DNA Edit: Scripting an economy of trust

Prime Minister Narendra Modi’s scrapping of high-value currency from the market spawned some copycat moves globally. Venezuela, with its riots and looting, has been the first casualty of that bandwagon. For once, India has been ahead of the curve both in policy as well as in implementation.

The first to ponder the move after India was Australia, where Citibank recently announced it would no longer accept cash, but only digital transactions. The Westpac Banking Group had issued a Cash Free Report last year claiming 53 per cent of Australian transactions were already cashless. Citibank announced less than 4 per cent of their customers had used cash transactions in the last year. The US has already announced plans to pull its $100 bill by 2018, and the Euro is expected to see high-value currency be phased out in the next few years. Italy made cash transactions above 1,000 Euros illegal two years ago. In Russia, anything above 10,000 Roubles is illegal, and in France, transactions above 1,000 Euros are not accepted. Denmark has said it is no longer mandatory for storekeepers to accept cash, and in Norway, the DNB, the country’s central bank, called for a cashless push. China has been studying cashlessness since 2014.    

The reasons for the demonetization have been varied. In India, it was to defeat corruption, and towards the cause of financial inclusion. In Australia, it was evolution. UBS Group analyst Jonathon Mott called it ‘good for the economy and good for the banks’. In Sweden, the first country in the world to introduce paper notes in 1661, and probably to be the first to eliminate it entirely, public transport no longer accepts cash and 900 of the country’s 1,600 bank branches can no longer accept cash deposits. The country is expected to go cashless within five years with even the homeless equipped with mobile reader cards for donations. In Uruguay, it is illegal to pay employees salaries in cash.

Why have some countries been able to demonetize better than others? A primary reason seems to be penetration into the banking system. Ninety nine per cent of Indian households are equipped with at least one bank account. One third of Venezuela wasn’t.  We had help line numbers, a special task force, incentivisation schemes, e-wallets, and constant messaging. Economists are still saying it will be five months before we replace the cash that has gone out of the system. Until then, Indians will still be standing in queues. So why are there no riots, even in lines where there have supposedly been deaths, then? It’s a huge tribute to the average Indian, and a testament to his patient faith in a better future. Trust is a bigger currency than cash, clearly.