The experiment will end Modi in India?
Indian Prime Minister Narendra Modi is gradually developing in the country for the cashless payment system of control in the framework of the monetary reform.
However, these actions have caused a wave of indignation among the population for the next planned mass opposition protests. In turn, Narendra Modi does not understand the causes of the disturbance: "We can gradually shift from cash to cashless society space ... This is our chance to fully enter the digital world".
Indian Prime Minister Narendra Modi on Sunday called for small traders and salaried workers get started with digital payments, given that the transition to high-denomination banknotes for the government prohibited the new banknotes will be delayed.
Modi said that the authorities understand the situation of millions affected by the ban banknotes in Rs 500 and 1 thousand Rs. However, despite this, the protection of the authorities.
"This is a real chance for you to enter into the digital world"- Modi said, urging them to use mobile banking applications and machines for credit cards.
"Yes, of course, a 100% cashless society in India is impossible. But why do not we take a step towards less cash society in India? Then gradually be able to make the transition to almost completely cashless society"- said Modi.
Now more than 90% of consumer purchases in India are made for cash, according to the Credit Suisse. Despite the fact that the boom in smartphones and falling prices for mobile Internet led to the growth of digital payments in recent years, the scope of non-cash payments is still at a low level.
Modi called for a technologically savvy young people to spend some time trying to learn the basics of using digital payment platforms those less versed in this.
But as GoldMoney.com explains the economic consequences Modi actions are much more significant.
Two weeks ago, the Prime Minister of India, Narendra Modi demonetized 86% Rs in circulation, offering to exchange them for smaller banknotes until 31 December, after which the notes will be fully impaired.
Together with fakes in circulation it can reach more than 90% of all money in circulation. Maturities are so inconvenient for almost all that amount of money to be taken out of the economy before the introduction of the new currency, equated to approximately $ 50 billion.
Sadly, because Modi simply can not foresee the scale of the disaster for the poorest segments of society and rural areas. But apparently, his life does not teach anything, if he had forgotten the hard lessons of the poor youth. Maybe the Reserve Bank just went on about the government being a puppet in the hands of the authorities, consoling himself with the thought that it is a great way to write off the liabilities, because most of the banknotes do not ever be converted. It is so effective in reducing the liabilities of the central bank in the private sector at the expense of those who it is, the government likes the least. Nevertheless, those $ 10-20 million, which would benefit the state now, certainly not worth the destructive effect they will have on the economy in general and the purchasing power of the rupee further.
Originally western macroeconomists fairly positively assessed the effect of these actions on GDP. Perhaps because, as a rule, their contacts with India are limited to communicating with the well-off segments of the population who rarely spend cash, preferring to bank and credit cards in their everyday purchases. These people will almost certainly be only too happy to establish control over the illicit
trade. Nevertheless, the immediate withdrawal of funds will reach 2.5% of GDP.
By the way, the old banknotes through an indefinite time in the future will be replaced by new banknotes with portraits of Mahatma Gandhi. However, as they become available, it may take several months are needed to convert the ATMs and ensure their widespread availability.
And if the long-term effects of non-registered transactions will be included in the statistics of the GDP, a number of Western macroeconomists believe that the nominal GDP growth may ultimately prove to be higher than would be expected.
However, if we consider the situation more closely, the situation will be completely different. A ban on high-denomination banknotes, equal to about $ 7.50, which should be replaced by new banknotes with the image of Mahatma Gandhi, will be a major violation of human rights in the lives of most Indians, especially the representatives of the rural population. Get rid of the money used in everyday life - it's like trying to start the engine without oil. Almost entirely Indian economy plunge into the short-term decline, which the Indian authorities, of course, try to cope by increasing the amount of money. Economy, it absolutely will not work, but the nominal GDP will rise to the great joy of employees Modi apparatus.
It is fundamentally wrong to believe that the GDP reflects the actual performance of the economy. This is not true. GDP reflects a very approximate amount of money in the past, nothing more. This is not an
indicator of economic progress or regress. GDP change reflects only a change in the quantity of money in the economy, so it is possible a situation where in a real economic crisis, nominal GDP will grow.
Most likely, this is not the best way impact on the Indian economy, bringing it eventually to more monetary inflation. This is not only a poor understanding of the Indian authorities the economic consequences of their actions. This is generally the wrong idea, inherent economists worldwide. However, it is likely that central banks in India and elsewhere, at least dimly aware of the long-term dangers of growing
price inflation.
However, in the banking industry firmly believes - to prevent a recession and even systemic risk may need more money and credit. And in the case of systemic risk cash can be dangerous, because it will show the failure of the public bank. And if the cash somehow replace possibly establish greater control over economic and systemic results.
In general, all signs of this kind of thinking here. All of us on hearing the central banks that are planning to do away with the cash, and from this point of view, actions Modi is quite consistent. His government is not only trying to eliminate the black
market, it also severely trying to eliminate economic dependence on physical cash. It rhymes with the direction of central bank policy in the advanced economies, as well as in developing countries.
Undoubtedly, it is for this reason that central banks around the world will be closely watching the Indian experiment. If the experiment succeeds, it will encourage them to pursue their own plans for the transition to digital
currency. If not, write off all the peculiarities of the Indian economy and the failure of the central bank of the country, is unable to effectively implement policies.
It should be noted that ordinary people often understand the current situation is much better than the Western financial analysts. Despite all the assurances of long-term government, they rush to convert useless rupees in the form of money, which dealt for thousands of years - gold. They know the
price of gold in rupees will rise in the coming months, so that all that can be cashed, will be converted into gold.
That's the main reason why the gold in India is currently
trading much higher in relation to the international prices. The Indian government restricts their supplies, as has always considered gold a direct challenge to their own money. Governments and central banks also make the mistake of thinking that if you eliminate gold imports, the
trade balance will improve. This is only encourage "gold" smuggling, nothing more. Gold imports never stops, and in response to each turn of monetary policy in the long run it will continue after the clumsy actions of Modi.
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