As India Changes Cash War Goal Posts, Bitcoin Gets Blamed for Capital Flight
Demand for Bitcoin and alternative currencies grows as Indian government changes demonetization goal posts each day.
Delhi has been ruled by many an odd ruler but the strangest until now was a Sultan by the name of Muhammad Bin Tughlak. Ibn Battuta, the Moroccan scholar spent some time at this Sultan’s court and wrote of him as a man who seldom took advice and depended solely on his own judgment.
Modi and Tughlak
Tughlak is famous in Indian history for shifting the capital from Delhi to the South Indian city of Daulatabad. It is said that he forced the whole population of Delhi to shift as well. As Ziauddin Barani wrote about him, “Without consultation or weighing the pros and cons, he brought run on Delhi which for 170 to 180 years had grown in prosperity and rivaled Baghdad and Cairo. The city with its Sarais (Inns) and suburbs and villages spread over four or five leagues, all was destroyed and deserted. Not a cat or a dog was left."
The story of the Sultan is important because the present Prime Minister Narendra Modi of India is a similarly inclined man who has been criticized for not seeking the counsel of those who may know better. In fact, the Prime Minister has been directly compared to the Sultan by many opposition politicians like Manish Tiwari, the spokesman of the main Congress Party and Sitaram Yechury of the Communist Party. Is the demonetization of the 86 percent of the currency going to bring rack and ruin upon India? Quite possibly, yes if recent events and instability are any indication.
Many ruffled feathers
Possibly the greatest criticism that has been leveled against the Modi government has been that there was no planning centered around demonetization. After over 40 days have passed, there is still considerable chaos in India. If we go by the word of the Indian government, this was a surprise move that was initiated in such a way so as to tackle black money hoarders. As we have already discounted that possibility in our previous coverage.
However, the bungled up efforts of this government have not escaped the notice of publications like the Economist either, “A broad cash crunch and broken supply chains threaten a sharp economic slowdown — albeit one that will abate, at least in part, as the cash squeeze is alleviated. India’s “demonetisation” is a cautionary tale of the reckless misuse of one of the most potent of policy tools: control over an economy’s money.”
Incidentally, this coverage of the Economist seems to have miffed the Reserve Bank of India, which did not allow the Economist’s correspondent to cover the interest rate event that it held later on. Stanley Pignal of the Economist tweeted: “Amazing stuff: @theeconomist us no longer invited to RBI policy meeting press conferences. Won't let me in. Sad day for transparency.”
Then there is the issue of the new notes and their denominations. India has a Right to Information Act (RTI), under which citizens can demand reasonable information from government institutions. An RTI application filed by activist Anil Galgali indicates that the government had not even printed Rs. 500 notes on the day the Prime Minister announced demonetization. The supply of Rs. 2000 notes also seem to have been a mere 4.94 trillion according to India’s News18 network, which is a pittance compared with the Rs. 20.5 trillion of currency the central bank demonetized. Basically either the Prime Minister jumped the gun and announced the demonetization ahead of time or there was simply no planning to this madness.
Changing goal posts
The latest rule that the RBI has made with regards to demonetization is that it has withdrawn the Rs. 5000 deposit limit imposed on bank accounts for people wishing to deposit old currency notes of Rs. 500 and Rs. 1000 denominations.
This rule goes into effect from December 21, 2016, and the restriction was only put in place on December 19, 2016. In the notification issued on December 19, 2016, the bank had stated, “Tenders of SBNs in excess of ₹ 5000 into a bank account will be received for credit only once during the remaining period till December 30, 2016. The credit in such cases shall be afforded only after questioning tenderer, on record, in the presence of at least two officials of the bank, as to why this could not be deposited earlier and receiving a satisfactory explanation. The explanation should be kept on record to facilitate an audit trail at a later stage. An appropriate flag also should be raised in CBS to that effect so that no more tenders are allowed.”
If we were to translate from the archaic and complex language used by the Reserve Bank it basically meant that if you wanted to put in more than Rs. 5000 in your own bank account, you could do so only once and with two bank officials standing witness and you providing a written explanation! Kafkaesque to say the least.
In fact, the crazy notifications have kept pouring in on almost a daily basis and the rules of the game have been shifting regularly. The Financial Express claims that 59 demonetization changes have been made since demonetization was announced on November 8, 2016. Interestingly today’s latest flip flop would take that figure to 60.
The government and the central bank have increasingly been issuing directives on the spur, they have allowed people who have weddings at home to withdraw money, allowed farmers and people with current accounts access to more liquidity than others. Completely withdrawn the use of old notes at certain places they had allowed once. Changed cash withdrawal limits at ATMs and branches more than once. Allowed political parties to deposit cash in old money after not allowing them first and so on. Just what exactly are the rules going to be tomorrow are as good as your guess as are mine.
The only consistency is inconsistency
The price you pay for using Indian currency is pain. There is no other way to put it. It is not surprising that in such an environment Bitcoin and even foreign currencies may hold more appeal.
In fact, the Indian media have largely shown Bitcoin in a negative light and are making claims that Bitcoin is the channel for people with black money to escape the demonetization process. We have covered Indian media’s take on Bitcoin in a story here. Take for example this coverage by India Today which ran a story claiming Bitcoin is being used by India’s “blackmonied” elite to safeguard their ill-gotten wealth.
The magazine claims, “India Today's undercover reporters have dredged up shady brokers of this Internet laundering network operating in the country.” The only thing shady it seems is the Indian government and the Rupee which do not seem to operate by any rules or regulations anymore and where the only consistency is inconsistency.
If Bitcoin is to be blamed for either India’s black market economy or the fact that the Indian government has failed to effectively collect taxes over the last decades, it is hardly fair. Perhaps the time has come for more Indians to adopt alternate currencies in the light of their own country not playing fair with them. It is time to break your Rupee shackles.