What Demonetization Means and How It Could Affect You Next!

The Next Step for Many Governments Could Be to Cancel Your Money

Rupees Down the Drain
Indian Money Down the Drain. alexsl

Demonetization is coming here next. They just rolled it out in India, and depending how things work out, other nations all around the world could follow suit. At very least, some countries are watching closely to see how this all plays out.

The bulk of the population's currency was canceled. For the most part, people were intended to be able to replace that currency with newly printed notes. However, there were not enough of the newly printed notes to meet the demand of people trying or being forced to make the exchange.

After all, what a great way to take over the cash flow of a population, when everything else you tried to stimulate the economy failed? Why not just play the demonetization game, and take as much money as you need from the populace?

Demonetization has recently started in the second-most populated nation in the world (India), and the single-most cash-dependant society anywhere (again, that would be India). Despite numerous spins and adaptations on the fly about why this draconian measure was implemented, the true illogical logic has been touted as, "fighting back against counterfeiters and criminals."

In reality, demonetization is about control, in my opinion. It making it easier for the government to steal from the population, while calling the shots over spending patterns, and which currency notes the people hold and use.

Basically what happened was that Prime Minister Modi, along with some confidants, met in a back room of his house.

They decided to implement this very-much-untried demonetization process, which meant that certain bills (specifically the 500 and 1,000 Rs notes, in this case) would no longer be considered legal tender.

Some of the affected notes would be able to be "traded in" for an equivalent "new" currency. However, the problems stemming from the sudden, surprise move, continue to build by the day.

In fact, you can see the entire result of the demonetization experiment in this one short video.

Will demonetization deal a blow to the Black Market in India, and the criminals and counterfeiters? Yes, and a pretty big one... but at what cost?

There is always been corruption, but this monetization experiment may not be driven primarily and initially by corruption. The actions put all the power in the hands of the elite decision-makers. It also pushes everyone into the "digital payment" grid, not unlike many of the recent efforts by our own government.

You will see a drive towards demonetization throughout much of the world. When a society frees itself of cash, keeps track of everything digitally, it makes it much easier to shave off part of that investment for the government.

Don't like or support negative interest rates? Doesn't matter if they've got you on the digital grid — the government can just take whatever portion of wealth you own, which they deem appropriate. If the government decides to go to negative interest rates, the population will have no voice, no say against them proceeding.

If this was an organic transition, then it may have held some benefits. However, since this was announced in a surprise speech, it reeks of artificial physical manipulation.

In general, artificial impacts on a stock, or an economy, or an individual's investments tends to reverse over time.

The fact that Mr. Modi gave the demonetization announcement in a speech on the same day as the American election should not be overlooked. While the Presidential election is, of course, a bigger deal to Americans than the people in India, it was still a big news making event worldwide.  

That fact may have helped Modi pushed through his campaign when the majority of people were distracted, thus avoiding reactions, judgments, and suggestions from the West. I have no idea if that was a factor in the timing of the decision, or just a coincidence, but it has been a long while since I believed in coincidence!

So now what is the state of affairs in India, with the new cashless society?

The transition is actually looking to take anywhere from 2 to 6 times as long as the initial 50 day transition period which was originally projected, and some of the problems have yet to surface.

Some of the original theories were that it would help deal a knockout blow to the illicit and dark industries. However, Modi is been forced to change his position on the fly, now saying that the point of the experiment is to move to a cashless society.

Of all the countries in the world, India is one of the most cash-based and cash-dependent populations of all. To be fair, they are also suffering from a very significant amount of corruption, so at the very least there will be some benefit or improvement in terms of that aspect.

Being forced onto the digital network means that individuals are suddenly vulnerable to be tracked, traced, taxed, and controlled. In other words, we almost certainly will see our government try something similar!

If Western governments decide to try their hand at Demonetization, it will spread across Europe first, then it will come to our shores here in America. When the Federal Reserve realizes that all the money printing is not stimulating the economy as they had anticipated that it would, they will look for new measures to goose things. Demonetization may be exactly what they have been looking for, in terms of gaining control over all cash-based transactions.

Of course, it's a natural process to move towards cashless options rather than carrying around actual bills. Why pay with a bucket full of dollar bills when you could just tap your debit card?

That's an example of a technological improvement, which society has embraced and helped bring to the forefront. It would represent an organic evolution, and a lasting one.

Such a situation is in polar opposition to suddenly surprising an entire society, forcing them all out of cash and into the digital grid. To be honest, I must say that I can not believe it did not go worse than it has already.

One thing is for sure — governments are stupid, and not good at making the decisions which they are intended to make. Most choices are for the betterment of the government itself, rather than the people that the government governs.

In India, one of the examples provided is that even the vegetable vendors have payment machines, to make up for the fact that no one can pay cash anymore. Even rickshaw drivers and street vendors have been forced to go digital.

There will be some benefits and some good things that come out of this. However, there are many ways in which this entire experiment could go the wrong direction. If you take the second most populous country in the world, and suddenly rip away their ability to use cash to buy the things that they need, the end result will be more negative than positive.

Many other countries around the world are watching how this experiment turns out — and don't be surprised if the United States of America is one of them. The Federal Reserve has been scratching their head about why the economy won't wake up, despite unbelievably expensive amounts of money printing. (For bonus points, you can see exactly why the money printing has not helped, in this video).