According to Investopedia—the definition of demonetization is the act of stripping a currency unit of its status as legal tender. Demonetization is necessary whenever there is a change of national currency. The old unit of currency must be retired and replaced with a new currency unit.
I am watching the scary Demonetization of India…and so should you.
Many of you may not be aware that on November 8, 2016 the Government of India ceased the usage of certain banknotes of the Mahatma Gandhi Series as a form of legal tender effective at midnight on the same day. Let me put this in American terms…this is the equivalent of our President waking up one day to announce that our Lincoln and Hamilton notes are worthless.
If you think this doesn’t matter to you…you’re wrong.
Most people in India live below the poverty line, and those people are the ones most affected by the sudden change in currency. In 2012, the Indian government stated 22% of its population is below its official poverty limit. The World Bank, in 2011 based on 2005’s PPPs International Comparison Program, estimated 23.6% of Indian population, or about 276 million people, lived below $1.25 per day on purchasing power parity.
According to a Huffington Post article 47 people have died so far resulting from this demonetization (many deaths are of the elderly collapsing in long bank queues. This is the reported number—there might be many more).
http://www.huffingtonpost.in/2016/11/16/day-8-demonetisation-death-toll-rises-to-47/
India simply does not have the infrastructure in place for this major shift, nor a cashless economy.
This reckless government has failed to properly prepare for this major shift by showing no considerations for a society that has:
– Only 22% internet connectivity
– 46% banking penetration
– 19% of population without electricity connection (and others with unreliable connection)
– Only 1.2 million of 14 million merchants having point of sale devices
– A low level of digital literacy.
To add insult to injury, there was an institutional failure to print and distribute new currency within a reasonable period of time coupled with a new note design leaving 2.2 ATMs useless to dispense the new size. The biggest ATM provider (45% of India’s ATMs) has stated that it will take 45 days or longer to get these machines back to work and at an added cost.
Unless these real challenges are addressed, withdrawing the bulk of cash only creates chaos as we can now see in a country where over half the people don’t have bank accounts and 90% of all transactions take place offline.
This change in currency policies is clearly a power play, of greed and control, under the guise of protection. The Prime Minister claiming that it is for the betterment of his people, to keep money out of the hands of cash hoarders, counterfeiters, and terrorist. I don’t see the terrorists suffering or left to starve over this—it is the poor that will die. How many times do we have to witness a government that oversteps its bounds before we sit up and pay attention? If you think this can’t happen elsewhere…think again.
For more information about demonetization check out these articles…
These next two passages were pulled from the article below to highlight the fact that it looks like India may be a testing ground for other nations. Leaders have been made fully aware of the consequences.
“Guillen adds that large-value currency is an “important source of problems” such as corruption, black money, terrorism and counterfeit money. “The eurozone will be eliminating the largest euro note. The U.S. is also trying to reduce the [number of] 100 dollar bills in circulation.””
“The Indian reality, adds Chakrabarti, is that many trades and areas are still cash-based and “cannot be digitized just by willing it.” He cautions that the “resulting disruption in the real economy stemming from this move is very significant and potentially fatal” for some vulnerable sections of society.”
http://knowledge.wharton.upenn.edu/article/demonetization-india-will-pay-price/
Very good article