Fiscal economics is being turned on its head in India, as the Asian nation recently acknowledged it plans to go cashless on very short notice.
India began taking steps in that direction when on Nov. 8, 2016, Indian Prime Minister Narendra Modi declared that India’s 500- and 1,000-rupee bank notes, the country’s largest cash denominations, would be withdrawn from circulation immediately. The notes were replaced by new 500- and 2,000-rupee notes two days later, however at that moment the public had been given less than 50 days in which to redeem the older notes for something else. The two withdrawn denominations represent 86 percent of all currency in circulation in India.
The Indian government blamed corruption, counterfeiting and funding terrorism as the reasons for the quick withdrawals. Automatic Teller Machine withdrawals have since been restricted to paying out a maximum value of 2,000 rupees per day, while bank withdrawals are being limited to 10,000 rupees a day and 20,000 rupees per week.
India is still heavily dependent on physical cash (98 percent of all transactions are made in cash); however, as was reported in the Feb. 28 issue of The Hindu newspaper, there is an “ambitious demonetization move [being] carried out by India.”
According to the Feb. 28 issue of SiliconIndia Finance, Bitcoin got a boost following the prime minister’s November 2016 announcement that he planned to demonetize the two highest bank note denominations as part of an effort to move India towards a cashless society.
The Wire reported a day earlier that “The government’s push for a cashless economy is like blaming people’s dependence on cash for its own failure to predict the impact of demonetization…As per Reserve Bank of India data 85 percent of the transactions using debit cards in August 2016 were at ATMs.”
The Wire also pointed out that a 2011 census indicated that about 30 percent of India’s population over 15 years of age is illiterate, making it difficult to get them to maneuver through a cashless system.
India West newspaper reported on Feb. 25 that “a sudden unavailability of money has brought untold sufferings to people across India, especially in the rural areas, forcing factories to be idle, small retails shops to close, and the farming industry to come to a near halt. Millions of people are now spending their valuable time waiting in line at bank branches or ATMs to exchange or withdraw their money under various restrictions imposed by the Reserve Bank of India.”
It said the biggest casualty appears to be the credibility of the banking system.
Even former Indian Prime Minister Dr. Manmohan Singh weighed in, calling the entire cashless society initiative a “monumental management failure.”
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