It would be difficult to argue that I’ve ever known real scarcity, but there have been a few times in our travels when we’ve been left totally without cash and without an obvious way to access it. The first time was when, due to a sort of banking mixup, we ended up with no money in the only account for which we had a working ATM card. This was in Turkey, if I recall, during our 2008-09 big trip, and our friend Shan came to our rescue, quickly depositing a few thousand dollars into our bank account. Just the other month, we were staying overnight in the small village of Xidi in Anhui Province, China, which we discovered had only one ATM, connected only through the Chinese UnionPay network, and not Cirrus or Plus. We had enough money for our room but not for dinner or transport back to Hangzhou—our friend Haiping came to our aid with a quick WeChat virtual payment made from Hong Kong.
Today, I was not the victim of my own poor planning, but one of the billion plus affected by the Modi government’s apparently rash plan to rid the country of “black money.” On the evening of November 8, the Indian Prime Minister announced that all existing 500 and 1000 rupee notes—over twenty billion bills that constituted about 85% of the Indian money supply—were to be worthless as of midnight, and must be exchanged for new 500 and 2000 rupee bills. There was an immediate shortage of cash everywhere, with ATMs emptying as soon as could be stocked with the new bills and businesses not able to make change.
We wandered all over town looking for money, finally waiting in line for about half an hour when we found a stocked ATM. (The line wasn’t even that long, but the ATM was hideously slow with a confusing interface.)
It is easy to view the chaos that resulted as typically Indian. Disorder on the order of billions is, after all, a sort of hallmark of the world’s largest democracy. The decrease in economic activity will hit GDP substantially, though estimates vary, and of course there’s a corruption angle to even this anti-corruption measure—it is said that leaks allowed those who were connected to launder their money in advance.
But for all the short term disruption, the possible benefits are clear. In one fell swoop, the government rid the economy of billions of dollars in counterfeit and illegally obtained hoards of cash. For example, it was almost universal for Indian real estate transactions to have both a legal component and an under-the-table component, for purposes of tax evasion. Such large black market payments would now be difficult. Entire industries ran on the unreported cash economy, and may now have to be formalized. Buying a US$3 lunch with a credit card today (the restaurant couldn’t provide change for our 2000 rupee notes), it occurred to me that the government will have from this cash shortage period all sorts of new data on the volume of transactions done by businesses, revenues that probably went entirely unreported on the cash economy. Lack of cash is not only triggering the use of ordinary credit cards but also new mobile wallet schemes, the growth of which will help India not only locally but perhaps establish systems and brands that it can then market, using its IT prowess, around the world.
The long term consequences will of course be unclear for a while, but India does have perhaps a unique . . . tolerance? ability? to muddle through chaos, and things seemed to be working out. Our hotel was obviously grateful when we handed them approximately $60 in rupee notes to settle our bill, but Uber to the airport was as smooth and cashless as anywhere else.