ArthaKranti and the Demonetization of the Indian Economy

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When I had first heard that India’s two largest bank notes worth 500 and 1000 rupees respectively would be demonetized and that the Indian people had fifty days to go to the bank and trade in these notes I thought “no way I don’t believe it.” I had spent 2 months in New Delhi attending classes at Koenig Solutions to learn how to pass my Cisco VoIP exams in March 2011. To this day going to India to get these certifications has been one of the best decisions of my life. I will be forever grateful that this program allowed me an affordable way to train under the supervision of a CCIE voice professional. I also made many new friends some of whom I am still in contact with to this day.

So I had a lot of feelings but I thought that surely the reports were overstated. Such a move would be potentially devastating to the economy and would be the cause of a great deal of suffering. No politician would ever do such a thing as this would be political suicide. But the stories were indeed true and so also was the suffering. In the past six months I can’t even count how many news reports and stories I have heard regarding Brexit. This event was described as “the trigger for probably the biggest legislative upheaval since the second world war.” Every time I heard of Brexit I would think “but what about India?” The media sources I trusted for fair and honest reporting were not covering the issue in any depth. It seemed that although the UK was divided they voted for Brexit knowing that there would be consequences so I didn’t feel that much remorse for the relatively mild troubles Europe was having. What seemed more relevant was that some percentage of Indians were loosing their entire life savings to demonetization.

Is this some sort of evil conspiracy?

I would watch videos of long lines to get into the banks and thought “this isn’t their fault. Their government did this to them.” If this had happened in the US by order of Donald Trump there is no doubt that within days protesters would likely attempt to burn down the capital or assassinate the president or both. But India is a very different country and I have to try and understand what was going on from the perspective of the Indian people.

The people of India didn’t choose (vote) to inflict this suffering upon themselves it was decided for them by Prime Minister Narendra Modi. Given the lack of stories which could help me understand what was happening I imposed my own western view which cast Modi as a pawn of some evil global conspiracy. There are plenty of these types of stories all over youtube and I rather wish I hadn’t listened to any of them. This created a powerful frame of reference for me shaped by my Western world view. Maybe some major telecommunications giant (Safaricom/m-pesa) was poised to make huge profits as India moved toward a “cashless society.” What else could possibly motivate such a radical move which would harm the economy and destroy the wealth of so many people?

But after a few months a story where Modi was part of a larger conspiracy to increase the profits of some shadowy organization didn’t really make sense. I just didn’t know what was true or what had happened. I basically gave up because none of the media sources I trust to provide balanced reporting had decided to cover the story. Finally NPR’s planet money put out a podcast which has been really helpful. I think it just blew my mind that this issue was so complex. There are clear victims but no clear villains and no easy way to understand the motivations behind this decision or why people were so in favor of such a radical change to their economy. I became even more puzzled when I learned Modi’s approval rating actually went up since the process of demonetization had started.

Finally some meaningful reporting

Planet Money’s reporting is remarkable. You absolutely must go and listen to part 1 and part 2 of their reporting. Its not easy to understand the motivations of Prime Minister Modi or the Indian people who supported him to make this change. As soon as I started listening I was thinking “aha now I’m going to finally find out who the bad guys are. What is ArthaKranti and why are they plotting to destroy the Indian economy.” But by the time I got to the end of part 2 I realized that ArthaKranti is not some evil society or even some misguided cult with a socioeconomic agenda. Rather, the story is complex and the motives of those involved are equally if not more complex.

Highlighting how difficult it was to understand these issues, planet money interviewed one man whose mother had lost her entire life savings to demonetization. He said that even thou he had been unable to exchange his old rupees for new notes he didn’t blame Modi and even he believed Modi had done the right thing for the country. He was suffering yet he felt that his government had “done the right thing.” This statement did not fit into my American mentality. Not merely because the American people are very distrustful of the current administration but because the US government doesn’t generally have the power to take away anyone’s property (money) without due process of law. The declaration of independence mentions life, liberty and the pursuit of happiness but the founders understood this to mean life, liberty and estate (ownership of property).

If demonetization was ever even attempted in the US and this resulted in the loss of anyone’s funds people would treat it similarly to someone trying to take away their life or their freedom just because that is our mindset. This would surely result in violent protests. When we suffer we search to find someone to blame for our suffering and if the government is to blame then we protest, we march and we revolt. But I hadn’t heard or seen stories of people protesting which just felt really weird.

I’m still trying to process the motivations behind this story without imposing my American prejudice onto the Indian people. The people and economy of India are undergoing radical transformation now. Their transformation into a cashless society has not been easy. Without the banking infrastructure we (1st world citizens) take for granted every day a lot of people are suffering. Although my American mentality wants to frame the people of India as crazy another way of looking at the situation is that the people of India are very brave. More time is needed to know which is actually true.

The reasons behind India’s demonetization

The primary reason stated for why India decided to undergo demonetization was to reduce corruption which it believes is the main reason why so many Indian citizens live in poverty. By providing the government with greater capacity to trace and tax every dollar in the economy the prime minister and ArthaKranti seem to believe this will greatly reduce funds controlled by criminal entities and increase funds controlled by the government which can in turn provide for the improved welfare of its citizens.

A partial solution in need of being completed

If India truly wishes to realize the ideals for society envisioned by ArthaKranti the government’s ability to more transparently track the funds of its citizens is an incomplete solution. The people must also have greater ability to transparently track the governments use of those funds to increase the welfare of India’s citizens. Allowing the government to track the flow of funds in an economy will never result in the elimination of corruption. This is clearly illustrated by the persistence of corruption within countries who have already transitioned to a nearly cashless society.

The only way to create transparent governance which allows anyone to audit the way the government spends the people’s money is by using blockchain technology. Don’t take my word for it but instead listen to Alex Van De Sande one of the key developers for the Ethereum foundation as he describes how Ethereum solves the problem of transparent governance. If India really believes in the ideals of ArthaKranti then it should be one of the first countries to adopt cryptocurrency as a means by which it can create a more transparent governance for Indian society. If India gives any of its citizens with an internet connection the power to audit their own government at any time then India will surely achieve the ideas of ArthaKranti and find prosperity. If they were to use Ethereum in this way they will have gone beyond the governance mechanisms used by today’s most powerful countries.

India welcome to the digital economy and the cashless society. I really wish you had come here having made less sacrifices. Now that you have decided to make this transition I hope you find the prosperity you were searching for. May the power of decentralization be with you.

Incentives architect for TandaPay

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