…remember the real motivation about the war on cash. It’s not about reducing crime, drugs, or terrorism. It’s not about more convenient payment methods driven by technology. And it’s certainly not changing the incentives for illegal immigration from poor countries to rich countries.
It’s about control. [Harvard’s Ken Rogoff, author of The Curse of Cash] mentions it right at the beginning. But it’s almost like he made a faux pas. He wants to get rid of cash so central planners can more effectively control your financial behaviour. Your option to own and use physical cash gets in the way of “effective monetary policy”. Cash must go.
[‘The less-cash society‘, Dan Denning]
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On 28 August 2014, Prime Minister Narendra Modi kicked off the Pradhān Mantrī Jan-Dhan Yōjanā, three months after taking office. It was his abreactive response to the Congress’s Mahatma Gandhi National Rural Employment Guarantee Scheme.
On 23 March 2015, then Union Minister of Finance Jayant Sinha gave the Lok Sabha a written reply:
BTCA, which is a forum of governments, development partners and companies that promote transition from cash to digital payments, has sent a proposal for joining the forum which is under consideration of the government.
On 1 September 2015, three days after the first anniversary of the Jan-Dhan Yōjanā scheme, Narendra Modi signed up India’s membership in the UN-fronted, corporate-funded Better Than Cash Alliance (BTCA). (‘India Announces New Partnership to Accelerate Financial Inclusion for Everyone: Government of India Joins the United Nations’ Better than Cash Alliance for Digitization of Payments to Achieve Financial Inclusion and to Share Success Stories from PMJDY,The World’s Largest Financial Inclusion Programme’; Press Information Bureau, Ministry of Finance, Government of India press release)
On 17 November 2015, OnlineRTI.com, a Bengaluru-based start-up that aids citizens in filing queries under the Right-to-Information (RTI) Act, reported that bank frauds had doubled in the year since Modi’s installation as prime minister.
On 8 November 2016, Modi made his infamous #4Hours2Midnight #Demonetisation2016 speech, delegalising 86% of India’s cash-in-circulation in one fell swoop and sending the country into a tailspin, which was immediate and is ongoing.
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Going by his unravelling fustian, it all began as an anti-blackmoney move. By 27 November, according to what Modi said during an excruciating Mann Ki Baat ramble, the narrative had evolved – or devolved – to pushing for a “less-cash society, then cashless society“.
There was not even a passing verbal reference to “black money”. Even on the previous day, 26 November, Modi had, in a very sarcastic philippic against the Congress in Parliament, referred to “kāle dhan ki charchā” (‘black money tête-à-tête’: watch from 3:15 onwards).
A bit less than 24 hours later, the need for nationwide cashlessness had overridden the need to reign in national blackmoney. The narrative morphed literally overnight from kālā dhan to naḵadīhīn (or “kæsh-lass”).
The blackmoney narrative has since been jettisoned by the BJP’s #DemonetisationYatra.
Interestingly, Modi seems to have cogged his 27 November Mann Ki Baat speech freely from an interview that the near-absent Reserve Bank of India governor, Urjit Patel, gave to PTI the same day.
Among other gems of prose, these were common to both Narendra Modi and Urjit Patel, word for word:
- “…leapfrog into a less cash-use economy at par with more developed nations.”
- “We are also urging banks to make a big push with PoS* machines with traders so that debit card use becomes more prevalent.”
*Point of Sale
Either that, or Urjit Patel had written Modi’s speech. Or they had the same lazy-ass speechwriter.
* * * * *
From the time of Modi’s cavalier, nonchalant #Demonetisation2016 speech, fiscal observers and experts have been trying to figure out exactly what compelled him to toss a move aimed to introduce unprecedented and foolhardy fiscal homogeneity into the subcontinent’s roiling financial mix.
So, what’s really going on?
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BETTER THAN CASH MISALLIANCE
This is what’s going on.
Without consulting the citizens of India (or even Parliamentarians), Modi put himself and the country in thrall to an iffy ur-capital confederacy named Better Than Cash Alliance.
With the United Nations Capital Development Fund as its secretariat, the BTCA is a caucus of 22 developing and emerging-economy nations comprising India, Nepal, Pakistan, Bangladesh, Papua New Guinea, Afghanistan, Colombia, Benin, Ethiopia, Ghana, Kenya, Liberia, Malawi, Moldova, Peru, Rwanda, Senegal, Sierra Leone, the Philippines, Uruguay, Vietnam, and Mexico.
The entire ‘Indian’ subcontinent has been coöpted.
There is not a single developed country in the list.
The BTCA is funded (and advised) by the Bill & Melinda Gates Foundation, Citi Group, Ford Foundation, MasterCard, the Omidyar Network, USAID, and Visa Inc.
Going by two papers released in September 2016 by the McKinsey Global Institute (‘Digital Finance for All: Powering Inclusive Growth in Emerging Economies’ and ‘Accelerators to An Inclusive Digital Payments Ecosystem’), India is a test case for ‘going cashless’ after Nigeria’s cashless experiment pretty much came a cropper in three years, from rollout to rollback.
‘Accelerators to An…Ecosystem’ reduced the vastly-vexatious matter of India’s nondigitalisation to one centred on knowledge and analysis, diminishing the structural issues to nothing:
The reality is that despite the evidence about what creating digital economies means, until now there hasn’t been a coherent and tailorable framework available to governments and companies about how to realize these gains. This is partly because knowledge about digital payments has been highly fragmented. The lack of a broad and cohesive analytical framework has prevented governments and companies from leveraging the experiences of other markets and players to implement digital payments most effectively.
Here’s the problem with this, and more besides.
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THE MODI-BANGLADESH 3-LEGGED RACE
The BTCA has placed India and Bangladesh in competitive stances in the frontline of what one German site wrote, in reference to India’s demonetisation, was a “brutalen Schritt zur Bargeldlosigkeit” (‘brutal step towards cashlessness’).
Bangladesh had joined the BTCA in June 2015, barely two months before Modi plumped for India’s membership in it.
According to PMO scuttlebutt, Modi considers himself in a cashlessness race with Bangladesh. The shocking abruptness of his announcement of 8 November (and subsequent evidence of the government’s utter and appalling unpreparedness for minutiae such as foreign tourists stranded in India, Indian tourists stranded abroad, diplomatic missions blocked from withdrawing daily-use cash, and the paucity of small-currency notes) might best be seen in the light of Modi’s desire to beat the rollout of a moneta liberum paradisum in the rest of the subcontinent.
On 26 November 2016, the BTCA released a case study on Bangladesh (‘The Way Forward for Digitizing Payments’), recommending “specific actions that government and the private sector can take to guide future policymaking”.
Two days later, on 28 November 2016, during a workshop on ‘Digital Payments for Digital Bangladesh: Building an Ecosystem for All’ (as part of the government’s Vision of a Digital Bangladesh), at the Prime Minister’s Office in Dhaka, Bangladesh Finance Minister Abul Maal Abdul Muhith was all confidence when he said:
I think it is possible to have a paperless government within two years. … The ground is, in fact, quite ready to digitise all kinds of payments and receipts of the government. We have already experimented with this in a few areas and we find it to be quite easy and secure.
If the current trend continues, it is possible within a couple of years to reach a situation where most of the government operations are turned paperless.
But note that the operative words here are that Bangladesh is prepped to “digitise all kinds of payments and receipts of the government” and can envision a time when “government operations are turned paperless”. (Italics mine)
Muhith didn’t show Modi’s recklessness.
Bangladesh has a two-year timeframe during which to digitise government transactions. It is a safe enough timeframe, given that in 2015, almost 70% of Bangladesh government payments were made digitally.
As of May 2013, almost 97% of the transactions in India were done through cash (‘Indian Prepaid Card Market Outlook to 2017’, RNCOS Business Consultancy Services). By December 2015, this percentage had dropped (by 12.38%) to 85%. As of 2012, a “fraction of the 10 million plus retailers in India have card payment acceptance infrastructure – presently this number stands at just 0.6 million” (‘Payment Systems in India: Vision 2012-15, Reserve Bank of India).
Nearly 23.2% – 38 million of Bangladesh’s population of 163,739,417 (app. 164 million: as of 8 December 2016) – have so far utilised mobile money services.
India, meanwhile, has 224.1 million smartphone users. In the absence of precise data, we could go out on a limb and presume that the majority of them have made use of mobile payment transactions (including college students, who comprise <18% – or 40.34 million – of smartphone users, according to Ericsson ConsumerLab, ‘The Changing Mobile Broadband Landscape’; 28 April 2015). Assuming that the only bills they pay digitally – the only bills most of them, being collegiate, can usually pay – are their mobile top-ups, the number of Indians who make payments through mobiles is 183.76 million, give or take a couple of million, at the outside.
What this means is that, by a generous estimate, 13.75% of Indians make digital payments via smartphones. Calculated in terms of the total number of wireless telecom subscribers (980.81 million, RBI est.), the maximum percentage of digital transactors is 18.74%. In either case, in real terms of digitalisation, it means that the Modi-BTCA combine has its work cut out turning India into a functional, integrated, wall-to-wall cashless society.
While the BTCA is basically sitting back and watching the demonetisation rollout with increasing jerkiness and governmental panic in India, its case study on Bangladesh was greatly more cautionary, acknowledging that
the overwhelming majority of payments in Bangladesh are still made in cash. Achieving further progress will require continued efforts by the government to implement policies that create enabling conditions and evolve the regulatory environment in order to overcome key barriers such as the need to achieve more competition, and more interoperability enabling payment transactions between different service providers and platforms.
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THE FAILED NIGERIA EXPERIMENT
Nigeria’s cashless policy, the pilot of which was rolled out on 1 January 2012 and went apostolic on 31 July 2014, pretty much floundered from the get-go.
According survey reported in a paper, ‘The Impact of Central Bank of Nigeria Cashless Policy in Nigeria Economy’ (by Martin C. Ezeamama, Nnamani Joseph Ndubuisi, Dr. [Mrs] Mary I. Marire, and Dr. C.C. Mgbodile; IOSR Journal of Business and Management [IOSR-JBM], Volume 16, Issue 12.Ver.I, pp. 84-95, December 2014, www.iosrjournals.org), “34.0% of the respondents cited problem of internet fraud, 15.5% cited problem of limited POS/ATM, 19.6% cited problem of illiteracy and 30.9% stayed neutral – the respondent not been sure of problem been expected or experienced”.
On 3 August 2015, the Central Bank of Nigeria sent out a circular, ‘Re: Nationwide Rollout of Cashless Policy to the Remaining 30 States‘:
It has come to our notice that some banks have started applying charges on withdrawals above the threshold in the remaining 30 states of the Federation.
CBN hereby directs that the charges in these 30 States be put on hold, until further directive is received from the Bank.
In the light of the above, charges inadvertently applied by banks on their customers ‘account in the remaining 30 States with effect from 1st July, 2015 should be reversed immediately.
On 9 August 2015, the CBN in agreement with the Bankers’ Committee put on hold the roll out of cashless policy exercise nationwide.
* * * * *
SLICES OF THE SORRY HISTORY OF DEMONETISATION
Demonetisation has almost universally bombed.
- 1982: Ghana decides to demonetise its 50 cedi (GH₵) currency notes so as to monitor – not eradicate – money-laundering. It is superchaotic. Eventually, the Ghanaian republic returns to physical assets and foreign currency.
- 1984: Nigerian President Muhammadu Buhari introduces different coloured notes to delegalise the old currency (the Naira: ₦), intending to fight black money. The economy collapses.
- 1987: Myanmar demonetises roughly 82% of the kyat (MMK). Total chaos ensues. The massive 8888 Uprising follows in March 1988.
- 1991: Under Mikhail Gorbachev, the then Soviet Union demonetises the upper Russian rubles – ₽50 ₽100. Within eight months, Gorbachev is removed from office.
- 2010: North Korea demonetises the won (₩). A major economic breakdown ensues, with widespread starvation filtering out. Kim Jong-il dies in December 2011 after a year-long illness.
- 2012: Libya demonetises 96% of the old dinar ( ل.د, or L.d). The economy, liquid-state after Moammar Gadhafi’s killing in October 2011, blows up. The leadership still has no clue as to the quantum of state assets.
- 2015: Zimbabwe demonetises its entire multicurrency framework (Australian Dollar, Botswana Pula, British Sterling Pound, Chinese Yuan, Euro, Japanese Yen, Indian Rupee, South African Rand, and United States Dollar). The $100-trillion note goes for a toss when $1 trillion ends up valued at $0.5.
* * * * *
Where might this end up? Providence alone knows. The data can prognosticate but not predict.
But this much is certain: In the sprint to be first in the subcontinent in everything known and unknown, Prime Minister Narendra Modi might have ended up beating every subcontinental neighbour to a fiscal implosion, engineered a tough-to-scratch statal handover to a slew of US-based corporate vultures, and ensured the end of the overambitious BJP regime come General Election 2019.