What Happens When Your Money Is Suddenly Worthless?
Imagine leaving the house for a totally normal shopping errand -- say, to the corner store to start your day off right with a pack of Marlboros and some MD 20/20 (Mondays, right?), only for the cashier to tell you your money's no good there. "Mad Dog on the house!" you say, pumping your fist. But that's not it: Your money's no good because the entire country has changed its currency, and nobody bothered to tell you. That exact scenario happened, more or less, in India in 2016. We talked with two citizens to hear how it played out ...
The Entire Economy Was Shattered Overnight
Maybe you have a wacky aunt who stashes cash in the mattress. Maybe she lived through the Depression and can't leave that fear behind. Or maybe she's read too many chain emails. Well, that's basically all of India. Up until November, 98 percent of all transactions were in cash. Since 90 percent of vendors didn't have card readers -- or any way of accepting electronic payments at all -- there was little reason for people to use banks.
"Don't pull out a MasterCard at my stand unless you want me to do this to it."
That was a problem, because in such an under-the-table economy, it was a lot easier for people to avoid paying income tax. Specifically, 99 percent of the population. It also means that counterfeiting was a much bigger deal than in Western countries, where most purchases involve standing around dumbly until the chip reader screams at you. So Prime Minister Narenda Modi did the sensible thing: He got on TV and declared that the government would be issuing new, more secure bills. They would also be collecting the old ones, which would become worthless in, oh, about four hours. Not only that, but the announcement was made at 8 p.m.
"It's November 8, 2016. I heard today's the day we do crazy shit."
It was absolutely necessary to do it this way, Modi explained, because otherwise the ne'er-do-wells would have had time to prepare. You gotta take ne'er-do-wells by surprise! Everybody knows that. Besides, even though citizens could no longer use their money, they would have 50 days to exchange it at the bank. See? Plenty of time! As long as you caught the broadcast, which was kind of hard for the 200 million Indians who do not own a TV, phone, or radio.
"Let's hope every one of them have kept up their newspaper subscriptions."
Tanmay, a writer and blogger living in Mumbai, missed the public announcement and heard the news later from a neighbor. Prithiviraj only realized what was going on a week later, when he noticed the lines and asked his friends if the new Star Wars movie was premiering at banks or something. Keep in mind, both these guys lived in the city; nearly 70 percent of their countrymen live in rural areas, where news travels at a slower clip -- and there are fewer banks to supply you with valid currency.
There Was No Sure Way To Legitimize Your Own Money
Things got downright dystopian right quick. People stormed the banks, because the government had neglected the small matter of printing anywhere near enough of the new bills.
Because the counterfeiters had all the printing presses?
"As days progressed, the ATMs were all either temporarily shut or had long lines outside of them for the few hours that they were operational during the day," Tanmay says. Often, he and his neighbors stood in line for hours, only to be directed to a different bank.
It was time to take matters into his own hands. Tanmay and his friends hopped on their motorcycles and took to India's dangerous roads in search of working ATMs, like the lamest version of Mad Max. It was no small feat, because they could only get a small chunk of their cash from each ATM, if they even worked.
Meanwhile, other people would just die in their ATM lines.
It also wasn't cheap. Merchants who were accepting the defunct notes (with the hope that they could later exchange them at the bank) were unwilling to part with the suddenly precious smaller-rupee notes, so they didn't give change. As a result, Tanmay ended up paying a kind of unofficial demonetization tax each and every time he needed gas or food. He also had to take time off from work to spend several days standing in line at a variety of ATMs, which is possibly the weirdest call-in excuse we've ever heard.
It Wound Up Being A Huge, Unannounced Tax On The Poor
The law was intended to target mustache-twirling tax evaders and counterfeiters, but in practice it was most devastating to honest people who simply didn't have much use for a bank. "While digitally savvy folk and others who were financially well-off tightened their belts, it was the regular people on the streets who got hit the most," Tanmay says. "The fruit and vegetable vendors, daily wage workers, and small-time tradesmen were the ones who suffered. Housewives, too -- who usually salt away cash for a rainy day -- had their savings disappear right in front of their eyes. People were hoarding cash because they didn't know when they'd run out of currency."
"At least you have something to wipe the tears with."
For people who just couldn't afford to stand in line at the bank for a week, the situation was pretty grim. Oh, and the mustache-twirlers? They simply threw out their ill-gotten gains, rather than report them. Other, more cunning criminals convinced poor people to launder their money for them in return for a small commission. You might recognize that as exactly the opposite of what the law intended to accomplish.
"A thousand cocaine-stained 500-rupee notes? Sure, I'll go change that for you."
It Was All For Nothing
In the end, up to 97 percent of the old bills were returned to the banks. That means the demonetization effort was pretty fucking pointless. Either there wasn't as much black money out there as the government thought, or the tax cheaters and counterfeiters had figured out ways to deposit their cash without getting caught.
Tanmay noted that mobile wallets -- aka India's answer to PayPal -- like "PayTM, MobiKwik, and others, reported spectacular hikes in their transactions," surely by total coincidence. All the Indian government succeeded in doing was stimulating the money laundering industry.
And the printing industry.
It's hard to overstate how big a clusterfuck this was for the Indian economy. Prior to demonetization, India was one of the world's great economic hopes. Thanks to the severe cash shortage -- and with many savings piles gutted -- demonetization slowed India's economic growth so much that the International Monetary Fund officially downgraded the country from "world's fastest-growing economy."
China gets to teabag them financially in addition to geographically.
And it didn't even help. According to Tanmay, the counterfeiters "responded within days" with enhanced techniques to duplicate the new bills. We're not sure what the lesson is here. Don't suddenly and inexplicably destroy all your money? We never thought that needed stating, but there you go.
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