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.
As is now abundantly clear, the government didn’t do all its homework. 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 Princeton 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.
Another person who has come out strongly in favor of the government’s actions, for very different reasons, is the world’s richest (official) billionaire, Bill Gates, who just happened to be in India on business a few days after the government’s decree…
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