1 Mandatory Money

5/29/2017 HowToStopVenezuela'sFatalInflation
Business / #Economy
APR 3, 2017 @ 11:40 AM 2,455
HowToStop
Venezuela'sFatal
Inflation
Steve Hanke, CONTRIBUTOR
I cover economics and finance. FULL BIO
Opinions expressed by Forbes Contributors are their own.
https://www.forbes.com/sites/stevehanke/2017/04/03/howtostopvenezuelasfatalinflation/#44f138085d0d 1/34
GrabARetirementSaver'sTaxCredit
(PhotocreditshouldreadGEORGECASTELLANOS/AFP/Getty
Images)
Duringmytestimonylastweekbeforethe
U.S.HouseofRepresentativesCommitteeon
ForeignAffairs,Istressedthat,toestablish
stabilityandturnVenezuelaseconomy
around,runawayinflationmustbestopped
initstracks.Afterall,stabilitymightnotbe
everything,buteverythingisnothing
withoutstability.
TograspthemagnitudeofVenezuelas
inflationproblem,takealookatthechart
below.Itshowstheannualinflationrates
(yr/yr)forchicken.Venezuelascurrent
chickenpriceinflationisrunningata
whopping700%annualrate.
Steve H. Hanke
Venezuela'sAnnualChickenPriceInflationRates HPSpectre13.3"LaptopIntelCorei7
8GBMemory256GBSolidStateDrive
Darkashsilver,Luxecopperaccent
ANewYorkTimeseditorialThursday,
CrisisUponCrisisinVenezuela,pickedup $109999
onmystopinflationfirstelixir.Asthe
Timesputit:theinternationalcommunity
couldproposespecificmacroeconomic
reformsthatcouldcurbVenezuelasrunaway
inflationandstabilizeitscurrency.
TheTimesfailedtoofferaspecificinflation
killingstrategy,however.Thereareonlytwo
surefirewaystokillVenezuelasinflation
andestablishthestableconditionswhichare
necessarytocarryoutmuchneeded
economicsreforms.Onewaywouldbeto
dumpthebolivarandofficiallydollarizethe
economy,anoptionIcoveredinaForbes
pieceThursday,OnVenezuelasDeath
Spiral.
Asecondmethodwouldbetoadopta
currencyboardsystem.Insuchasystem,the
bolivarwouldbecomeacloneofareliable
anchorcurrency,suchastheU.S.dollar.
Justwhatisacurrencyboard?Anorthodox
currencyboardissuesnotesandcoins
convertibleondemandintoaforeignanchor
currencyatafixedrateofexchange.As
reserves,itholdslowrisk,interestbearing

bondsdenominatedintheanchorcurrency.
Thereservelevels(bothfloorsandceilings)
aresetbylawandareequalto100%,or
slightlymore,ofitsmonetaryliabilities.A
currencyboardgeneratesprofitsfromthe
differencebetweentheinterestitearnsonits
reserveassetsandtheexpenseof
maintainingitsliabilities.
Acurrencyboardsoperationsarepassive
andautomatic.Thesolefunctionofa
currencyboardistoexchangethedomestic
currencyitissuesforananchorcurrencyata
fixedrate.Inconsequence,thequantityof
domesticcurrencyincirculationis
determinedsolelybymarketforces,namely
thedemandfordomesticcurrency.
Acurrencyboardcannotissuecredit.It
cannotactasalenderoflastresortorextend
credittothebankingsystem.Italsocannot
makeloanstothefiscalauthoritiesand
stateownedenterprises.Inconsequence,a
currencyboardimposesahardbudget
constraintanddisciplineontheeconomy.
Acurrencyboardrequiresnopreconditions
formonetaryreformandcanbeinstalled
rapidly.Governmentfinances,stateowned
enterprises,andtradeneednotbealready
reformedforacurrencyboardtobeginto
issuecurrency.
Countriesthathaveemployedcurrency
boardshavemaintainedcurrency
convertibilityanddeliveredlowerinflation
rates,smallerfiscaldeficits,lowerdebtlevels
relativetoGDP,fewerbankingcrises,and
higherrealgrowthratesthancomparable
countriesthathaveemployedcentralbanks.
Itisimportanttomentionthatthecurrency

boardideabecameengulfedincontroversy
thankstoArgentina.WhatArgentinatermed
ConvertibilitywasintroducedinApril1991
tostopinflation,whichitdid.Thesystem
hadcertainfeaturesofacurrencyboard:a
fixedexchangerate,fullconvertibility,anda
minimumreservecoverforthepesoof100%
ofitsanchorcurrency,theU.S.dollar.
However,ithadtwomajorfeatureswhich
disqualifieditfrombeinganorthodox
currencyboard.Ithadnoceilingonthe
amountofforeignassetsheldatthecentral
bankrelativetothecentralbanksmonetary
liabilities.So,thecentralbankcouldengage
insterilizationandneutralizationactivities,
whichitdid.Inaddition,itcouldholdand
alterthelevelofdomesticassetsonits
balancesheet.So,Argentinasmonetary
authoritycouldengageindiscretionary
monetarypolicy,anditdidsoaggressively.
Becauseoftheseflaws,Ipennedanarticle
whichappearedintheOctober25,1991
editionoftheWallStreetJournal.I
concludedthat,unlessArgentinaembraced
orthodoxyandamendedtheConvertibility
Law,thesystemwouldeventuallycollapse,
whichitdidin2002.
ThecollapseofConvertibilityspawneda
cottageindustryofcurrencyboardcritiques.
But,sinceArgentinasConvertibilitySystem
allowedforbothmonetaryandexchange
ratepolicies,itwasnotacurrencyboard
somethingmosteconomistsfailedto
recognize.Indeed,ascholarlysurveyof
almost100leadingeconomistswho
commentedontheConvertibilitySystem
foundthatalmost97%incorrectlyidentified
itasacurrencyboardsystem.So,thosethat
usedthecollapseofArgentinas

ConvertibilitySystemtoargueagainst
currencyboardsliterallydidntknowwhat
theyaretalkingabout.
Justwhatcantheinternationalcommunity
dotoshinealightonthecurrencyboard
solutionforVenezuelasrunawayinflation?
Forme,theanswerharksbackto1992.
ThatswhenIworkedwiththethenleaderof
theU.S.Senate,BobDole,andSenators
SteveSymmsandPhilGramm,todraftU.S.
legislationthatwouldencouragecountries
withunstablecurrenciesandrunaway
inflationtoinstallcurrencyboards.This
legislation,(HR5368,Lawno.102391),
wassignedintolawonOctober6,1992.
AuthoredbySteveH.HankeoftheJohns
HopkinsUniversity.FollowhimonTwitter
@Steve_Hanke.
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Zimbabwe: A worthless currency | The Economist 11/17/11 1:50 PM
World politics Business & finance Economics Science & technology Culture Blogs Debate & discuss Multimedia Print edition
United States US Elections 2012 Britain Europe Asia Americas Middle East & Africa
Zimbabwe
A worthless currency
The local dollar is fast shrivelling away
Jul 17th 2008 | JOHANNESBURG | from the print edition
WITH prices doubling every few days, Zimbabweans now spend huge
amounts of time and energy preventing their meagre cash resources
from completely evaporating. Trying to catch up with galloping
hyperinflation, now officially running at 2.2m per cent a year and at
least four times faster in reality, the central bank has been printing
ever bigger denominations. But it is outrun by galloping prices: at last
count, the most valuable banknote available was for 50 billion
Zimbabwean dollars, now worth barely 70 American cents on the black
market, and the stock of Zimbabwean dollars is dwindling. Local cash
could become scarcer still, now that the German company that was
The tragi-comedy
providing Zimbabwe with paper to print its banknotes has cancelled its continues
contract; the Zimbabwean monetary authorities are likely to turn to a EPA
less specialised supplier. Meanwhile, people do not even bother to pick
up notes of hundreds of thousands on the pavements of Harare, the capital. At independence
in 1980, the Zimbabwe dollar was more valuable than the American greenback.
It may seem odd that the local currency is still used at all. From Z$25 billion to the American
dollar at the beginning of this month, the cash exchange rate had jumped threefold within a
fortnight. In restaurants or shops, prices are still quoted in local currency but revised several
times a day. Salaries are paid in Zimbabwean dollars, still the only legal tender. A minibus
driver taking commuters into Harare every day still charges his clients in Zimbabwe dollars
but at a higher price on the evening trip homeand changes his local notes into hard currency
three times a day. The local money is losing its relevance.
Zimbabweans spend their local dollars as fast as possible or change them into hard currency
on the black market. A parallel system is thriving in back offices and parking lots. Ronald was
a civil servant but became a money dealer about a year ago to feed his family. He now makes
about $100 a month, whereas his former colleagues earn the equivalent of less than $2 a
month, enough to buy two loaves of bread. On a recent trip, this correspondent changed
http://www.economist.com/node/11751346/print Page 1 of 3
Zimbabwe: A worthless currency | The Economist 11/17/11 1:50 PM
money from a central-bank employee running an illegal foreign-exchange business in his own
office.
With a strict daily limit (currently less than $1.40) on bank withdrawals, people shun banks as
much as possible and are returning to a cash economy. Petrol and rents are now charged
mainly in American dollars or South African rand, but since some landlords have been taken to
court, rents are increasingly often paid for in groceries. People buying overpriced cooking oil or
sugar on the black market, since those items have long vanished from shops due to official
price controls, are charged more if they pay in local dollars. Petrol coupons have become a
virtual currency.
John Robertson, a local economist, reckons that the informal economy has probably become
larger than the formal one. Though estimates are fuzzy, he believes that money sent by
Zimbabweans abroad to friends and relatives at home, which used barely to register on
Zimbabwes foreign-exchange radar screen, now accounts for probably a third or so of the
countrys foreign-exchange inflows.
Turning to foreign exchange or barter is what you would expect in countries that have had
inflation of more than a few hundred per cent a year. At the height of its inflation crisis, shops
in Argentina were no longer able to price their goods. In some cases, Peruvians started using
lavatory paper, then in short supply, as currency. But Zimbabwe holds the dubious distinction
of being the only country in the world today that is suffering from hyperinflation: that is,
prices are increasing by more than 50% a month. It has not yet reached Hungarys level after
the second world war, when inflation peaked at 42 quadrillion per cent a month. But it could
yet get there.
In May, the central bank decided to let the exchange rate, until then fixed at a grossly
overvalued rate of Z$30,000 to the American greenback, float on the interbank market. For a
short while, the rate settled at a level close to the black markets. But very few ordinary
people can obtain foreign exchange from banks; most still use the black market to get rid of
their Zimbabwean dollars. So the legal and parallel rates have again grown apart. People
sending money or groceries to relatives in Zimbabwe still use informal channels.
Hyperinflation can usually be tamed within a few months, provided authorities stop spending
money they do not have and no longer turn to printing presses to cover for it. But the damage
lingers for years. Argentines held about 60% of their bank deposits in foreign exchange three
years after the high inflation of the late 1980s was over, compared with less than 10% before
the crisis. In Peru and Bolivia, over 80% of bank deposits were held in hard currency three
years after the countries inflation crises.
Reform will eventually come and prices will stabilise in Zimbabwe, especially if President
Robert Mugabe is replaced; but the local dollar will never be the same. Some people have
suggested that a reformed Zimbabwe should become part of the rand zone, but so far neither
the South Africans nor Zimbabwes battered opposition have sounded keen on the idea.
from the print edition | Middle East and Africa
About The Economist online About The Economist Media directory Staff books Career opportunities Contact us Subscribe [+] Site Feedback
http://www.economist.com/node/11751346/print Page 2 of 3
Cash Is Dead. Long Live Cash. - WSJ https://www.wsj.com/articles/cash-is-dead-long-live-cash-1491...
This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit
http://www.djreprints.com.
https://www.wsj.com/articles/cash-is-dead-long-live-cash-1491735609
ECONOMY | THE OUTLOOK
Cash Is Dead. Long Live Cash.

The push to end hard-currency payments in favor of digital ones keeps hitting speed bumps
Authorities hope digital payment systems will make illicit activities harder to finance, but for many countries, cash
still rules. PHOTO: MOHAMMED HUWAIS/AGENCE FRANCE-PRESSE/GETTY IMAGES
By Adam Creighton
Updated April 9, 2017 8:50 p.m. ET
As credit card use and digital payment systems like Venmo and Android Pay
spread, Americans use less and less cash to buy things. Yet the amount of bills
and coins in circulation continues to grow: Hard currency as a percentage of U.S.
gross domestic product is now at 8.6%, the highest level since the early 1950s, an
MORE FROM WORLD NEWS
era long before the widespread use of plastic and smartphones. Europe, Japan,
and Australia have similar trends.
The most likely reason for the cash paradox, analysts say: a thriving global
underground economy of tax evasion, organized crime and terrorism financing.
1 of 4 4/22/17, 10:09 PM
Digital payments may be faster and more efficient, but cash cloaks transactions
in privacy.
In a 2015 report titled Why Is Cash Still King? Europes police agency, Europol,
concluded that while cash is slowly falling out of favor with consumers, it
remains the criminals instrument of choice.
The Fed has long known most of the $100 bills arent in America. It doesnt take
great insight to realize they are being used to finance illicit activities, Alan
Blinder, Princeton University economist and a former vice chairman of the
Federal Reserve, said in an interview.
Such concerns last year prompted a global push against cash. Harvard economist
Kenneth Rogoffs book, The Curse of Cash, proposed phasing out $100 and $50
bills. Europe decided to phase out the 500 note. India moved in December to
eliminate its 500- and 1,000-rupee bills. Countries including South Korea and
Venezuela have withdrawn notes or coins in recent months.
But the push to get rid of cash is hitting speed bumps all over. India, for example,
is already partly reintroducing its 500- and 1000-rupee bills after the
governments abrupt demonetization program drew sharp criticism for hurting
its cash-dependent rural population.
The U.S. shows no inclination to pare back its notes.
Im very conscious of the $100 bill being the worlds reserve currency, and every
central bank around the world has stacks of $100 bills where they used to have
gold, Treasury Secretary Jacob Lew said in an interview with The Wall Street
Journal shortly before he left office in January.
One reason its a non-starter in the U.S.: About 8% of people dont have a
checking or savings account, making it all-but-impossible for them to
participate in a cashless economy.
Banning cash would bring the economy and many people to their knees if
enforced, said Hoover Institution economist John Cochrane.
In the aboveground economy, card-based and digital payment systems offering
2 of 4 4/22/17, 10:09 PM
ever-greater speed, safety and convenience have been steadily encroaching on

paper money, even for small consumer transactions. Euromonitor International,
a market-research firm, said the volume of global cash payments in 2016 for the
first time fell below payments on credit and debit cards.
Some of the growth in cash can be attributed to the financial crisis and the
aftermath, when people lost faith in banks, and when ultralow interest rates and
anemic investment returns reduced the opportunity costs of holding savings in
cash. The number of $100 bills in circulation, worth $1.15 trillion in December,
has surged 76% since 2009, according to Federal Reserve data.
Mr. Rogoff sees sinister uses of cash. The idea that todays high cash holdings
are mostly explained by people engaged in legal activities taking advantage of
low interest rates is nonsense, he said in an interview.
The underground economy is, by definition, difficult to measure, but large. In

high-tax Europe it was 18% of GDP in 2015, and around 8% in the U.S., Japan and
Australia according to Friedrich Schneider, a University of Linz economist,
whos written extensively on the shadow economy.
The global turnover of organized crime in 2012, the most recent year available,
was estimated at $870 billion by the United Nations Office on Drugs and Crime,
greater than the GDP of the Netherlands.
Yet its unclear whether curbing cash would be effective in reducing crimeor
would just prompt resourceful criminals to find other means of doing business.
If a limit on cash transactions were an effective means of fighting organized

crime, then there wouldnt be a mafia in Italy anymore, cracked a German
member of parliament during a debate last year on whether his country should
follow Italy, France, and Spain in imposing maximum limits on the size of
individual cash transactions.
Germany, like the U.S., has so far resisted following its neighbors, due in part to
civil liberties concerns.
Similar views prompt objections from American conservatives. The real reason
for this war on cash... is an ugly power grab by Big Government, conservative
publisher Steve Forbes wrote in a column in his magazine last year.
Rising interest rates are also taking some steam out of the argument for doing
away with cash. Central banks in Europe and Japan have experimented with
3 of 4 4/22/17, 10:09 PM
negative interest rates in recent years to spur spending and investment. Because
cash undermines the effects of negative rates, some economists have argued for
doing away with it. But now that rates are rising in the U.S. and will potentially
follow suit elsewhere, the argument against cash becomes even less compelling.
Cash might have its dark undersides, but it is still king.
Write to Adam Creighton at creightona@theaustralian.com.au
Appeared in the Apr. 10, 2017, print edition as 'Despite Global Curbs, Cash Still
Rules.'
Copyright ©2017 Dow Jones & Company, Inc. All Rights Reserved
4 of 4 4/22/17, 10:09 PM
After Day 50: The Results From India's Demonetization Campa... https://www.forbes.com/sites/wadeshepard/2017/01/03/after-da...
Wade Shepard Contributor
I travel to emerging markets around Asia and report on what I find.

Opinions expressed by Forbes Contributors are their own.
ASIA 1/03/2017 @ 11:14PM 119,229 views
After Day 50: The Results From India's

Demonetization Campaign Are In
On the same day that Donald Trump was elected
president of the United States, India also received
an unexpected, earth-shattering announcement.
However, theirs wasnt of a disruptive,
unconventional presidential candidate coming to
power but of a disruptive new policy that would
instantly shake up the lives of 1.25 billion people,
rich and poor alike. At 10 p.m. on November 8th,
Indias Prime Minister Narendra Modi announced
that on the stroke of midnight all 500 and 1,000
rupee notes 86% of the currency in circulation
would cease to become legal tender.
Modis demonetization maneuver was a shock

doctrine tactic to dismantle the cash-centric
black market, to cleanse the country of counterfeit
notes, to further digitize the economy, and to get
more of the population onto the formal, taxable
economic grid.
Indians wait outside a bank to withdraw money on the outskirts of New

Delhi, India, Thursday, Dec. 8, 2016. (AP Photo/Altaf Qadri)
Modis plan called for the canceled notes to be

replaced by new 500 and 2,000 denomination
notes, but these were slow to be circulated, and
India the most cash-dependent country in the
world suddenly found itself without enough
cash to run its economy.
As the clock ticked down to midnight on

November 8th, a huge portion of Indian society
1 of 7 4/23/17, 10:23 PM
instantaneously found themselves stripped of the

ability to interact economically. Up to that point,
upwards of 95% of all transactions in India were
conducted in cash and 90% of vendors didnt have
the means to accept anything but. On top of this,
85% of workers were paid exclusively in cash and
almost half of the population didnt even have
bank accounts. Even Uber accepted cash
payments.
Due to this cash crunch, India ground to a halt.

Businesses shut down, farmers couldnt buy seeds,
taxi and rickshaw drivers didnt have any way to
receive payments, employers had no way to pay
their employees, hospitals were refusing patients
who only had old banknotes, fishermen watched
their catch wither up and rot, some families had
difficulty buying food, and weddings throughout
the country were canceled.
The people of India were given 50 days to redeem

their canceled banknotes, after which they would
become as worthless as the paper theyre printed
on, which causedhundreds of millions of people
to rush to banks, jewelry shops, foreign-exchange
counters, and ATMs. Serpentine lines often
stetched outside of such enterprises for blocks,
where people would stand for hours just to
re-validate their wealth.
This redemption period for the old notes came to

an end on Friday December 30th and,
surprisingly, nearly the entire stock of 500 and
1,000 rupee notes were recovered by the central
bank. But Indias demonetization transition is far
from being over. While the currency supply is still
not completely restored and cash is still being
rationed (there are strictbank withdrawal limits
of 24,000 rupees a week ($350) or 2,500 rupees
($36) per day from ATMs),India is moving
through the demonetization transition.
But is it working?
Fighting corruption
Initially, demonetization was sold by Modi as a

campaign to fight corruption. It was thought that
the countrys black market wouldnt be able to
exchange or deposit their gluts of illicitly obtained
wealth, and the central bank could have been in
for a payday that was estimated to be as high as
$45 billion. But this simply didnt happen. Even
with strict regulations put in place to audit large
deposits andlimit the amount of banknotes that
could be exchanged at one time, Indias shadow
economy was able to unload their black money,
often laundering it sparkling white in the process.
How the black market was able to do this is still
2 of 7 4/23/17, 10:23 PM
being investigated, but reports have been

surfacing that document an array of tactics
which included everything from using phony bank
accounts to illicitly exchanging money with
corrupt bankersto even threatening bank
employees with physical violence if they dont do
extra-curricular exchanges.
A user who went by the name S Kumar Singh left

a comment on a previous article that I wrote on
Forbes.com that sums up this aspect of Indias
demonetization initiative rather well:

This is akin to a Panchatantra-like story we might
have heard of.
To get the crocodiles out, a man with good intentions

started pumping water out from a pond. Small fishes
also living in the water were highly inconvenienced
breathing in 85% reduced water but were happy as
they were sure that he would get the crocodiles, and
with the new rain cycle, they would live happily ever
after. The crocodiles, however, are comfortably living
on the land and are also waiting for the next rain
cycle.
Now who is going to break this news to the fish? Not

this honest man who despite his honesty has never
ever accepted his prior mistakes and might be next
planning to burn the trees to eradicate the bat flu.
Fighting counterfeiting
Another stated goal of Modis demonetization

campaign was to curb counterfeiting. It was
reported that prior to this initiative, 250 out of
every million Indian banknotes were fake the
blame mostly being placed on Pakistan, where
there are rumored to be government-directed
printing presses churning out Indian rupees to
fuel terrorism. The new 500 and 2,000 rupee
banknotes which are currently being issued have
different designs and are of different sizes than
the previous notes, so all old fakes were instantly
washed from the economy.
Initially, changing banknotes is of course an

effective means to combat counterfeiting, but how
long will this last? Ive read reports that state that
the newly minted Indian rupees will be anywhere
from impossible to rather easy to counterfeit.
Only time will tell which is correct.
Expanding the formal economic grid and

building the digital economy
As the demonetization campaign progressed, its

narrative gradually transitioned from being a
measure to fight corruption to one to modernize a
large swath of Indias economy. Prior to this
campaign, most of the country was firmly
entrenched in the cash economy and there was
3 of 7 4/23/17, 10:23 PM
very little incentive to break generations-old

habits, get bank accounts, and go financially
digital. But temporarily removing the societys
access to cash pushed millions of people onto
Indias formal economic grid by all out fiat.
Among the biggest criticisms of the

demonetization campaign was that Modi and Co.
simply did not take the lifestyle of the countrys
massive working class, poor, and subsistence-level
agricultural population into account.
As Monishankar Prasad, a New Delhi-based

author who is currently traveling India
researching the on-the-ground impact of the
demonetization phenomenonpointed out:

The unbanked and informal economy is hard hit. The
poor do not have the access to structural and cultural
resources to adapt to shock doctrine economics. The
poor were taken totally off guard and the banking
infrastructure in the hinterland is rather limited. The
tech class has poor exposure to critical social theory
in order to understand the impact on the ground.
There is an empathy deficit.
Although painful in the short-term, this aspect of

demonetization seems to be proving rather
successful, asnew bank accounts have been
getting opened across India at an exponential
rate. The strict limits on cash-to-cash exchanges
(only $60 at a time) created a situation where
people either had to stand in long lines over and
over again or make deposits into a bank account
in order to retain their savings which up until
that point was often hidden under mattresses or
somewhere else in the home.
By temporarily grinding the wheels of the cash

economy to a halt, India also hoped to get more
people usingdigital payment methods, like debit
cards and e-wallets. To these ends, new digital
payment points have been popping up across the
country. Now even small vendors, like vegetable
hawkers, laundry washers, and rickshaw drivers
who were until very recently the backboneof the
cash economy, are offering ways to pay via
electronic means.
As a long-term Indian expatby who went by the

name Ian Faus commented on aprevious article
about demonetization:
4 of 7 4/23/17, 10:23 PM

However so far my transition into this brave new
future has been almost seamless with few
disruptions due to spotty connectivity and
infrastructure issues. I paid my driver, the guy who
cleans my car, the maid, the cook apart from all my
shopping and everything else digitally this past
month and its been far less disruptive than I
imagined. Indians ,especially the wage workers and
informal sector like maids and cooks etc have been
remarkable in their ability to cope and adapt
willingly.. .
I am surprised how so many people whose lives are

already quite hard have been so adaptable to
something so new. In the West we would expect
violence and large scale chaos but here despite the
abrupt action it has been remarkably well received.
The providers of e-wallet and other digital

payment systems have correctly viewed
demonetization as a way to promote their services
and to obtain new users. Since Modis
announcement, Paytm, a popular e-wallet, has
seen a threefold increase in new sign-ups, while
Oxigen Wallets daily users spiked by 167%.
The digital increase is mostly in small ticket

transactions that were cash-driveneven small
street vendors are beginning to accept digital
payments. For example, many Indians are now
buying 25 cents of bread using a credit card,
saidShekhar Ganapathy, the general managerfor
South Asia at ACI Worldwide.
However, there are obviously still many cogs in

the works before India can truly depend on its
digital financial infrastructure, as Prasad
discovered during his travels:

India is lived in the hinterland. Even when the card
terminals are available, the telephone lines are not
robust enough, as they are prone to weather centric
disruption. The pharmacy today, in North Kolkata-
Laketown, the card machine was out of order, the
e-wallet application was working after four false
attempts. The area has four pharmacies as it is
around a prominent medical center, and only one had
a non-cash option. In short, the transition is far from
complete.
Expanding the tax dragnet
The bolstering of the digital economy has another

big benefit for Indias government: more
monetary transactions happening via traceable
methods means more tax revenue.
Digital payments enable an audit trail, in

combination with the computerization efforts of
linking transactions by the tax authorities, which
automatically will take out a large chunk of the
cash-based shadow economy, Ganapathy said.
Indias finance minister claimed that direct tax

5 of 7 4/23/17, 10:23 PM
collection has increased 14.4% and the federal

governments indirect tax collection rose by 26.6%
since demonetization began, and government
reports from 47 cities in India have reported a
combined 268% year-on-year increase in tax
collection for November 2016.
Conclusion
In the long run, this is nothing short of a

revolutionary measure in moving a traditional
cash centric economy to a fourth industrial
revolution era. Its audacious, brash, and a future-
centered decision, which has changed India, its
people, politics, and money game forever, Prasad
declared. India will be before demonetization
and after demonetization, BD and AD.
While the fundamentals of Modis demonetization

campaign appear sound what government
wouldnt want to curb corruption, clean out
counterfeit currency, digitalized more of the
economy, get a larger swath of the society into the
formal market, and increase tax revenue? the
way that it was carried out appears to have been
pointlessly rushed and under-planned, which
resulted in a large amount of undue pain and
inconvenience heaved upon hundreds of millions
of people. However, the people of India for the
most part steadfastly went along with their top
leaders ambitious plan without any major
protests, disruptions, or violence.
Given India is traditionally quite volatile and

sensitive to certain aspects, this could have huge
fiasco and embarrassment for Modi, saidPrakhar
Gupta, a resident of Lucknow.But since no
protests were there across India it means that
there is a strong undercurrent of support for Modi
as a person. But having said that, Modi has used
up most of his goodwill and political capital with
this move.
Im the author of Ghost Cities of China. Im

currently traveling the New Silk Road doing
research for a new book. Follow by RSS.
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Reserve Bank of India Keeps Key Lending Rate Unchanged - WSJ https://www.wsj.com/articles/reserve-bank-of-india-keeps-key-...
https://www.wsj.com/articles/reserve-bank-of-india-keeps-key-lending-rate-unchanged-1491470273
ECONOMY | CENTRAL BANKS
Reserve Bank of India Keeps Key

Lending Rate Unchanged
Indias central bank keeps its repurchase rate at 6.25%
The Reserve Bank of India's headquarters in Mumbai last year. PHOTO: REUTERS
By Debiprasad Nayak and Corinne Abrams

Updated April 6, 2017 9:09 a.m. ET
MUMBAIIndias central bank left its main lending rate unchanged Thursday,
as it waited for further proof that inflation is under control.
The Reserve Bank of Indias monetary-policy committee kept its repurchase rate
at 6.25% as predicted by all 10 of the economists polled by The Wall Street
Journal.
It was the third meeting in a row that the RBI hasnt moved the rate, leaving it at
1 of 3 4/22/17, 10:13 PM
Reserve Bank of India Keeps Key Lending Rate Unchanged - WSJ https://www.wsj.com/articles/reserve-bank-of-india-keeps-key-...
the lowest it has been in six-and-a-half years.
Late in the fiscal year that just started this month inflation could be
challenged and needs to be closely and continuously monitored, RBI Gov.
Urjit Patel said.
The central bank

showed it was
increasingly
concerned about
inflation. It nudged up
its forecast range for
inflation and raised
the reverse repo
ratethe interest rate
the central bank offers
to commercial banks
for surplus cash
deposits0.25
percentage point to
6%. The rate was last
raised a year ago, but
was cut in October.
The central bank said

it expects consumer
inflation to average
around 4.5% in the
first half of this
financial year and
then rise to 5% in the
second half. This is
higher than the 3.65%
consumer inflation
recorded in February
and at the high end if
the target range it has
set for the year ending
next March.
While Indias inflation rate seems largely in check in recent yearsthe country
2 of 3 4/22/17, 10:13 PM

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ECONOMY | THE OUTLOOK

Cash Is Dead. Long Live Cash.

The U.S. shows no inclination to pare back its notes.

In the aboveground economy, card-based and digital payment systems offering

ever-greater speed, safety and convenience have been steadily encroaching on

The underground economy is, by definition, difficult to measure, but large. In

If a limit on cash transactions were an effective means of fighting organized

Cash might have its dark undersides, but it is still king.

Write to Adam Creighton at creightona@theaustralian.com.au

MORE FROM WORLD NEWS

Wade Shepard Contributor

I travel to emerging markets around Asia and report on what I find.

ASIA 1/03/2017 @ 11:14PM 119,229 views

After Day 50: The Results From India's

Modis demonetization maneuver was a shock

Indians wait outside a bank to withdraw money on the outskirts of New

Modis plan called for the canceled notes to be

As the clock ticked down to midnight on

instantaneously found themselves stripped of the

Due to this cash crunch, India ground to a halt.

The people of India were given 50 days to redeem

This redemption period for the old notes came to

Initially, demonetization was sold by Modi as a

How the black market was able to do this is still

being investigated, but reports have been

A user who went by the name S Kumar Singh left

To get the crocodiles out, a man with good intentions

Now who is going to break this news to the fish? Not

Another stated goal of Modis demonetization

Initially, changing banknotes is of course an

Expanding the formal economic grid and

As the demonetization campaign progressed, its

very little incentive to break generations-old

Among the biggest criticisms of the

As Monishankar Prasad, a New Delhi-based

Although painful in the short-term, this aspect of

By temporarily grinding the wheels of the cash

As a long-term Indian expatby who went by the

I am surprised how so many people whose lives are

The providers of e-wallet and other digital

The digital increase is mostly in small ticket

However, there are obviously still many cogs in

Expanding the tax dragnet

The bolstering of the digital economy has another

Digital payments enable an audit trail, in

Indias finance minister claimed that direct tax

collection has increased 14.4% and the federal

In the long run, this is nothing short of a

While the fundamentals of Modis demonetization

Given India is traditionally quite volatile and

Im the author of Ghost Cities of China. Im

One Month In, What's The Impact Of India's

A Cashless Future Is The Real Goal Of India's

The On The Ground Impact Of India's 'Earth-

India's Central Bank Denied Its Big Payday As

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ECONOMY | CENTRAL BANKS

Reserve Bank of India Keeps Key