As the world remains fixated on the election of Donald Trump and a Soros sponsored campaign of protests and riots against his presidency, a crisis has the attention of over a billion people in Asia.
India is on the brink of an economic meltdown resulting from the withdrawal of 500 and 1000 rupee notes and its enormous population is now living in fear of the emergence of a police state.
Prime Minister Modi’s announcement on Tuesday 8th November, US voting day, directed that these notes would be withdrawn immediately and that its population should conduct its business digitally or with smaller notes. The pretext given for this widely praised initiative is that it will help fight corruption, an enormous problem in India’s public sector. An alternative view is of course that it is simply another small step in an IMF driven globalist war on cash, a method of extending government control into areas it has previously not been involved in – a further step towards entombing everyone in a government controlled digital cash prison. That argument is for another day but in the meantime perhaps the Indian experience has some capability of informing our own future.
Some background facts. India has a current population of around 1.2 billion people, not far behind China’s 1.36 billion. 1,000 and 500 rupee notes represent over 80% of all notes in circulation and are widely used for all sorts of transactions throughout the country. To give some value context a 100 rupee note is worth approximately £1.17, $1.48 or €1.36. In other words even in India you would need some pretty large pockets to carry around a meaningful amount of currency. Finally, India is predominantly a cash economy. Its wealthy classes have the same access and use banking facilities as westerners but there are still hundreds of millions who do not have a bank account or who even carry identity cards. This of course is something of a problem as we will see.
The process for the average Indian to exchange his higher denomination notes into smaller ones appears to be as follows:
- Queue in a line for an official to issue you with a form.
- Complete the form (assuming you can write) with details of your notes and serial numbers and relevant personal contact details.
- Make a photocopy of your ID card. A challenge for the 35% of Indians that does not have one (circa 400 million), many of whom don’t actually understand the concept of an ID card.
- Queue for an official to verify and stamp the ID card copy as genuine.
- Queue at a bank to get a bank teller to convert the higher denomination notes into smaller usable ones.
Apparently it takes a couple of hours to exchange 4000 rupees (about £47), the maximum you can convert per day. The rich can pay servants to undertake the exchanges but the poor have to use working time every day to exchange their cash, at least until their savings have been converted. Meanwhile bank accounts also remain restricted from a cash withdrawal perspective which is why ATMs are now out of notes on a daily basis.
In a matter of days businesses have already started to show signs of stress and failure. Small cash driven businesses may not last much more than a week as liquidity is sucked out of an economy only partially supported by wealthy people with bank accounts. Chaos reigns already and India has entered into crisis mode as virtually the entire adult population queues for the chance of exchanging now worthless notes into something useful.
The poor are in panic mode as fear grows that they may not have enough useable money to buy food next week. The educated salaried class are largely untouched as they use plastic to continue with life as normal. India’s tax authorities are rubbing their hands as information about the wealth of individuals becomes a matter of record. Tax demands are being paid with little contention.
Realistically, the smaller notes replacing larger ones will not be like for like in terms of liquidity. Over the next week or so the economy could go into full meltdown as hundreds of millions risk starvation and cash transactions shrink to a minimum. To protect themselves against further chaos the wealthy are buying physical gold which in US dollar terms cannot be acquired for much less than $3,000/oz, a price almost 2.5 times the paper market LBM/COMEX traded price. That is if you can actually find some.
In due course India will get through this crisis either through suffering the effects of this uncommunicated move or via its reversal when the real consequences are fully understood, or acted upon by those most affected.
Whether or not European or North American governments could get away with this sort of thing is moot. It would probably take a political/economic crisis in which it could be presented as an ‘emergency measure’. Far more likely is the ongoing gradual erosion of cash, the digital carrot rather than the executive order stick. It will probably take a financial crisis for the implications of an almost cashless economy to catch the attention of the general public. When bank deposit accounts are eviscerated through ‘doing a Cyprus’ ‘bail-in’ perhaps then we will realise the risks we have all been taking in concentrating the power over our money into the hands of a small cadre of bankers and government officials.
Is cash a freedom or a convenience issue?