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War on Cash Backfires on India’s Economy

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In What Has Become An Object Lesson In What NOT To Do, India’s War On Cash Backfires

Clint SiegnerBullion.Directory precious metals analysis 5 September, 2017
By Clint Siegner

Director of Money Metals Exchange

Indian Prime Minister Narendra Modi launched a surprise attack on cash in late 2016. He gave Indians a few days to convert the two largest denomination bills then circulating to bank deposits, after which point any undeposited notes would become worthless.

The move was intensely controversial. Transactions completed using cash represented the vast majority of economic activity in the country.

war-on-cash-smIn order to sell the program Modi employed a familiar strategy. He vilified the users of cash as tax cheats and criminals. He promised the measure would punish black marketeers, boost the Indian economy, and increase tax revenues. The latter may be true – forcing transactions onto the grid is good for nosy bureaucrats trying to impose taxes and controls.

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But it now appears Modi’s claims about the amount of criminal activity tied to cash and promises of economic growth were nonsense.

The official argument was that cash is an indispensable tool for black marketeers. The reform would catch many of these “criminals” with piles of cash they would be unwilling to declare and deposit. That argument fell apart last week when the Indian central bank reported that 99% of the outlawed bills were converted to deposits. Turns out very few “criminals” were punished.

Meanwhile the Indian economy is paying the price. Growth has slowed significantly and some estimate as many as 5 million jobs have been destroyed by the demonetization of cash. More and more Indians are angry.

They didn’t enjoy the upside promised by Modi. Instead, they suffered massive economic disruption and loss of privacy. Perhaps India’s experience will provide an object lesson elsewhere in the world where bankers and the political elite are waging a similar war on cash.

This article was originally published here Bullion.Directory or anyone involved with Bullion.Directory will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading in precious metals. Bullion.Directory advises you to always consult with a qualified and registered specialist advisor before investing in precious metals.

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