In IMTFI's PERSPECTIVES blog series, IMTFI fellows take on the recent demonetization move in India. This series aims to foster an open dialogue on issues around money, technology and financial inclusion for the world’s poor. Individual contributions reflect contributors' own reflections on recent events - based on their research and areas of expertise. The topic of demonetization will conclude with a curated commentary by IMTFI on key themes, important questions, and what we can learn from these contributions for digital financial inclusion going forward.
By IMTFI Fellow Vivian Dzokoto, Virginia Commonwealth University
Demonetization of currency notes - as the recent one in India - is a reminder about what money really is: material that does not possess inherent value unless society or in this case, an issuing authority decrees that it does. The case of the Reserve Bank of India’s demonetization of 500 and 1,000 rupee notes late last year also reminds us that “money-ness” can be revoked as easily as it can be accredited. While India’s recent change in its moneyscape has been a focus of many critics, it is important to recognize that:
(i) India is not the first country to demonetize its national currency (in part or as a whole and as a matter of fact, this isn’t India’s first demonetization exercise)
(ii) India will most likely not be the last country to demonetize its currency (either in part or as a whole), and
(iii) The world needs to learn from India’s case, just as India should have factored in lessons from the demonetizations of yore.
It is of course easy to be a critic after things go wrong. Hindsight is 20/20, after all. The fact is: being in charge is not an easy task. Tough decisions have to be made. The question to ask at this point is how tough do such decisions have to be, and what needs to be taken into consideration when tough decisions are made? In the case of demonetization exercises, the myriad factors often taken into consideration include the state of inflation, counterfeiting, taxes, the black market, political symbolism, the denominations of the existing notes, people operating outside the formal banking sector, and the efficiency of cash handling systems. Are these important? Absolutely. Should these be taken into consideration? Absolutely. Is this list exhaustive? Absolutely not.
One thing is often missing from deliberations, especially in cases of demonetization exercises that fail or experience a significant number of hiccups. The user. In particular, the everyday interactions of the everyday person with the material that is money, the ecosystems that have developed around the different objects that are used as money, the convertibility of one form of money into another, and the degree of equivalence of function in cases where conversion is in fact possible. How do disruptions (actual and potential) to the moneyscape affect the lives of the everyday user? How do people learn about, understand, use, and build practices around new iterations of money? Simply put, prior to demonetization, redenomination, or alternatively tinkering with a material’s “money-ness,” issuers of money have got to understand the world of the user better.
Money in the form of cash is many things. To the issuers, it’s legal tender. For many, it’s a political statement. To a baby, it’s one of the numerous things you’re not supposed to put into your mouth. To the R&B artist, it’s the stuff “rain” is made of. To the drug addict, it’s …. Never mind. For techies, it’s an exasperating dinosaur that should have been extinct by now. But it sure looks like cash is here (that is, in many countries) to stay for a while. That means we (students of money, and agencies that deal with the issuing, processing, storage, and securing of money) have to fully understand its various and evolving roles, pathways, practices, and the like in the societies that it serves. And what tinkering with a financial ecosystem does to the user. And what redundancies can be worked into the system as structural changes to the monetary systems are planned. And not just understanding such information: acknowledging it, and factoring such knowledge into public policies and into the logistical planning of national exercises that impact money-ness. Who knows, some of this information might also be relevant to future forms of money.
Over the years, ignoring such information has resulted in negative consequences for the user. In the past, previously wealthy and suddenly penniless owners of huts filled with suddenly worthless cowrie shells in colonial Africa (Saul, 2004) could be seen wringing their hands and contemplating their purpose in life. In India, we have seen long lines, daily activities disrupted because of logistical mishaps, and sadly, lives lost. What negative consequences are there going to be in the future? The answer lies in what we know, and how we use the knowledge that we know. Money is, after all, meant to be used by people. Before going a-tinkering with it, it’s vital to understand how the people interact with it – and do so in its various complexities and forms.
Read more about Vivian Dzokoto's IMTFI research in Ghana and Zambia here and here
By IMTFI Fellow Vivian Dzokoto, Virginia Commonwealth University
Demonetization of currency notes - as the recent one in India - is a reminder about what money really is: material that does not possess inherent value unless society or in this case, an issuing authority decrees that it does. The case of the Reserve Bank of India’s demonetization of 500 and 1,000 rupee notes late last year also reminds us that “money-ness” can be revoked as easily as it can be accredited. While India’s recent change in its moneyscape has been a focus of many critics, it is important to recognize that:
(i) India is not the first country to demonetize its national currency (in part or as a whole and as a matter of fact, this isn’t India’s first demonetization exercise)
(ii) India will most likely not be the last country to demonetize its currency (either in part or as a whole), and
(iii) The world needs to learn from India’s case, just as India should have factored in lessons from the demonetizations of yore.
One thing is often missing from deliberations, especially in cases of demonetization exercises that fail or experience a significant number of hiccups. The user. In particular, the everyday interactions of the everyday person with the material that is money, the ecosystems that have developed around the different objects that are used as money, the convertibility of one form of money into another, and the degree of equivalence of function in cases where conversion is in fact possible. How do disruptions (actual and potential) to the moneyscape affect the lives of the everyday user? How do people learn about, understand, use, and build practices around new iterations of money? Simply put, prior to demonetization, redenomination, or alternatively tinkering with a material’s “money-ness,” issuers of money have got to understand the world of the user better.
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| "The Way of the Dinosaur" by Mark Wagner Photo Credit Mark Wagner |
Over the years, ignoring such information has resulted in negative consequences for the user. In the past, previously wealthy and suddenly penniless owners of huts filled with suddenly worthless cowrie shells in colonial Africa (Saul, 2004) could be seen wringing their hands and contemplating their purpose in life. In India, we have seen long lines, daily activities disrupted because of logistical mishaps, and sadly, lives lost. What negative consequences are there going to be in the future? The answer lies in what we know, and how we use the knowledge that we know. Money is, after all, meant to be used by people. Before going a-tinkering with it, it’s vital to understand how the people interact with it – and do so in its various complexities and forms.
Read more about Vivian Dzokoto's IMTFI research in Ghana and Zambia here and here
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