Thursday, December 15, 2016

Bank on It

Arun has a post on India's demonetization money maneuvers. He takes a shot at the opinions of ill-informed persons (You talkin' about me?), so let me try to put in a bit more information, for my benefit and maybe that of WB. The larger picture into which the withdrawal of large denomination bills fits is called Pradhan Mantri Jan Dhan Yojana, which, if your Hindi is not up to snuff, supposedly means Prime Minister's People Money Scheme.

The larger purpose is to create bank accounts for every household in India. Arun:

One of the reasons for this program is to end market subsidies for essential items that instead feed the black market, and instead to deposit money directly into the bank accounts of the people who need those subsidies.

This strikes me as a very sensible, market oriented idea, as does the subsidiary requirement to give every citizen a national identity card.

Demonetization of large bills is partly about the black market and tax evasion, but it also creates powerful incentives to get people into the banking economy.

No doubt libertarian purists will object to the identity cards, but my guess is that every one of them already has several: passport, driver's license, health insurance cards, credit cards, gym membership, Costco card .... The only people who lack them are the poor and undocumented.

Despite some implementation problems, Arun claims the program remains popular with the voters, as shown by recent election results.