from Zero Hedge:
Demonetization will have achieved nothing positive. But it will have seriously damaged the Indian economy. The human costs are immense and continue to pile up. This could easily – even likely – take India to autocracy and eventually, bloody and chaotic disintegration. The demonetization policy and Modi are merely symptoms of deeper issues though.
India’s Currency Ban – Part VI
India’s Prime Minister, Narendra Modi, announced on 8th November 2016 that Rs 500 (~$7.50) and Rs 1,000 (~$15) banknotes would no longer be legal tender. Linked are Part-I, Part-II, Part-III, Part-IV, and Part-V, which provide updates on the demonetization saga and how Modi is acting as a catalyst to hasten the rapid degradation of India and what remains of its institutions.
As the deadline of 31st December 2016 approaches, Gresham’s law has been turned upside down. When they needed to be converted, the banned currency notes were trading for a 20% discount to their face value. In the meantime, the discount has disappeared and the banned notes are trading at a premium of 10%. The mafia which deals in the banned notes could not possibly be happier — it promises to be a big supporter of Modi going forward.
See if you can spot a rich person here. Rich and connected people, if they really needed to exchange banknotes, used the mafia (which employed millions of poor people to queue at banks), police (who used ID copies of old prisoners) or banks (who simply swapped the currency notes). It is the desperately poor people who have suffered.
As you read this, keep in mind that India’s GDP per capita is $1,718. When the quarter of relatively higher-earning Indians is segregated from the population of 1.34 billion, one realizes that more than a billion people — who are among the world’s poorest and most wretched — exist in appalling conditions.
These people, who earn a dollar or two a day, are now expected to use electronic media for transactions, in an economy in which electricity and the internet are unpredictable even in big cities. With no money to buy seeds or any opportunities to earn even $2 a day given the cash crunch suffered by potential employers, these hungry and desperate people are queuing up outside banks.
India has no intellectual backbone, with its middle class — in what is still an entrenched caste system — unconcerned about the man-made crisis that has hit this large number of desperately poor people.
Indians have mostly taken their troubles in stride. The international media have seen this as a sign of perseverance and a deep desire among the poorest to bring about positive fundamental change in society. In reality, the lack of protests is mostly indicative of Indians’ lack of moral instincts, a common problem with irrational societies.
Demonetization will have achieved nothing positive. But it will have seriously damaged the Indian economy. The human costs are immense and continue to pile up. This could easily — even likely — take India to autocracy and eventually, bloody and chaotic disintegration.
The demonetization policy and Modi are merely symptoms of deeper issues though. Our job must be to draw out the underlying principles in order to be able to project what might unfold in the future.
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