Economic Crisis: Angry Mobs Lock Up Indian Bankers As Cash Chaos Soars: "We Are Fearing The Worst"
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India's demonetization campaign is not going as expected.
Overnight, banks played down expectations of a dramatic improvement in currency availability, raising the prospect of queues lengthening as salaries get paid and people look to withdraw money from their accounts the Economic Times reported.
While much of India has become habituated to the sight of people lining up at banks and cash dispensers since the November 8 demonetisation announcement, bank officials said the message from the Reserve Bank of India is that supplies may not get any easier in the near future and that they should push digital transactions. “We had sought a hearing with RBI as we were not allocated enough cash, but we were told that rationing of cash may continue for some time,” said a banker who was present at one of several meetings with central bank officials.
“Reserve Bank has asked us to push the use of digital channels to all our customers and ensure that we bring down use of cash in the economy,” said a banker. This confirms a previous report according to which the demonstization campaign has been a not so subtle attempt to impose digital currency on the entire population.
Bankers have been making several trips to the central bank’s headquarters in Mumbai to get a sense of whether currency availability will improve. Some automated teller machines haven’t been filled even once since the old Rs 500 and Rs 1,000 notes ceased to be legal tender, they said. Typically, households pay milkmen, domestic helps, drivers, etc, at the start of the month in cash. The idea is that all these payments should become electronic, using computers or mobiles.
This strategy however, appears to not have been conveyed to the public, and as Bloomberg adds, "bankers are bracing for long hours and angry mobs as pay day approaches in India."
"Already people who are frustrated are locking branches from outside in Uttar Pradesh, Bihar and Tamil Nadu and abusing staff as enough cash is not available," said CH Venkatachalam, general secretary of the All India Bank Employees’ Association. The group has sought police protection at bank branches for the next 10 days, he added.
Joining many others who have slammed Modi's decision, the banker said that "this is the fallout of one of the worst planned and executed government decisions in decades." He estimates that about 20 million people - almost twice the population of Greece - will queue up at bank branches and ATMs over the coming week, when most employers in India pay their staff. In an economy where 98 percent of consumer payments are in cash, banks are functioning with about half the amount of currency they need.
As Bloomberg notes, retaining public support is crucial for Modi before key state elections next year and a national contest in 2019, however it appears he is starting to lose it.
"We are bracing ourselves for payday and fearing the worst," said Parthasarathi Mukherjee, chief executive officer at Chennai-based Laxmi Vilas Bank Ltd. "If we run out of cash we will have to approach the Reserve Bank of India for more. It is tough."
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The ongoing cash shortages follow Modi’s Nov. 8 unexpected decision to ban 500 and 1,000 rupee ($15) notes, a decision that sucked out 86% of currency in circulation and blindsided the nation. Bank officials reported that most top banks in the financial heart of Mumbai are now starting the day with anywhere between 800 million rupees to 1.2 billion rupees of cash, instead of the typical 1.5 billion rupees.
These currency chests are then shared with several branches, which are rationing supplies. Withdrawals are capped at 10,000 rupees per person instead of the 24,000 rupees limit set by the government, said a manager at a state-run Bank of India branch in the eastern state of Jharkhand.
In a Mumbai suburb, a branch of the nation’s largest lender, State Bank of India, was starting the day with about 600,000 rupees of cash that will run out in about an hour, compared with the 1.5 million they’d typically have, the manager said. in what has clearly become a physical cash run.
Shortage of cash in ATMs continues
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To be sure, many employers are scrambling to adapt to the new cash-lite regime: "with pay day around the corner a lot of small and medium-sized companies are opting for prepaid cards over cash payments," said Naveen Surya, managing director of payments solutions company Itz Cash Card Ltd., who’s also chairman of the representative body Payments Council of India. "More than five million of these cards have been sold in India in the last one week" and sales of 40 million more are expected through December, he said.
Ride-sharing service Ola has partnered with fuel companies to help drivers get e-vouchers to fill up their tanks at Bharat Petroleum Corp. pumps in Bengaluru, the company said in a statement. Paytm, India’s largest digital wallet startup, has noticed a doubling in online recharges including a trend where individuals top up multiple mobile phones to help friends and family, the company said in its statement. Additionally, as Goldman notes, Paytm has experienced a 500% surge in daily user
growth since the currency reform, according to The Indian Express.
Searches on 'Paytm' and 'ATM queues' still elevated
The government, too, is urging electronic payments. Card payment facilities were introduced in parliament’s dining hall on Wednesday, the Press Trust of India reported, citing Parliament’s Food Committee Chairman A P Jithender Reddy.
While large companies such as Hindustan Petroleum Corp. make 99 percent of their pay outs electronically, it still needs to work out a system with smaller sub-contractors, said finance director J. Ramaswamy. Indian Oil Corp. is opening State Bank of India accounts for all laborers at its Paradip refinery, Dharmendra Pradhan, India’s oil minister, said on Nov. 29 in New Delhi.
"I will request all our companies to encourage bank transfers for all such payments," Pradhan said.
Alas, as we warned previously, for a nation that remains vastly cash-based - and where 98% of consumer payments are in cash - any transition from physical to digital money will take far, far longer than the timeframe Modi has allotted himself for the demonetization transformation and, as we reported previously, it is only a matter of time before India's economy becomes crippled by money shortages to the point where not only India's economic output but the government itself will be in jeopardy.
One thing appears clear: foreign investors have decided not to wait and see how this experiment ends.
Foreign investors continue to be net sellers of Indian assets post currency reform
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To get a sense of India's now-three week long cash-run reality, courtesy of one of our contacts on the ground in India, here are photos of lines in front on Indian ATMs and banks taken this morning between 10 and 10:30 am.
The War On Cash Is Happening Faster Than We Could Have ImaginedSubmitted by Simon Black via SovereignMan.com,
It’s happening faster than we could have ever imagined.
Every time we turn around, it seems, there’s another major assault in the War on Cash.
India is the most notable recent example– the embarrassing debacle a few weeks ago in which the government, overnight, “demonetized” its two largest denominations of cash, leaving an entire nation in chaos.
But there have been so many smaller examples.
In the US city of New Orleans, the local government decided earlier this month to stop accepting cash payments from drivers at the Office of Motor Vehicles.
As I wrote to you recently, several branches of Citibank in Australia have stopped dealing in cash altogether.
And former US Treasury Secretary Larry Summers published an article last week stating that “nothing in the Indian experience gives us pause in recommending that no more large notes be created in the United States, Europe, and around the world.”
In other words, despite the India chaos, Summers thinks we should still curtail the $100 bill.
The conclave of the high priests of monetary policy almost invariably sings the same chorus: only criminals and terrorists use high denominations of cash.
Ken Rogoff, Harvard professor and former official at the International Monetary Fund and Federal Reserve, recently published a book blatantly entitled The Curse of Cash.
Ben Bernanke’s called it a “fascinating and important book”.
And, shockingly, a number of reviews on Amazon.com praise “brilliant” Rogoff’s “visionary concepts” in his “excellent book”.
Rogoff, like most of his colleagues, contends that large bills like the $100 or 500 euro note are only used in “drug trade, extortion, bribes, human trafficking. . .”
In fact they jokingly refer to the 500-euro note as the “Bin Laden” since it’s apparently only used by terrorists.
Give me a break.
My team and I did some of research on this and found some rather interesting data.
It turns out that countries with higher denominations of cash actually have much lower crime rates, including rates of organized crime.
The research was simple; we looked at the World Economic Forum’s competitive rankings that assesses countries’ levels of organized crime, as well as the direct business costs of dealing with crime and violence.
Switzerland, with its 1,000 Swiss franc note (roughly $1,000 USD) has among the lowest levels of organized crime in the world according to the WEF.
Ditto for Singapore, which has a 1,000 Singapore dollar note (about $700 USD).
Japan’s highest denomination of currency is 10,000 yen, worth $88 today. Yet Japan also has extremely low crime rates.
Same for the United Arab Emirates, whose highest denomination is the 1,000 dirham ($272).
If you examine countries with very low denominations of cash, the opposite holds true: crime rates, and in particular organized crime rates, are extremely high.
Consider Venezuela, Nigeria, Brazil, South Africa, etc. Organized crime is prevalent. Yet each of these has a currency whose maximum denomination is less than $30.
The same trend holds true when looking at corruption and tax evasion.
Yesterday we wrote to you about Georgia, a small country on the Black Sea whose flat tax prompted tax compliance (and tax revenue) to soar.
It’s considered one of the most efficient places to do business with very low levels of corruption.
And yet the highest denomination note in Georgia is the 500 lari bill, worth about $200. That’s a lot of money in a country where the average wage is a few hundred dollars per month.
Compare that to Malaysia or Uzbekistan, two countries where corruption abounds.
Malaysia’s top cash note is 50 ringgit, worth about $11. And Uzbekistan’s 5,000 som is worth a paltry $1.57.
Bottom line, the political and financial establishments want you to willingly get on board with the idea of abolishing, or at least reducing, cash.
And they’re pumping out all sorts of propaganda to do it, trying to get people to equate crime and corruption with high denominations of cash.
Simply put, the data doesn’t support their assertion. It’s just another hoax that will give them more power at the expense of your privacy and freedom.