Foreign monetary follies are like laboratory experiments. But no matter how badly they fail, no matter how much chaos they produce, eventually they are likely to be replicated here.
India cracked down on cash last week, when it invalidated (repudiated) the largest and most commonly used forms of currency, 500 ($7.60) and 1,000 rupee banknotes. Although cash is more widely used in India than in countries where bank cards are common, the denominations are the rough usage equivalent of $10 and $20 dollar bills here and together represent 80 percent of the currency in circulation.
The move is, of course, a tax grab sold as means of cracking down on “illegal cash” and fighting counterfeiting and corruption. The inconvenience to the people is monumental as tens of millions lined up for hours to exchange cash and as banks closed and ATM’s shut down.
The old bills can be exchanged for new ones over the next several weeks in exchanges that will be “closely monitored” by the government , which will help itself to large cash holdings that can’t be “adequately” explained. As it seeks to ferret out large holdings, people exchanging currency have their fingers stained with indelible ink so they can’t show back up with additional currency to exchange.
Besides the tax windfall for the state, it hopes to drive people to institutionalize their wealth: keep it in banks and other accounts subject to state control.
The government of India has been doing this sort of thing for a long time. It has often warred on the Indian people’s traditional preferences to own gold which represents a threat to the state’s monetary manipulation. In 2012 a central bank official lectured Indians to stay away from the metal: “The poor should never invest in gold for whenever they have purchased gold, it either lands up in the temple or in the hands of the moneylender or, at the most, it may be given away during a daughter’s marriage.”
In 2013 The Reserve Bank of India “asked” banks to stop allowing for credit card purchases of gold including jewelry and ornaments. Before long the government hiked the tariff on imported gold coins and bars to 10 percent and to 15 percent on jewelry. This, of course, drove silver purchases to new heights and increased smuggling.
My advice to the 1.25 billion people of India: Keep enough cash on hand to buy pitchforks when you’ve had enough abuse.
And for Americans: Keep a close watch on the war on cash. It’s headed your way.1:23 pm on November 16, 2016 Email Charles Goyette