New Money Old Problems

Money’s funny isn’t it, I have always been somewhat intrigued by the way people think about money and how it motivates them to get what they want. But what happens when the money you have collected is suddenly worthless and unable to get you what you want?

Demonetisation is happening in both Sweden (where i reside) and India where in November 2016 the fairly new prime minister Modi, announced the demonetisation of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series. The government claimed that removing 86% of the currency in circulation would “curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activity and terrorism.”

I am not sure how they plan to prove that (if ever), or if anyone else could prove otherwise due to the difficulties in acquiring concrete statistics on the shadow economy, but now, after several months of demonetisation many thing appear crystal clear; the poor in India are the ones that end up worse off, and it appears in parallel those with the capacity to provide digital infrastructure to Modi’s new vision for the rupee are the ones that have prospered most.

Listen to this BBC podcast for a more in-depth report on the fallout from the demonetisation situation in India.

How does India’s Demonetisation differ from Sweden’s recent efforts?

I write this post as Sweden enters its final phases of demonetisation, (which for some reason is being called the “major money changeover” by the Local.) It means that old 1-, 2- and 5-kronor coins, as well as 100-kronor and 500-kronor banknotes, will become invalid after June 30th 2017.

One noticeable difference between the two countries is the pace in which the demonetisation has occurred, India’s transition appears to have happened rather quickly in comparison to Sweden, which began in 2015. Another difference is that Sweden has replaced the old notes with new notes; so the medium of exchange has remained the same, in contrast India’s Modi has pulled the cash out of society and replaced it with an entirely different kind of money which is heavily reliant on digital infrastructure to function properly.

This struck me as quite curious, surely the hard physical cash would have been better in the hands of the Indian population – a society that lacks good reliable digital infrastructure nation wide. Wouldn’t they have benefited from a more accessible currency form? And Sweden – a supposedly already cashless society – introduces new cash notes. Something feels back to front here.

A possible reason could be that, by Modi forcing a new form of money through it may help to encourage development of those needed infrastructures that otherwise are not being built, that’s a bold and disruptive move but could well turn out to be great long term thinking for the country. With those sorts of bold moves there will always be unforeseen side effects in the economy, and from what i have observed so far – for India’s poorest – the worst is yet to come, it will likely be years of downwards mobility before it starts to pick up again, but what gets me, is how many media outlets talk as if its over – it has been done – it’s in the past, try telling the people affected everyday that; I doubt they would agree it’s over, i think they know quite well it has only just begun.

Sweden’s “major money changeover”

So what does Sweden get out of their “major money changeover” or more accurately, their demonetisation plan. Sweden often makes headlines around the world for being such a fantastically cashless utopia and that’s fine if you are pro-cashless, i am not – yet. My own experiences here in Sweden trying to deal with cash have been infuriating to say the least. I have heard numerous stories of persons trying to deposit cash into their own bank account (of which they had been a member since almost birth) and being treated like a suspect in a line up; and the banks will point at the regulators – and the regulators will point back at the banks, or at the EU or some other such entity. Whats apparent is that the bank is the gate keeper, they own and run the channels, therefore they have absolute power over how the channels are used. K.Y.C and other similar regulations are unenforceable if you are the right kind of customer, as we have seen numerous times across the world when it comes to bad banking behaviour; not to even mention the question of data ownership when it comes to the transactional data we all create (big or small) every day.

The Riksbank tells us on its FAQ’s page”

“The banknotes have new security features to make them harder to counterfeit. The older banknotes were designed around 30 years ago and need to be modernised.” For the coins they say: “Firstly, the new coins are much smaller and lighter, which means that the handling costs for coins will be lower than they are now. Secondly, the new coins are completely nickel-free. This eliminates the risk of nickel allergy, which is a problem for many people. Thirdly, there is less environmental impact as fewer transports will be needed for the same value of coins. The new coins are also much cheaper to produce, which means that the Riksbank, and thus the state, has lower costs. By introducing a 2-krona coins, fewer coins will be needed as the 2-krona coin will replace two 1-krona coins in many payments.”

So, some fairly obvious benefits to using the new Swedish Krona coins for the citizen right? Although i was not aware nickel allergy was such an enormous problem in Sweden that it would actually help determine the makeup for the country’s new currency, i certainly learned something today (especially relevant to a film project i am working on at the moment.)

But the counterfeit argument for the notes, i have seen this one time and time again from many well developed modern societies, from Australia to the UK, this idea that you can make a note any more secure than it wants to be seems more theatre than anything else. Counterfeit or not, bad people will keep finding ways of exchanging value, putting an intelligent strip in the note or a GPS beacon on it (which we already have thanks to mobile banking) will likely not deter any criminals from business as usual.

So why do it? why go through that process if it will not necessarily provide immediate improvements for the lives of the citizens of these countries? My theory – for India, it’s a combination of appearing to be both innovative (High tech) to outsiders, and becoming more growth oriented, (Privatisation) regardless of the immediate consequences.

For Sweden, it is likely about reduction in circulation, being able to take a bunch of these notes out of circulation, making it more likely for people to transition over to digital payments, coupled with the appearance of doing something new, everyone seems to get excited when a country issues new currency, i am unsure many bother to think why it’s happening, especially if it does not directly or immediately affect them personally.

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