Srinath Raghavan of the Centre for Policy Research, New Delhi, writes that the sudden banning of high denomination notes in India, known as demonetisation, is an example of the "worst forms of central planning". Economists in India are lauding this move by the government when they "for years railed against the planned economy and had called for cutting back the state's role in the management of the economy". Why? Because, "Part of the explanation is that most pro-market economists would not recognize monetary policy as a form of central planning." At the very least it is an attack on the independence of the Reserve Bank which is trying to play catch up. Having realised that it is not going to get much black money the government has changed the narrative to 'cashless' transactions. With no cash no one will be able to take bribes because every transaction will be recorded. It will also allow the worst form of 'planned economy' as the RBI maybe coerced to set negative interest rate, where you have to pay to keep money in a bank. Sweden has become virtually cashless, where even some banks refuse to accept cash. Sweden also has a negative interest rate of minus 0.5%, but so far there are doubts as to its efficacy and it maybe encouraging excessive borrowing by people. We should wait to see what effect a cashless system, along with a negative interest rate, has on the economy. India is not Sweden. Sweden has a total population of just 10 million people, a Gini coefficient of 25.4 and a per capita GDP of $51,603, while we have a population of 1,300 million people, our Gini coefficient has worsened to 51 and our per capita GDP is a paltry $1805. Sweden's comprehensive social welfare schemes provide free healthcare, free education and social security from cradle to grave. In India social schemes are bribes to get votes. To force cashless on people the government is trying to arm-twist banks into lowering charges for using cards. The RBI and some banks are resisting the idea. In a wild country like India, where security is a matter of luck and hacking difficult to explain to the vast numbers of illiterate people, expect large numbers to lose their savings. Apparently, a credit or debit card can be hacked in 6 seconds and 70% of ATM machines use an old Microsoft software for which the company has stopped providing support. "Eminent commentators would do better to deride such extreme, rash policy decisions and call out this entire 'cashless' narrative for what it is -- a laughable afterthought -- rather than encouraging it and creating a perverse incentive for other such extreme policy measures in the future," writes Praveen Chakravarty. We agree.
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