The Good, The Bad And The Ugly Of Currency Demonetisation

It was during a train journey back home when I was still studying to become an engineer, when I first heard the idea of taking high denomination notes out of circulation. I remember how I had scoffed and laughed at the proposal of that gentleman, thinking no government would ever have the stomach to bring such a scheme. The good and bad of the proposal were hardly known to my naive brain then. As time would have it, currency demonetisation did happen in my lifetime. With the daily drama that unfolds before my eyes, i have learnt one thing. And there is no easy way to say this: Currency demonetisation has brought out the demons in us. 

There are times in a civilisation’s existence that a tough, unpopular decision has to be taken. History has been replete with such example. The future will have its fair share too. In our times, it is this currency demonetisation decision. So what is currency demonetisation anyway? Why are some people for it while others against it? To understand the what, who, when, where, why and how of it, let us understand the good, bad and the ugly of this scheme.

The Good:

On November 8, 2016, the Prime Minister announced that currency notes of 500 and 1000 would no longer remain legal tender. In one stroke, he declared 14 trillion notes that were in circulation in the country, invalid. That is close to 80% of the cash in circulation in the country, which was taken away in a blink. The idea was to fight fake currency and wipe out the use of black money. It was done to start with a clean plate and hit people, with illegitimate sources of income. Right where it hurt the most. A parallel snake like economic structure was sitting with its fangs open and eating its preys slowly. That snake was killed.

Now, when a country decides to take 80% of its currency out of circulation, it is basically tightening liquidity in market, thereby forcing people to spend and hoard less. An added benefit is that with less money in hand, people will spend less and only on necessary products. It might cool off inflation a wee little bit. Even though only for a while. There will be more formal channels of spending, which in turn will provide the right amount of taxes to the government and hence to back the people. Plastic money will eventually progress, get sturdy and take shape. Lesser currency in the market will also mean tighter vigil on the money in circulation and an eye on the legit or illegit expenditure.

Lesser spend also means more savings in the bank and a healthier balance-sheet. For now, the idea seems noble and good. It will hurt those who have undeclared income, have source of money which is not exactly legal and have a parallel economy running. So why is it that some people are calling it a bad, unwanted move? Real estate, gold traders, hospitals, schools and all others will have to follow the stick-straight path and abandon the idea of doing as willed. Yes, that will be killed. Immediately. That is how good the move is.

The Bad: 

The immediate bad outweighs the good by miles. As much as the government and its supporters would like you to believe otherwise, things will get ugly. People with less spending capacity and those at the bottom of the pyramid will be hit the most. There are long, serpentine queues outside all banks, ATMs and all other financial institutions authorised to distribute and collect money. People will feel a cash crunch for quite some time before things get sorted out eventually. The presence of smaller currency denominations will make business very difficult. In a country that has less than 15% internet penetration, trade will screech to a halt.

Even the most pressing matters will have to suffer. Patients in hospitals will be in agony and those waiting to be admitted will further feel the pain. On the business side of things, hospital owners will either have to waive off bills for the time being (which i doubt they will), or make do with whatever they get. Schools will come up with further innovative ideas to compensate for the loss of fees. The bad is that those already under the pedal will be crushed harder. The lack of currency will also mean a devaluation of the prices and value of products. From a macroeconomic perspective, it seems like a good thing, that the prices of houses, electronic items, real estate et al will fall.

Come down with a lens and you shall see that with the prices of such overpriced products coming down, the value of products sold by the morning to evening hawker, the local kirana store and the daily vegetable hawker will also come down. It is not to say that people will stop spending altogether. But with less money in hand, households (and i am certain of this) will spend only on what is necessary. The two rupee change which you never bothered taking back from your local vegetable hawker will now pinch and be sought back. Scores of those two rupees were what the vegetable hawker used to put his kids through a school that was little out of his economic reach. Think about all that for a moment, and the bad will not seem all that trivial suddenly.

The Ugly:

The ugly is too grotesque to narrate. What started as a noble move to wipe the board clean and curb corruption has also brought out the true colors of citizens. It has forced a country to its knees, brought the entire economic structure to standstill. Look at the crowds outside banks and Automated Teller Machines that have no empathy for the weak, the disabled or even the dead and you shall know why. The current debate around currency demonetisation is one such. It has divided the two silicon worlds. Irrespective of the neighbours’ situation, one wants their work to finish first. The other might be dying for all they care, but their daily quota of currency needs to come out before anyone else.

People are going directly for the jugular at the first possible chance. Look at the chaos, the anarchy, the Tower of Babel. That is exactly what is happening right now. People on both sides do not want to believe that they are wrong. One can only imagine how Charles Darwin would be so proud seeing his theory of survival of the fittest being demonstrated in concrete jungles across the country. Yet we are baying for each other’s blood. The ugly is going to get uglier before normalcy restores, before the calm sets in.

To sum up, the current situation is not better than what Joker once famously said, “See, their morals, their code… it’s a bad joke. Dropped at the first sign of trouble. They’re only as good as the world allows them to be. I’ll show you, when the chips are down, these… these civilized people? They’ll eat each other.”

Indeed, There is no easy way to say that currency demonetization has indeed brought out the demon in us.

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