Perspective: What the World Can Learn From India’s Cash Experiment

Monday, September 11, 2017

Almost a year on, India’s ban on large-denomination bills has been deemed a “total failure.” That’s not quite fair. True, the primary goal of flushing out tax cheats has been a flop. But a secondary goal — “to move toward the cashless society,” as India’s finance minister put it — still has real promise. The rest of the world, in fact, could learn a lot from this botched experiment.

A report last month showed that 99 percent of invalidated bills have now made their way back to banks, suggesting the government’s plan to extinguish illicit cash has foundered. At the same time, though, currency in circulation is down by about 25 percent from where it would otherwise have been, according to Bloomberg Intelligence, while electronic transactions are up.

If that trend continued, it could be a big deal. India has inefficient banks and lots of corruption. Its cost of cash — in access fees, maintenance expenses and so on — is among the highest in the world.

Photo courtesy of Simone McCourtie.

Source: Bloomberg (link opens in a new window)

digital payments, fintech