Most people with an interest in finance know about India’s demonetization plans. A few months ago, the government decided to make certain bills invalid overnight and replace them with higher-denomination ones. Considering India mostly uses cash to store wealth instead of banks, that move caused a lot of civil unrest and ultimately caused more issues than solutions. The latest RBI report shows how this entire plan is a “complete failure.” Rest assured this will not be the last demonetization effort in India or any other country, though. It also shows why Bitcoin is a far better solution, in this regard.
India’s Demonetization Attempt is a Failure
The plan by the Indian government to cause a massive wave of demonetization would not end well. Recalling 500 and 1,000 rupee notes late last year after an overnight decision was bound to cause a lot of problems. The result was quite worrisome: people spend hours, if not days, waiting in line at ATMs to withdraw their money. Unfortunately, a large portion of bank ATMs never received the new bills or could not keep up with the demand. Civil unrest was the only logical outcome and the Reserve bank of India has faced a lot of scrutiny ever since.
Granted, the RBI effectively tried to resolve some of these issues as quickly as possible. These efforts have been mostly in vain, despite 98.96% of recalled notes returned to the bank over the past few months. At the same time, the bank effectively invalidated 86% of the circulating currency overnight, which was a very debatable decision. In fact, it is still one of the most unusual decisions a central bank has made to date and not necessarily a moniker RBI wants to be associated with.
The reason for this large-scale demonetization effort was to erode black money and reduce the amount of cash used across India. Considering how mobile and contactless payments are on the rise in the country, that was a seemingly solid idea. The poor execution of this plan, however, has caused so much friction between consumers and the government it is doubtful the damage can ever be repaired. Although the government claims their efforts had the desired effect, the average person may not necessarily agree.
One thing that stands out is how the RBI successfully gained some undeclared bills, but they also lost a lot of money to print these new notes. The net result of this entire venture is clearly in the red, which cannot have been the objective from day one. That is unless their intention was to launder some of their own black money, according to the Opposition in India. There may be more morally dubious reasons for this decision.
Congress VP Rahul Gandhi is not happy about this demonetization effort. He claims it represents a “colossal failure, which cost innocent lives and ruined the local economy.” Those are some serious accusations, although it is understandable why there are uttered. In the end, customers were forced to deposit money into their bank account, giving the RBI more economic power than ever before. By not allowing users to withdraw their funds accordingly, the RBI effectively controlled all of India’s economy for a few months. There are rumors regarding tax evaders making deals with bank officials to exchange old currency, according to the Hindustan Times.
These demonetization efforts like these are power grabs by financial institutions. It also highlights why Bitcoin is the only currency that should matter to everyone, as it cannot be controlled by banks. Traditional financial tools – including banks – are used for tax evasion, fraud, and who knows what else. When things get too messy, the average consumer will pay the price. The RBI set a very dangerous precedent.