One Year After India Killed Off Cash, What Other Countries Should Learn

The author is a known critic of the demonetization policy. This was a complicated decision and it is still unclear whether it worked or not. I personally know a lot of business owners and merchants who really hate Modi for this move - which I feel is a good sign given these are the very people who kept the so called black money hidden from the govt and were negatively affected. Of course, the GDP would fall given economic activity got affected at the grass roots level.<p>That said, there were some benefits 1) people would think twice before hoarding onto cash and keep it hidden from the govt 2) more people would use banking facilities as the govt basically forced a lot of people to create bank accounts and deposit cash there for easy tracking. Also, there are long term tax benefits for the govt too given now it has a snapshot of who exchanged how much black money (in old notes) with the new notes. As such, the answer isn&#x27;t black or white here.

While I wonder what makes HN interested about India&#x27;s demonetisation, The biggest irony of Demonetisation is not how the ruling government started listing down auxiliary benefits as the intended objects, It&#x27;s how rural Indian is always being ignored by the people who celebrate the success of Demonetisaion. We who live in Cities like Bangalore have got Card swiping machine with every merchant, Imagine a village where there is only a few ATM machines, That&#x27;s where the real impact - the failure is. It may not be even captured by a metric like GDP but when you travel across the country - not just hopping from Station to Station but actually to places, you&#x27;d find it out!<p>Edit: Ppl celebrating demonetisation doesn&#x27;t refer to HN but a broader group in India.

The only winners are the credit card companies and the banks here. Getting rid of cash is the final step of their financial prison for the average Joe.

The most relevant quote:<p>&gt; Third, in a recent analysis of income tax probes, the cash component of undeclared wealth in India was estimated to be only about 6%. In other words, the policy instrument was aimed at the wrong target: most undisclosed wealth is held in noncash assets. All of this data was readily available and should have given the policy makers pause.<p>Assuming the data is correct, demonetization was flawed from the beginning.

When I was riding my kick scooter, I had this recurring thought: What would my trajectory be if I would to roll my steering handle by 180 degrees?<p>I never got to try, but India did.

The title itself is a misnomer. No one checking stuff in HBR? Only denominations of 500s and 1000s were made illegal. This was replaced with new 500 and 2000 Rupee notes. All the other denominations remained valid throughout.The intent was to control counterfeit currency. It also appealed the public to use more digital transactions.<p>Today, in TV there was news about a district in Kerala (Malappuram) having 50000 crores worth of old currency in the hands of various people there. The person whom the reporter interviewed was an agent who sold these old notes to some people for a percentage of the value of the old notes. They didn&#x27;t say for what purpose the old notes are bought. A friend of mine who knows some Gujrathi cloth merchants in Kochi&#x27;s main market was told these old notes are bought so that its thread can be taken for counterfeiting new notes.

Lesson one: Payment processors are taxing bodies. The degree to which your society operates without cash is the degree to which your governing bodies lose all control over the supply of money in your nation. Value of your currency is handed over to payment processors who do little beside moving numbers from place to place, and charge a percentage cut of every such movement on the fictional basis of moving larger numbers somehow costing more or being a harder service to provide. Should the payment processors wish your currency to be in greater supply, they will lower their rates. Should they wish to restrict the supply of money, they will raise them. Their influence is more flexible and has many fewer restrictions than stodgy old things like &#x27;central banks&#x27;.

Wasn&#x27;t something like 99% of the targeted cash, ultimately redeemed at par value? If so, it was quite ineffective...

You can&#x27;t kill off cash or other forms of anonymous payment. Humans will always find a substitute. Stamps is an obvious choice.<p>And then there are cryptocurrencies, which are about to teach the world economists all kinds of lessons.

This is one of the largest transfer of money from individuals &amp; small businesses to corporate sector. Since notes were denotified, people had no choice but to move to businesses which could support digital payments. This led to huge loss of business for smaller players who were dealing in cash and a drop in economic activity. And the small businesses are the ones which employ highest number of people, so the subsequent job loss. Additional domino effects is loss of man hours spent in exchanging the notes and the general anxiety it caused amongst people. Moreover data shows [1], the whole exercise only caused a temporary change in behaviour &amp; cash in back in vogue, so essentially a pointless &amp; damaging exercise.<p>[1] - <a href="http:&#x2F;&#x2F;www.livemint.com&#x2F;Industry&#x2F;S0AwBRAYuGbJw0SoXOaUaO&#x2F;One-year-after-demonetisation-cash-is-still-king.html" rel="nofollow">http:&#x2F;&#x2F;www.livemint.com&#x2F;Industry&#x2F;S0AwBRAYuGbJw0SoXOaUaO&#x2F;One-...</a>

All the destruction that was unleashed in its aftermath, could have been avoided, if PM Modi had heard the best economist he had at his disposal, and not an accountant masquerading as one.<p><a href="http:&#x2F;&#x2F;www.huffingtonpost.in&#x2F;2017&#x2F;11&#x2F;07&#x2F;a-year-later-it-s-safe-to-say-this-if-only-modi-had-listened-to-the-economist-he-had-at-his-disposal_a_23268888&#x2F;" rel="nofollow">http:&#x2F;&#x2F;www.huffingtonpost.in&#x2F;2017&#x2F;11&#x2F;07&#x2F;a-year-later-it-s-sa...</a>

If I were to make a statement on this, I’d say that other countries shouldn’t attempt such an exercise, and if they do, they should certainly look at how it was done in India as a classic case study of “how not to do it.” There’s close to nothing that came as a benefit from this exercise. But the so called “collateral damage”, that the richer classes ignore, on people’s livelihoods, their very lives (many people died) and the economy was significantly bad.<p>The “first cashless village in India” touted during that time has gone back to using cash. [1]<p>Dreams about digital money alone won’t do. There’s a long, long way to go on telecom&#x2F;Internet infrastructure improvement, availability of electricity, availability of devices that are easy to use, education and awareness on security, etc.<p>I believe any future government in India would be downright foolish to consider doing such a thing again. Now all that the government has done by eliminating the Rs.1000 note and introducing the Rs.2000 note is made it easier to hoard and transport large sums of cash.<p>[1]: <a href="https:&#x2F;&#x2F;www.bloombergquint.com&#x2F;demonetisation-one-year&#x2F;2017&#x2F;11&#x2F;07&#x2F;cash-is-king-again-in-indias-cashless-village" rel="nofollow">https:&#x2F;&#x2F;www.bloombergquint.com&#x2F;demonetisation-one-year&#x2F;2017&#x2F;...</a>

BBC nails it better.<p><pre><code> Invalidating 90% of the stock of currency notes to catch 6% of illegal wealth was a clear case of using a hammer to kill a fly. The rationale of a crackdown on counterfeit notes was also misleading since India&#x27;s central bank&#x27;s own estimate was that fewer than 0.02% India&#x27;s stock of high-value currency was growing in line with GDP and the share of such currency in India&#x27;s GDP remained constant at around 9% for half a decade </code></pre> <a href="http:&#x2F;&#x2F;www.bbc.com&#x2F;news&#x2F;world-asia-india-41896865" rel="nofollow">http:&#x2F;&#x2F;www.bbc.com&#x2F;news&#x2F;world-asia-india-41896865</a>

Narendra Modi fulfilled just 9% of his poll promises <a href="http:&#x2F;&#x2F;www.electionpromisestracker.in&#x2F;governments&#x2F;central-government" rel="nofollow">http:&#x2F;&#x2F;www.electionpromisestracker.in&#x2F;governments&#x2F;central-go...</a>

Slipping GDP growth, declining private spending and investments, falling jobs, decreasing industrial production, rising inflation, and rising current account deficit. <a href="https:&#x2F;&#x2F;qz.com&#x2F;1090478&#x2F;no-matter-how-hard-the-government-tries-it-cant-sell-indias-growth-story-to-the-world&#x2F;" rel="nofollow">https:&#x2F;&#x2F;qz.com&#x2F;1090478&#x2F;no-matter-how-hard-the-government-tri...</a>

I live in a country that is rapidly becoming cashless.<p>This was not a government program. It happened naturally and was deemed to be in the best interest of all. At every purchase people can freely choose to use cash or a card&#x2F;phone.<p>An advanced economy, low corruption, efficient banking system, top level infrastructure and supreme faith in civilization are not things you can just implement.

&gt;&quot;It most recent GDP growth figure has fallen to 5.7%, and part of that, too, can be attributed to the policy move from last November.&quot;<p>It would be interesting to quantify what &quot;part&quot;. AFAIK GDP growth has many contributing factors both short term and long term. It would really help readers to better comprehend the affect and also help policy makers to be cautious going forward.<p>&gt;Lesson One: Choose Your Experts Carefully : Agreed, we must choose our experts carefully. However, author is silent on &quot;how&quot;. Instead what author presents is his take on who are experts. I am not questioning the authors credentials but as HBR article, I expected authors to present a methodology instead of what seems a subjective view to me.<p>&gt;Lesson Two: Don’t Ignore Basic Data : Authors criticism that basic data was ignored seems more of a speculation. No concrete sources that such data was not consulted at all.<p>&gt;Lesson Four: Beware of Digital Silver Bullets : Here I feel author selectively uses the citation to benefit his narrative. The very citation states the following verbatim. <a href="http:&#x2F;&#x2F;www.moneycontrol.com&#x2F;news&#x2F;business&#x2F;economy&#x2F;digital-payments-growth-dips-27-in-aug-from-peak-bhim-upi-to-take-charge-2380617.html" rel="nofollow">http:&#x2F;&#x2F;www.moneycontrol.com&#x2F;news&#x2F;business&#x2F;economy&#x2F;digital-pa...</a> &gt;&quot;Still, it is appreciable that the numbers have not come down by a large amount. There are many who have permanently moved on to digital, which is a bigger benefit.&quot;

The article axiomatically attributes demonetization as the reason for a reduction in GDP growth, even 3 quarters after the event. Is it that obvious as I don&#x27;t see the direct connection - more currency flowing through official channels = increased GDP and taxes. What am I missing?

I don’t think anyone should be learning from India until they fix with their massive list of problems.

Many in India consider demonetisation a great thing, it&#x27;s mostly the political opponents of Modi trying to defame it

kuddos to Indian Govt. for taking this step. South Asian economies are rife with black money and small vendors and regular citizens rarely pay taxes.<p>Any attempt to rectify this menace is a welcome step -- hopefully regional countries like Pakistan and Afghanistan can implement similar measures.

Seems early to declare demonetization as a failure.

1) Lesson One: Choose Your Experts Carefully<p>The Trump administration would never make a mistake like that, would they?