How India's Cash Chaos Is Screwing Over Their Neighbors — Oops!

IMTFI Fellow Vivian Dzokoto cited in article by Charu Sudan Kasturi in OZY

WHY YOU SHOULD CARE - Because cash knows no borders.

The waiting game: Millions of people rushed to withdraw money at an Indian Bank ATM
in New Delhi on  December 1, 2016. Source Sanjeev Verma/Getty

Over three decades, Sri Lankan Tamil businessman Sundar Thangarajan built a stash of Indian bank notes totaling the equivalent of $2,000 as insurance if he had to move to India from the island where the ethnic minority has often felt under siege. But on a visit to the southern Indian city of Chennai this April, Thangarajan decided he would no longer save Indian notes, and instead bought gold bars. His insecurities in Sri Lanka haven’t disappeared. But his faith in Indian currency has vanished now that his savings have turned to scrap.

Thangarajan is among millions across South Asia hurting from India’s decision last November to ban — overnight, with no advance notice — currency notes of 500 and 1,000 rupees (about $8 and $16) that comprised 85 percent of all available Indian cash at the time. The note ban, India argued, was aimed at uncovering undisclosed wealth and tackling fake currency within its borders. But for decades, these notes have been the savings Nepalese workers in India sent home, a source of security to war-ravaged Afghans and Sri Lankan Tamils, and a route to health, education and prosperity for patients, students and traders from Bangladesh, Bhutan and Myanmar.

Now, saddled with wads of unusable notes, many of them are weaning themselves off the “regional dollar,” as some refer to the Indian rupee, which is the largest and most stable currency in the neighborhood. Some, like Thangarajan, are buying gold as security; others, American dollars. Still others are discovering merits in their national currencies. The glint of the Indian rupee has dimmed for them. “This is natural,” says Vivian Dzokoto, an associate professor at Virginia Commonwealth University, who has researched past demonetization exercises internationally and their social impact. “People across South Asia will ask, ‘What will India do next?’ ”

Pakistan, Myanmar, Zimbabwe, Nigeria, Ghana and North Korea have all tried demonetization. But none of them had economies the size of India’s, and the impact of the moves on neighbors was negligible, say experts. Unlike the gradual shift proposed by advocates of less cash like Harvard University’s Kenneth Rogoff, India’s initiative also was sudden.

To read the full article, visit - http://www.ozy.com/fast-forward/how-indias-cash-chaos-is-screwing-over-their-neighbors-oops/78977

To read Vivian Dzokoto's blogpost as part of IMTFI's Special Perspectives Series on Demonetization: "Before Money isn't Money Anymore," visit - http://blog.imtfi.uci.edu/2017/02/special-perspectives-series-on_7.html