Imagine if the government announced that by tomorrow, all five and ten dollar bills were no longer legal tender. Within twenty four hours, any fives or tens you had in your wallet or your rainy day fund could no longer be used for any commercial transaction, like paying for a taxi, making a purchase at the corner store, or grabbing a coffee.

Hair stylists, restaurant servers, and anyone else who relied heavily on tips would be rushing to the bank to deposit their money before it lost its value.

While it would be inconvenient to deal with such an abrupt policy, most Canadians wouldn’t necessarily be set back financially. According to the World Bank, 99% of adult Canadians have an account with a financial institution, including 98% of adults in low income households. Most Canadians wouldn’t have more than a few fives or tens on them at any given time, because we keep our money in the bank and pay for most things digitally.

Now, imagine if only 47% of Canadians had a bank account, and the rest kept their savings in their homes — under a mattress, in a kitchen drawer, in a suitcase. Let’s say that their menial jobs paid them mostly in fives and tens. Within twenty four hours, everything they’d saved would be lost. This would be devastating.

This is precisely what’s been happening in India.

In November of last year, the government announced that within four hours, all 500 and 1000 rupee bank notes (worth $10 and $21 CAD, respectively) — which represented 86% of the currency in circulation — would no longer be valid for transactions. People had fifty days to bring their notes to the bank, but could only do so one small batch at a time.

Any deposits above 250,000 rupees ($5,319 CAD) would be investigated to make sure the person had paid their taxes. Those who had not would have to pay the full tax owed, as well as a large fine.

Leading up to the bank deadline on December 30, millions of people waited in lines for hours. In the end, the central bank was able to reclaim most of the 500 and 1000 rupee notes in circulation and replaced them with new 500 and 2,000 rupee notes that would be more difficult to counterfeit.

So what was the reasoning behind this snap policy?

The president saw demonetization as a way to meet five goals:

• Curb corruption (ie. human traffickers had stock piles of 500 and 1000 rupees)
• Clean out counterfeit currency (which was allegedly being used to fund terrorism)
• Digitize more of the economy
• Get a larger swath of the society into the formal market
• Increase tax revenue (only 2% of Indians pay taxes)

The rationale behind the rapid-fire implementation was that it would catch criminal groups off guard. The problem is that it caught many others off guard, too. What the government didn’t take into account was how their shock policy would affect impoverished people, especially women.

The unbanked and informal economy is hard hit. The poor do not have the access to structural and cultural resources to adapt to shock doctrine economics…There is an empathy deficit.

Monishankar Prasad,

as quoted in Forbes

Photo: jpeter2, Creative Commons via pixabay

About 47% of India’s population has a bank account, but most of them are men. In fact, 80% of women in India don’t have a bank account.

Most of these women scrimp and save little bits at a time, setting the money aside for emergencies or school for their children, often hiding it from their husbands. The new policy meant that any cash savings they had stashed in their homes was now worthless. Some women panicked and were selling their 1,000 and 500 rupee notes for less than their full value, accepting 800 rupees or 300 rupees in exchange.

For those in abusive households, a husband finding out about a hidden stash could be dangerous.

Every woman saves. You never know what problems you’re going to have, and we all keep money in the house, in a safe or in a box hidden somewhere. It’s a security for a woman. Because of this announcement, I now feel very insecure.

Mishra,

as quoted in The Guardian

Some anti-trafficking organizations said that the shock to the financial system has placed some women in a desperate position of not being able to buy food, making their daughters susceptible to traffickers. Not only that, but women already in the industry were feeling the effects of the policy as well.

Urmi Basu, the head of the New Light Foundation, explains that because trafficked women often don’t have identity papers, they can’t set up bank accounts in India. This means that any money they had hidden from their traffickers — to send to their family or to fund an escape — was no longer worth anything.

As the new bank notes enter into circulation, things will settle down. But there are a few things that can be learned from this.

While shocks are inevitable, some are better equipped to absorb that shock

People who are on the brink of poverty are often one event away from falling into a desperate circumstance. One medical emergency can make the difference between being able to pay rent and ending up on the street.

The government of India should have considered who would be adversely affected by their policy. While traffickers may have lost their stock piles of cash, so did the poor families whose vulnerability could now be exploited by those very traffickers. It is imperative that before shocks are applied — even if the long-term outcome is positive — that a safety net of some kind is offered to those who would otherwise fall through the cracks.

Now is the time for the Indian government to build trust

Demonetization was triggered, in large part, by rampant tax evasion. While people skirt taxes for many reasons, one of the big ones in India is lack of trust. Why would I pay taxes when the government never does anything that benefits my community?

Since India’s demonetization policy has brought in millions in tax revenue, they need to stick to their promise to use it for the public good. This is a tremendous opportunity for the president to build trust with his people. Let’s hope he stewards it well, and that high-risk families benefit from any new programs and infrastructure.

…there is a strong undercurrent of support for Modi [the president] as a person. But having said that, Modi has used up most of his goodwill and political capital with this move.

Prakhar Gupta, a resident of Lucknow,

as quoted in Forbes

Cultural attitudes toward women must change

Demonetization has peeled back the curtain and revealed the ugliness of misogyny yet again. Some husbands don’t even allow their wives to watch TV, making them fully dependent on their husbands for information. When news of the financial policy started to spread, these women, who had hidden their savings for years, were suddenly faced with a difficult decision — tell their husbands about their money (one article told the story of woman whose husband kicked her out, with her six children, when he found out about her stash), or stay silent and lose it all.

This is not to say that most marriages in India are like this, and there is a great movement to empower women. But India still has a long way to go when it comes to providing women with the rights and protections they need.

Over all, this should be a reminder to policy makers to consider the adverse effects their decisions could have on the most vulnerable, and a reminder for the rest of us to stand in the gap for those who simply cannot absorb a shock to the system.