It’s been nearly 2 weeks since Prime Minister Modi announced the demonetisation of INR500 (£6) and INR1000 (£12) notes on TV. It is fair to say that daily life in a cash economy has become somewhat challenging as a result. Living with it we have just been adapting and getting on with it but I thought I would reflect on how life has changed over the last fortnight by providing a comparison and an explanation for the UK. It’s easier to explain it in terms that I am familiar with.
An explanation for the UK
To try and explain what has happened, and the impact of it, I will say what would have had to have happened in the U.K.
So The PM Theresa May announces on TV at 9pm that all £5, £10 and £20 notes will be illegal from midnight. The surprise announcement is to rid the economy of fake notes, money laundering and tax evaders. Only the Prime Minister, The Governor of the Bank of England and the Chancellor know. The PM has kept the rest of Parliament (and everyone else) in the dark. They have been planning it for 10 months.
You will only be able to pay for petrol and prescriptions with old notes for the next 3 weeks. You can bank old notes into your bank account or exchange up to £45 for cash at a bank for the next 2 months. Anyone banking £3000 or more will have to provide an explanation of where the money came from as well as being taxed on it and potentially fined, a lot. There is also the prospect of criminal proceedings should an explanation not be sufficient.
All the banks and building societies will be shut the next day and cash machines will not be working. Bank staff are told they have to report to work to prepare for the change. All holiday is cancelled for bank staff until the end of the year.
You can pay for things with £1 coins only. A new £50 will be coming into circulation within the next 2 weeks (after it has been printed) but your cash withdrawal limit is £25 a day from a cash machine and anyway they are not configured for the new notes yet so your cash withdrawals will be in £1 coins.
Now add in to the mix the following. You can only pay for your bread, fish and delicatessen (cheese) items with cash. You can only pay your help at home (e.g.cleaner, gardener) with cash. Your gym membership, personal trainer or fitness classes (whichever you do) can only be paid with in cash. Your monthly electricity bill can only be paid in cash. Cash back, in shops or anywhere else, does not exist. Anyone on minimum wage does not have a bank account and operates solely with cash.
Just try and comprehend all of that and the fact that your money will be worthless pieces of paper within 3 hours. You can’t go anywhere in your car (our driver had gone home so let’s say your car is needing the RAC/AA before you can go anywhere). Your friends are in flight and arriving at Heathrow tomorrow morning. The cash they have with them will be worthless and the cash machines will not be working. The taxi drivers only take cash.
Trying to obtain cash
Immediately you will calculate that withdrawing the maximum amount allowed each day is not going to enable you to meet your bills. Everyone rushes to the cash point machines as soon as they are open and long queues form quickly – and I mean long – 200 people long. As the cash machines can only dispense £1 coins they run out of cash quickly – within 30 mins. The security vans can’t fill cash machines quickly enough and are working long days to meet demand. A hunt for a working cash machine with cash begins.
It takes four cash machines and an hour of driving before you find one with any money and a ‘short’ queue of just 30 people. You’re the only woman in a queue of agitated men with no sense of personal space – you are constantly brushed up against, shoved and touched accidentally. The temperature is 30C and you can’t leave the queue to get some water to drink. (I know that’s a difficult one to envisage in the UK but I couldn’t think of an appropriate comparison. Maybe -5C and you can’t get a cuppa?). You stand there patiently whilst men lean over your shoulder to try and see what is going on in front…for 45 minutes to an hour.
There are after all 30 people in front of you trying to withdraw £25 in £1 coins and then count them. There is a security guard stood next to the cash machine watching everyone’s moves. You get to the front of the queue and have to remove your sunglasses and mobile phones have to be put away (I have no idea why). You attempt to withdraw your £25 but it will only give you £20 as this bank is rationing the cash even more. Everyone, and I mean everyone, in the queue looks at you as you walk past them with your cash.
You have spent all morning obtaining £20 in cash and you will have to do it all again tomorrow. Except that you can’t as you haven’t got the time so you wait a day and try again. You’re not successful. You even drive to the nearest hospital to go to the cash point there but they ran out at 11:15am after it was filled at 10:45am. You drive to the shopping centre as soon as they open and try every single cash point there but of course they are all empty. Every journey now becomes a scouting mission too. You are constantly looking for cash machines and the queues at them – if they have cash.
You go to the bank to exchange your old notes. They want a copy of your passport and a utility bill before they exchange your £45. You’re made to complete a form and sign a declaration that you haven’t exchanged more than £45 in cash anywhere else. (They will be checking later when things have calmed down.) You sit in the bank for 30 minutes longer before the manager delivers the cash personally. He’s doing that with everyone. It’s a necessity as all the staff are processing the forms and requests. They’ve not had a day off since the announcement – working all weekends and until 8pm.
Adapting to the effects
You start sharing information about cash machines with cash with your friends and neighbours. Anyone who obtains cash immediately shares about £5 to friends, neighbours etc to help them out. They give £5 to their household help, gardener etc to keep them going (as they don’t have a bank account) and run out of cash quickly.
Apps appear trying to share information on location of cash machines and the ones with cash. Twitter has a # trending with cash machines with cash. Youths start offering a queue service for a 5% commission (in cash). They queue for you and call you when they are at the front of the queue – so you need to be close by having that cuppa.
Shops start refusing any cash sales as they don’t have any £1 coins to give as change. Shops start offering credit to minimum wage workers (who don’t have bank accounts remember) as sales drop through the floor. Street vendors see sales plummet. Shopping centres waive car park fees as there is no change available and nobody is coming to shop anyway – they’re all out looking for cash. Police waive on the spot fines as they only take cash and don’t have the change. The congestion charge is waived as that can only be paid in cash and no one has any change.
After 2 weeks you finally manage to get hold of a new £50 note…but you can’t spend it anywhere as nobody has any change.
Politics and media
The sensationalist tabloids and hate mail run stories about how house prices have stalled and building projects have halted because cash flow has stopped. They bemoan the fact that the rich will have difficulty banking their cash and how it is needed to keep the economy moving.
The broadsheet newspapers run stories about the brave move to tackle money laundering and tax evasion. They also run stories on how it is affecting minimum wage workers, all of whom support the Prime Minister’s move to make tax evaders pay their tax. They also report about bags (literally) of money being dumped in lakes. A raid on an Government Minister’s home reveals a whole room full of cash. They are immediately arrested.
The opposition parties go on the attack about how it is effecting daily life and particularly the hardship the minimum wage earners are suffering. It is not well received by anybody. The majority of the population are happy to go through some hardship if the tax evaders pay their tax.
The Prime Minister makes a statement at a press conference asking for 2 months for things to settle down and cries in front of all the press. The support for the Prime Minister increases overnight.
Cartoons start appearing in newspapers. (This one appeared in The Hindu newspaper.)
The month end
The end of the month is less than 10 days away. You have the electricity bill to pay, your gardener and cleaner and your fitness coach. You’ve bought tickets to a Christmas Party and they need paying in cash. You’ve ordered some handmade Christmas presents and they need paying in cash. Even if you now manage to withdraw your allotted daily allowance of cash you will not have enough to pay all the bills coming due. What do you do?
Minimum wage staff cannot open a bank account in time even if they could find the time to go to the bank and queue to do so. They definitely need paying in cash. The Christmas party tickets need paying in cash . You arrange, at some length with a communication barrier, to pay for your handmade gifts via direct bank transfer. You arrange credit with your fitness coach until the situation is less critical. You investigate whether the electricity bill can be paid online. In the meantime you spend several hours everyday looking for a cash machine with cash and join the inevitable queue.
If you can find your chequebook you can drive, for an hour, to the bank branch you opened your account with, and cash a cheque for £250 – but only once a week. Yes, I did say chequebook. When did you last use that? Would you know where to find it?
It is difficult to imagine this happening in the U.K. New notes are introduced and old notes phased out over a period of years. There would be absolute uproar and no doubt a vote of no confidence in the Government in Parliament – immediately triggering a General Election. None of this has happened in India. Everyone has discovered that they can indeed survive on less. Purchases are being delayed or not made at all. India is a poor country and the poorest are used to hardship – which is perhaps why they are OK with this change. It is the middle class and the rich that are struggling. The economy may actually shrink until this is sorted. The best outcome will be the removal of black money from the economy and the tax evaders finally getting their comeuppance. That will be good for everyone. Corruption is a big issue in India. It will be several months before things return to ‘normal’. In the meantime the Cauvery water crisis has finally taken a back seat in the news and that’s not a bad thing either.
Incredible India. A very accurate statement.