Guest post by BAIDURYA CHAKRABARTI
- The demonetization drive of Modi is neither new in content nor in form. In India, it has been done earlier by Morarji Desai; the initial conversion to Euro in the European Union happened within a month’s span. Currency is routinely taken out of circulation. What is significant about Modi’s demonetization is the amount of sensation he has generated out of an otherwise insignificant move. What is routinely done through phasing out denominations is being done in an extremely abrupt manner. He is dressing up a withdrawal and issuing of currency notes as a revolutionary move, and it is being executed in the manner more suited to currency change. What we need to thus ask ourselves is this: why is a routine monetary policy being enacted in this—which I shall later call ‘terroristic’—manner? Clearly, the answer is not economic; even the government does not pretend it to be a strictly economic issue (when they harp on the ‘terror’ factor).
(But before we move on, an aside. This demonetization exposes how the nostalgia for socialist development has fuelled the rise of Modi. Disenchantment with neoliberalism has produced an obscene amount of nostalgia for the pre-liberalization days among the Indian middle class, especially among the left-leaning ones. However, now that a gesture right out of those hoary days have returned to our world, it turns out to be a nightmare.)
- Let us state the obvious things first: demonetization will do next to nothing to the so-called ‘black money’, which are routinely converted into fixed assets or foreign currency. This move dis-incentivizes hoarding of cash, but not speculation, all sorts of accounting practices that can produce the so-called ‘black money’ while bypassing the level of cash transaction altogether. Demonetization is simply an old-school, brute-force monetary policy to curb hyperinflation. The Head of European Central Bank in Europe and Larry Summers, US treasury secretary, has proposed demonetization of their high-currency notes this year. But none of them dream of doing it within a notice of 4 hours!