Was USAID Behind Indian Government's War on Cash?
By David Henderson
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.
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.