– look inside —– $5.99 / 12.99
—– look inside —– $5.93 / $12.99
—– look inside —– $4.97 / $9.90
—— Ugarteche, Puyana and Madi ——
Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
– Victor Beker and Beniamino Moro –
————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
————— Mauro Gallegati ————–
————— Herman Daly —————-
————— Asad Zaman —————
—————– C. T. Kurien —————
————— Robert Locke —————-
Real-World Economics Review Blog 
One could ask, “Why do citizens need to be tracked at the money level? Is every penny spent subject to tax, to justification, to suspicion?” How does this track with various blue laws? A free market seems to imply a free and private marketplace too. Bill Gates, heretofore a champion of world charity, is here connected to promotion of computerization of money value that could be construed as self-serving. So the Bill Gates opinion or blessing is not the final word on the success or failure of the effort. The marginalized may have an insightful answer.
I never heard of the Better Than Cash Alliance before. Wikipedia says, ”The Better Than Cash Alliance is a global partnership of governments, companies, and international organizations that accelerates the transition from cash to digital payments in order to reduce poverty and drive inclusive growth.” In order to what? I tried to learn more by reading the document at https://btca-prod.s3.amazonaws.com/documents/340/english_attachments/BTCA-GPFI-OpenInclusivePayments-.pdf?153361564. The mystery grew vastly deeper. The jargon was impenetrable.
How will this reduce poverty? Seriously!
Grayce suggests “The marginalized may have an insightful answer”.
So I’m marginalised by Bill Gates making his already paid for computer operating systems obsolete so we have to buy new ones as computer technology develops. Likewise, as Haring says, “demonetisation disproportionately hurt the poor, as they were robbed of the free means of payment that they used to have at their disposal: cash – which was working well for them”.
With the old operating systems structured algorithmically and a few parameters made variable there was no real need to change them apart from “jobs for the boys”. Likewise, the banking system having already been paid for in terms of the effort needed to construct it, there was no real need to charge for renting money that has already earned its keep. With at least 95% of the money circulating in the system not earning its keep, but trying to win “wealth for the boys”, no wonder demonetisation “was an obvious failure if you judge it by its declared objective of fighting corruption, terrorism funding and tax dodging”. These are significant problems only because of their scale and hence their largely unearned accumulation.
If contactless electronic banking is to [even largely] replace cash it seems it needs to be free. That means, even to banks and governments. The staff in these also need money to live decently and obtain resources so as to be able to do their job. That means we all need a Universal Basic Income along with the ability to increase it temporarily to invest in resources for our future. As a pensioner I’m marginalised, but I have an adequate Basic Income (already earned, I hope) and a Credit Card which I can use for free so long as I stay within my budget and pay it off within the time period allowed by the bank. I also have a Credit Limit, allowing occasional use of credit for larger investments, as for education, vehicles or even housing. Residual credit reduces automatically if I fail to keep up repayments, but investment like that would only be free if the terms and conditions allowed large investment expenditures (as on housing) to be repaid interest-free in agreed instalments well within the budget set by of my pension. For younger people, the terms and conditions need to allow such investment to be written off as it produces the outcomes for which the credit was given, e.g. by students studying diligently to become more competent, others being freed to do so normally: i.e. by cooperating with others voluntarily, not by having to find employers able to pay them.
For me, three points come out of this, plus the demonstrated fact that banks create money out of nothing.
a. The declared objectives of a cashless society can only be met if money is made and kept local in small amounts, as happens in personal Credit Card accounts whether or not our local bank or an international conglomerate keeps our accounts. However, only local banks are in a position to know and advise their customers, being thus able to recognise and check out irregular transactions of concern to governments. Like that of banks, on this basis the function of holding companies and governments would reduce to the monitoring and advising of co-operatives and ministries. [These latter words are significant]. National and international accounts would be produced not as statistics but by internet searches of distributed banking and company data relevant to immediate problems in balancing imports and exports of goods, responsibility for this lying with international/inter-regional traders, not governments.
b. What is created by a Credit Card is not money but credit, with our credit-worthiness being earned by using it for its intended purposes, e.g. looking after oneself and one’s family as well as going out to work. What corresponds to money is the Credit Limit. If I have a credit limit of £5000 I can buy £5000 worth of goods and/or services. If I have a £10 note, I can buy with it £10 worth of goods and services. If then I withdraw £10 from a teller with my credit card, I have reduced my residual credit by £10 and acquired a physical version of it for purchases which should later appear on the accounts of traders.
c. The motivation created by a Credit Card, which will generate an account of one’s debts to other members of society for the goods and services they have credited you with, is on the one hand to economise to stay within budget, and on the other to work to maintain or (for ambitious personal projects) to extend one’s Credit Limit. This message is simple and reasonable enough for it to be effectively taught, but as for putting it into practice I am well aware that maturity, personality and social background differences leave some devils in the detail. Tonight’s BBC Panorama programme on Britain’s trying out an ‘austerity’ version of Universal Basic Income, showed incapacities like blindness, dyslexia and depression mean a ‘onesize fits all’ internet-based system simply cannot work without helping those with such problems to set up bill paying with something like Direct Debits.
These insights from someone ‘marginalised’ by old age (a silly old fart “dreaming dreams”?) are only one side of the story which needs telling. The centralisation of work so that nearly everyone has to commute long distances unnecessarily cannot easily be undone, but it can be rationalised by scrapping unnecessary jobs and time sharing differently between centralised and local commitments. For example, a move to two days of commuting, leaving two for local activities and two for developing personal interests and skills in gardenising, the arts and crafts, history, science and technology etc, would require development of local facilities and encourage coordination of factory employment with clean trainload distribution of mass-produced materials and standardised technical products. Excellence in local service and personal achievement are properly to be reworded with prizes, not wages.
Politicians and businessmen may condescend to smile at this, but as the song says, “If you don’t have a dream, How you going to have a dream come true”?