David R. Henderson  

Was USAID Behind Indian Government's War on Cash?

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On November 8, Indian prime minster Narendra Modi announced that the two largest denominations of banknotes could not be used for payments any more with almost immediate effect. Owners could only recoup their value by putting them into a bank account before the short grace period expired at year end, which many people and businesses did not manage to do, due to long lines in front of banks. The amount of cash that banks were allowed to pay out to individual customers was severely restricted. Almost half of Indians have no bank account and many do not even have a bank nearby. The economy is largely cash based. Thus, a severe shortage of cash ensued. Those who suffered the most were the poorest and most vulnerable. They had additional difficulty earning their meager living in the informal sector or paying for essential goods and services like food, medicine or hospitals. Chaos and fraud reigned well into December.
This is from Norbert Haring, "A well-kept open secret: Washington is behind India's brutal experiment of abolishing most cash," January 1, 2017.

I posted about the Indian government's action in "India's Assault on Money," November 11, 2016. It hadn't even occurred to me that other international groups might have been instigators.

Another excerpt:

Not even four weeks before this assault on Indians, USAID had announced the establishment of „Catalyst: Inclusive Cashless Payment Partnership", with the goal of effecting a quantum leap in cashless payment in India. The press statement of October 14 says that Catalyst "marks the next phase of partnership between USAID and Ministry of Finance to facilitate universal financial inclusion". The statement does not show up in the list of press statements on the website of USAID (anymore?). Not even filtering statements with the word "India" would bring it up. To find it, you seem to have to know it exists, or stumble upon it in a web search. Indeed, this and other statements, which seemed rather boring before, have become a lot more interesting and revealing after November 8.

In his post, Haring does not make a slam-dunk argument that USAID was an instigator of this extreme measure. He does point to a number of coincidences. But there's no smoking gun.

In my earlier post, I wrote:

Here's what I wonder. If Kenneth Rogoff, the U.S. economist who would like to get rid of cash and, indeed, thinks it's a curse, could push a button affirming this particular Indian government move, would he push it?

The good news is that it looks as if he wouldn't.

On November 17, Rogoff wrote:

Is India following the playbook in The Curse of Cash? On motivation, yes, absolutely. A central theme of the book is that whereas advanced country citizens still use cash extensively (amounting to about 10% of the value of all transactions in the United States), the vast bulk of physical currency is held in the underground economy, fueling tax evasion and crime of all sorts.

But he continued:
On implementation, however, India's approach is radically different, in two fundamental ways. First, I argue for a very gradual phase-out, in which citizens would have up to seven years to exchange their currency, but with the exchange made less convenient over time. This is the standard approach in currency exchanges.

Comments and Sharing

CATEGORIES: Monetary Policy , Money

COMMENTS (6 to date)
Thaomas writes:

If there is no evidence why put the question in the headline?

David R. Henderson writes:

You’re not a subtle reader. There’s not “no evidence.” There is no slam-dunk evidence. There’s a big difference. And precisely because it’s not slam-dunk, I made it a question rather than a statement of fact.

TMC writes:

I'm probably wrong, but I sure hope Trump will pull back from all the meddling in others' affairs that we see. I'm sure it has always gone on, especially for national security, but either Obama has expanded it incredibly or he sure gets caught a lot. First priority for the Federal Govt should be MYOB.

Roger McKinney writes:

A couple of years ago I was listening to an interview with Oklahoma's senior senator Jim Inhofe. He spends a lot of time overseas holding prayer breakfasts with local Christians. He said he never invites people from the state department because everyone outside the US knows that state spends a lot of time and money overthrowing legitimately elected governments who aren't as friendly to US policies as they would like. Evidence was the coup they pulled in Ukraine. The government was honestly elected by the people, who favored Russia as much as the government they elected. So the State Dept and CIA orchestrated a coup and put in power a bunch of neo-Nazi anti-Russian thugs.

Roger McKinney writes:

Rogoff: the vast bulk of physical currency is held in the underground economy, fueling tax evasion and crime of all sorts.

Maybe it's just the free market. Rogoff probably thinks that states have the right to 100% of the peoples' money. But some of us disagree. US governments at all levels are taking close to 50% of our incomes already. At least half of that is unjustified and immoral. I would guess that much of the cash used just gets around oppressive and immoral laws as well as taxes that are tantamount to theft. I only wish the cash economy was bigger.

Kgaard writes:

I read that piece on Zerohedge and was flat-out horrified. OBVIOUSLY there is some serious scheming behind this move -- likely driven by just the people the story suggests: Indian state-owned banks, vendors of card-processing services, Visa, Master Card, and various nefarious Soros/Ford Foundation-linked New World Order think tank fronts.

The German guy who wrote the original piece appears to have done very good work here.

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