India’s Anti-Cash Modi Liberates the Rest of Us
India’s Prime Minister Narendra Modi is just another political hack. Like politicians in general, he does not understand economics. He does not understand the law of unanticipated consequences. He does not understand that government is dumb.
On November 8, he unilaterally and without warning declared the two highest value paper currency units obsolete: the 500-rupee ($7) and 1,000-rupee notes ($14). They will no longer be money in 50 days, he announced. That will be on December 28.
These two denomination bills constituted 86% of the nation’s currency.
To turn it back into currency of value, India’s currency holders most go to a bank and exchange it. But 600 million Indians have no bank accounts. This was a minor detail in the mind of Modi. He thinks of himself as a big-picture guy. Details don’t matter to him.
Across India, banks ran out of the official replacement currency. The ATMs stopped working.
This law supposedly is aimed at income tax cheaters. Yet this is a nation in which 95% of the population does not file tax returns. Tax cheating? Really? And I am to understand that the best way to stop tax cheating is to annul 86% of the currency? Tell me more!
Sorry, but I cannot resist. This is the Indian government’s Modi Operandi.
Some businesses have ground to a halt. Street vendors cannot buy or sell. Gasoline is unavailable in some regions. Some 400,000 trucks were stranded.
Small businesses deal only in cash. All of them are suffering.
Because India’s money, like every other nation’s money, is monopolized by the national government and the central bank, the public was helpless. There is nothing in economic theory or political theory that proves that a national government should have sovereignty over the money supply. But governments claim this right so that they can control the population better. The voters go along with this. Then they pay the price.
No nation today is paying a heavier price than India. About 90% of India’s transactions are currency transactions. Only 10% of stores have credit card purchasing. The government calls currency black money. It is seen as black market money. It is also white market money and gray market money.
“Be patient,” Modi has said. This is reminiscent of “endeavor to persevere.”
All over the world, Modi has become the poster child of a truly dumb politician. Up until November 8, India had the fastest-growing economy on earth: over 7%. Estimates are that his anti-cash law will shave off at least two percentage points. Achieving this kind of economic setback is not easy for a politician to achieve overnight. Any politician who accomplishes this is going into the record books.
This is good news for the rest of the world. Any politician who is contemplating a forcible move to a cashless society will be more ready to think through the unintended consequences of his actions, especially the consequences at the next election.
From now on, around the world, this phrase will become familiar in politics: “to pull a Modi.”
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