tag:theconversation.com,2011:/id/topics/bank-notes-33628/articlesBank notes – The Conversation2018-08-07T10:41:03Ztag:theconversation.com,2011:article/1008602018-08-07T10:41:03Z2018-08-07T10:41:03ZSave money when traveling abroad by thinking like an economist<p><a href="https://theconversation.com/quiere-ahorrar-en-sus-viajes-piense-como-un-economista-101219"><em>Leer en español</em></a>.</p>
<p>A <a href="http://www2.unwto.org/publication/unwto-annual-report-2017">record number</a> of tourists and business travelers visited a country other than their own in 2017, and this year is <a href="http://media.unwto.org/press-release/2018-06-25/international-tourism-exceeds-expectations-first-months-2018">already on pace</a> to exceed that tally. </p>
<p>One thing you definitely need when traveling abroad besides a passport is local currency, such as euros in Europe, yen in Japan or rubles in Russia. In the past, travelers would typically <a href="https://www.smartertravel.com/2017/06/19/atms-abroad-travelers-need-know/">withdraw what they need from an ATM</a> in the country they’re visiting or simply use a credit card, letting their bank calculate the cost in their home currency at roughly the market rate. There was usually also a foreign transaction fee. </p>
<p>Increasingly, however, retailers, restaurants and ATMs are offering travelers the option to pay or withdraw money in terms immediately converted into their home currency. <a href="https://seekingalpha.com/article/3651246-aci-worldwides-aciw-ceo-phil-heasley-q3-2015-results-earnings-call-transcript?part=single">Companies</a> <a href="https://seekingalpha.com/article/3971480-planet-payments-plpm-ceo-carl-williams-q1-2016-results-earnings-call-transcript?part=single">offering</a> the <a href="https://seekingalpha.com/article/3969132-cardtronics-catm-ceo-steven-rathgaber-q1-2016-results-earnings-call-transcript?part=single">service</a> call it “<a href="http://www.monexfs.com/solutions/dynamic-currency-conversion/">dynamic currency conversion</a>.” For example, an American tourist visiting Paris is able to use her credit card to pay for a fancy meal at a French bistro in U.S. dollars, instead of euros. </p>
<p>This may seem innocuous – or even convenient – but agreeing to use your home currency in a foreign land can significantly inflate the cost of every purchase. Thinking a bit more like an economist can help you avoid this mistake, and save a lot of money.</p>
<h2>Surge in tourists</h2>
<p>A century ago, international <a href="https://theconversation.com/longing-for-the-golden-age-of-air-travel-be-careful-what-you-wish-for-34177">travel was only for the rich</a>. These days, almost anyone from an industrialized country can see a bit of the world on a budget. </p>
<p>While people <a href="http://time.com/money/3992929/airline-complaints-airfare-service/">commonly complain</a> about “high” airfares, the real cost of flying has never been <a href="https://www.theatlantic.com/business/archive/2013/02/how-airline-ticket-prices-fell-50-in-30-years-and-why-nobody-noticed/273506/">less expensive</a> – it’s half what it was in the early ‘80s – or <a href="http://www.travelandleisure.com/articles/why-airplanes-are-safe">safer</a>.</p>
<p>And that’s one reason why a record <a href="http://media.unwto.org/press-release/2017-07-14/strong-tourism-results-first-part-2017">1.24 billion people</a> visited another country in 2016. Naturally, financial firms have sought to capitalize on all this wandering by inventing ever more ways to separate travelers from their hard-earned money.</p>
<h2>Buying things abroad</h2>
<p>Tourists rely on credit, debit or ATM cards to pay for hotels, restaurant meals and local trinkets. </p>
<p>A complex international computer network checks if a card is valid for the transaction and transfers the money. Traditionally, to help pay for this, banks and credit card companies have charged customers a <a href="https://www.nerdwallet.com/blog/banking/debit-card-foreign-transaction-international-atm-fees/">foreign transaction fee</a>.</p>
<p>However, banks are now offering more cards with <a href="https://www.nerdwallet.com/blog/top-credit-cards/no-foreign-transaction-fee-credit-card/">no foreign transaction fees</a>. At the same time, “free ATMs” <a href="https://www.ricksteves.com/travel-tips/money/cash-machine-atm-tips">are popping up</a> around the world that don’t charge local transaction fees (though your own bank may still do so).</p>
<p>So how do banks cover the costs of these transactions if they are increasingly letting consumers use the system for free? One way is offering the option to pay in a user’s home currency. <a href="https://www.americanbanker.com/opinion/stop-gouging-travelers-with-dynamic-currency-conversion">Even some bankers</a> warn against consumers <a href="https://www.ricksteves.com/travel-tips/money/card-fees">doing this</a> because the exchange rate used is much worse than the one your bank would offer.</p>
<p>For example, say you’re a Spaniard visiting New York City and shopping for some clothes at a department store. After scouring the store for the right sweater for your mother, you go to the cashier to pay the US$50 bill (tax included). After you swipe your Spanish credit card (which boasts no foreign transaction fee), the cashier asks if you’d like to pay in euros instead of dollars. </p>
<p>If you stick with dollars, your bank would convert the price into euros at about the market rate, €43 at the moment. If you choose to pay in euros, however, the currency conversion includes a fee for the privilege, which may be as much as 10 percentage points. So you might end up paying about €47 instead. </p>
<p>The same thing happens with ATMs. Last year, I was in London’s Heathrow Airport and needed some British pounds. In the old days, an ATM would simply offer a few denomination options, issue me money and my bank at home would eventually <a href="http://www.xe.com/currencycharts/?from=GBP&to=USD&view=1Y">calculate</a> the cost in U.S. dollars. Instead, the airport ATM asked me if I wanted to lock in the exchange rate and know exactly how many dollars would be debited from my bank account. </p>
<p>I wanted £100 and tried two different ATMs. The currency rate offered in dollars ranged from almost 4 percent to 10 percent more than what my bank charged (or about $134 to $142). I rejected both offers, did the transaction in the local currency and ended up with a total charge of just $129 from my bank.</p>
<p>I have observed numerous international travelers as they made this choice, such as an Italian family arguing about it at the next ATM, and most chose the dynamic conversion into their own currencies. </p>
<p>So why do travelers pay more by accepting a worse exchange rate when they could simply say no? </p>
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<img alt="" src="https://images.theconversation.com/files/180120/original/file-20170728-23754-14bf0wd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/180120/original/file-20170728-23754-14bf0wd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=555&fit=crop&dpr=1 600w, https://images.theconversation.com/files/180120/original/file-20170728-23754-14bf0wd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=555&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/180120/original/file-20170728-23754-14bf0wd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=555&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/180120/original/file-20170728-23754-14bf0wd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=698&fit=crop&dpr=1 754w, https://images.theconversation.com/files/180120/original/file-20170728-23754-14bf0wd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=698&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/180120/original/file-20170728-23754-14bf0wd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=698&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">An ATM at Heathrow Airport offered to debit my bank account in U.S. dollars rather than the British pounds I was withdrawing. The rate it charged would have been $1.42 per pound, or 14 cents above the market rate that day.</span>
<span class="attribution"><span class="source">Jay Zagorsky</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
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<h2>Three functions of money</h2>
<p><a href="http://businessmacroeconomics.com/">Economists</a> consider any item as <a href="https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-9-functions-of-money">money if it performs three different functions</a>: unit of account, store of value and medium of exchange. Two out of three explain why so many international travelers act the way they do.</p>
<p>The first function of money is a <a href="http://money.visualcapitalist.com/tag/unit-of-account/">unit of account</a>, which is how people post and keep track of prices. This is why banks and credit card companies get people to agree to pay in the currency where they live, instead of using local money.</p>
<p>When people travel to a country with a different currency, they often mentally keep track of their spending using their home currency, converting all prices in their heads as they shop and eat. If an ATM or credit card terminal asks if you want to pay for something in the currency you use as your unit of account, your brain says yes. </p>
<p>Money also acts as a <a href="https://www.jstor.org/stable/1914465">store of value</a>. Items used as money provide the ability to make purchases now and also in the future. At the end of a trip, travelers not planning on returning to a country tend to spend leftover money in airports buying things they don’t really want. They don’t want to hold onto foreign bills since they are not a store of value. For the same reason, they prefer to be charged in their home currency when getting money from an ATM.</p>
<p>Money is also a <a href="https://www.jstor.org/stable/40657688">medium of exchange</a>, which is anything readily acceptable as payment to buy or sell goods and services. This is why people have to convert money when they travel abroad. In New York City, a dollar bill is a medium of exchange for food, drink or a ride on the subway. However, those dollars are not a medium of exchange in, say, China, where waving a wad of greenbacks would mostly get you stares. And that’s why travelers must convert money from one currency to another.</p>
<h2>How to save money abroad</h2>
<p>When faced with an ATM or credit card machine that asks if you want to convert to your home currency, I recommend you decline, especially if you went to the pain and effort to ensure you have a card or <a href="https://thepointsguy.com/2014/02/the-top-11-checking-accounts-for-avoiding-foreign-atm-fees/">bank with no extra foreign exchange fees</a>. Even if you don’t have one, and your debt card charges a fee, in most cases it still makes sense to use the local currency.</p>
<p>An exception to this rule, of course, is if your bank or credit card charges a very high fixed foreign exchange fee and you need only a little bit of money. If this is your case, then saying yes might save you money even if you get a poor exchange rate.</p>
<p>The main thing: Think it through. Resist your natural inclination to say yes just because it makes you feel comfortable. Don’t be fooled when asked if you want to complete a transaction using your home currency. Using the local currency can save you money, making your next trip abroad less costly.</p>
<p><em>This is an updated version of an <a href="https://theconversation.com/thinking-like-an-economist-can-make-your-next-trip-abroad-cheaper-81655">article originally published</a> on July 27, 2017.</em></p><img src="https://counter.theconversation.com/content/100860/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Global travelers are being increasingly asked if they want to pay for local purchases in terms of their home country currency. Here’s why you should resist the strong temptation to do so.Jay L. Zagorsky, Adjunct associate professor, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/842022017-09-19T19:41:37Z2017-09-19T19:41:37ZIt may not be beautiful but the new ten dollar note is pretty secure<p>You might notice a new blue and gold addition to your wallet in the next few weeks as the Reserve Bank of Australia <a href="http://banknotes.rba.gov.au/banknote-features/#-new-ten">releases the new A$10 note</a> into circulation. The new series of Australian banknotes <a href="https://theconversation.com/our-punk-jarring-five-dollar-note-so-bad-its-good-or-just-bad-57731">are not a designer’s dream</a> but they are the strongest yet in terms of preventing counterfeiting.</p>
<p>The first of its kind polymer note was introduced by the Reserve Bank of Australia in July 1992. This A$5 banknote was arguably the most secure banknote in circulation anywhere in the world. </p>
<p>But in the intervening 25 years banknote security technology, for both polymer and paper banknotes, has improved and Australia’s first polymer notes were no longer world leading. These new notes take us back to being a world leader in this technology or at least equal to the new £10 “Jane Austin” banknote released <a href="http://www.bankofengland.co.uk/publications/Pages/news/2017/047.aspx">recently by the Bank of England</a>.</p>
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Read more:
<a href="https://theconversation.com/our-punk-jarring-five-dollar-note-so-bad-its-good-or-just-bad-57731">Our punk, jarring five dollar note: so bad it's good or just bad?</a>
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<p>The next new banknote to be released will be the A$50, planned for 2018 and the A$20 and A$100 in later years. The new A$50 banknote will be particularly important since, in 2016, nearly <a href="https://www.rba.gov.au/publications/bulletin/2017/mar/bu-0317-8a.html">84% of our counterfeit notes</a> are of that denomination.</p>
<p>The rate of counterfeit notes is usually quoted as the number of counterfeits per million notes in circulation (ppm). Issuing authorities usually like the number to be under 50ppm. </p>
<p>Canada had <a href="http://www.rcmp-grc.gc.ca/count-contre/count-cont-eng.htm">the highest rate of counterfeiting</a> before adopting the polymer note, it reached a peak of 470ppm in 2004 and stayed high until the release of their polymer banknotes in 2011. Their rate is now around 10ppm.</p>
<p>In contrast to this, <a href="https://www.rba.gov.au/publications/bulletin/2017/mar/bu-0317-8a.html">the Australian rate</a> rose to about 15ppm towards the end of the first decimal paper money series but dropped dramatically to 1 or 2ppm when the polymer notes were introduced. The rate rose to as high as 25ppm in 2015. </p>
<p>There are a number of reasons for this. Computing and printing equipment has become more sophisticated and cheaper. Quality printing on polymer is now possible with modern printing and copying equipment.</p>
<p>Also counterfeiters need only simulate a banknote, not reproduce it exactly, to fool us. In 2016 31,682 counterfeits were used before they were detected. </p>
<p>However not all fakes go unnoticed. For example, the “waxy” feeling of <a href="http://www.publish.csiro.au/book/6490/">a A$10 banknote in 1966</a> failed to fool a milk bar owner in Ashburton and the forgers were apprehended within a few hours. </p>
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<img alt="" src="https://images.theconversation.com/files/186682/original/file-20170919-22701-hnka5r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/186682/original/file-20170919-22701-hnka5r.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1104&fit=crop&dpr=1 600w, https://images.theconversation.com/files/186682/original/file-20170919-22701-hnka5r.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1104&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/186682/original/file-20170919-22701-hnka5r.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1104&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/186682/original/file-20170919-22701-hnka5r.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1388&fit=crop&dpr=1 754w, https://images.theconversation.com/files/186682/original/file-20170919-22701-hnka5r.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1388&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/186682/original/file-20170919-22701-hnka5r.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1388&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="source">Reserve Bank of Australia/The Conversation</span></span>
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<p>The new banknotes retain all of the security features of the first series of polymer banknotes, but with some new additions. </p>
<p>The A$10 note is still printed on the same polymer material, has a clear window and has micro-printed verses from the poems of Banjo Paterson and Mary Gilmore. All polymer banknotes internationally have these two features as neither can be reproduced on paper copying machines. </p>
<p>Both the new A$5 and A$10 banknotes include a top to bottom clear area with a number of devices that change colour when moved or when exposed to different light sources. These are called “optically variable devices”. </p>
<p>These are similar to the original 1988 A$10 commemorative banknote that had a diffraction grating, fine metal lines that when exposed to the light change colour, depicting Captain Cook. The devices in the new banknotes are like this but use more robust technology.</p>
<p>The new notes also have a tactile feature to assist vision impaired users. The A$5 note has one raised dot on the top left hand area and another on the bottom central area. The A$10 banknote has two raised dots. These first appeared on the Canadian polymer banknotes in 2011 and are also on the new Bank of England notes. </p>
<p>Another new feature on both the A$5 and A$10 banknotes is that the serial number and the year of printing fluoresce under UV light. This is quite common technology because its used in paper notes as well. </p>
<h2>Polymer notes started in Australia</h2>
<p>One of the reasons why the currency of other countries has become as secure as ours is the commercial and technical success of the company that produces the polymer substrate used in the notes.</p>
<p>In the early 1990s the Belgium chemical company, Union Chimique Belge (UCB) built a plant in Craigieburn, near Melbourne, to manufacture the polymer substrate for the new Australian banknotes. This was the first plant dedicated to producing polymer banknote substrate.</p>
<p>In 1996 the RBA and UCB established a joint venture, Securency International, to market the technology internationally. This venture was successful and the many countries in the Asia-Pacific region adopted the new technology. </p>
<p>Some of the success of the company was <a href="http://www.mcgrathnicol.com/financial-crime-exchange/newsroom/securency-foreign-bribery-case/">marred by illegal conduct</a>, with the director of regional sales for Africa, Peter Chapman, jailed for bribery in the UK. </p>
<p>UCB sold its share of Securency to the UK company, Innovia Films, in 2004. In 2013, Innovia acquired the RBA’s 50% share in the business and renamed it Innovia Security.</p>
<p>The large Canadian packaging company, CCL Industries acquired Innovia Security in February 2017. It merged with the Banknote Corporation of America to form CCL Secure. By the end of 2017 <a href="https://cclsecure.com/">this company will have produced</a> more than 55 billion polymer notes in 80 denominations and and in 24 countries.</p>
<p>This latest series of Australian polymer banknotes will place us once again at the forefront of banknote security. But continuing research, development and new features will still be required to keep us there.</p><img src="https://counter.theconversation.com/content/84202/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tom Spurling received funding from the Reserve Bank of Australia in 1972 , he was part of the project team that introduced the concept of a polymer substrate for currency to the RBA.</span></em></p><p class="fine-print"><em><span>David Solomon received funding from the Reserve Bank of Australia in 1972 , he introduced the concept of a polymer
substrate for currency to the RBA.</span></em></p>The new series of Australian banknotes are not a designer’s dream but they are the strongest yet in terms of preventing counterfeiting.Tom Spurling, Professor of Innovation Studies, Swinburne University of TechnologyDavid Solomon, Professorial Fellow in Engineering, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/733722017-03-26T23:50:25Z2017-03-26T23:50:25ZIndians’ ‘notes ban’ compliance masks a silent crisis of legitimacy<figure><img src="https://images.theconversation.com/files/161267/original/image-20170317-14640-vwn5d0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Indian people felt a moral obligation to queue up and co-operate with the 'notes ban' policy.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/money-transfers/31530243503/in/photolist-R3Anuo-RgSLrP-RgSLmZ-Q3degx-PZruxs-Q3dK2z-Q3dJTZ-Q3dKnz">Monito/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p><em>This article is part of the <a href="https://theconversation.com/au/topics/democracy-futures">Democracy Futures</a> series, a <a href="http://sydneydemocracynetwork.org/democracy-futures/">joint global initiative</a> between The Conversation and the <a href="http://sydneydemocracynetwork.org/">Sydney Democracy Network</a>. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.</em></p>
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<p>India’s demonetisation, the “<a href="https://theconversation.com/india-taking-a-step-on-the-road-to-cashless-economy-70309">notes ban</a>”, began on November 8, 2016. The Bharatiya Janata Party (BJP) government announced that all high-denomination notes (500 and 1,000 rupees) in circulation would cease to be legal tender.</p>
<p>This was a shock. No hint of such a 1.3 billion-person-wide policy was given until the announcement. The population had only 50 days to exchange their old notes.</p>
<p>At the time <a href="http://www.thehindu.com/opinion/lead/The-politics-of-demonetisation/article17104627.ece">more than half</a> (54%) of the population lived without bank accounts and were employed in a highly cash-driven and very large <a href="http://www.thehindu.com/opinion/interview/%E2%80%98Serious-job-losses-are-taking-place%E2%80%99/article17046208.ece">informal</a> agricultural economy. The supporting infrastructures were far from adequate for the millions of citizens who needed to learn the management skills required in a less cash-dependent society.</p>
<p>Unsurprisingly, <a href="https://theconversation.com/modis-bank-note-ban-has-inflicted-pointless-suffering-on-indias-poorest-69157">daily life</a> was completely disrupted. Chaos reigned in the banks, which suddenly had to deal with the demands of India’s entire population all at once. Everyday business and trade threatened to collapse on the streets.</p>
<h2>Hyper-technocracy, or democracy in action?</h2>
<p>Leading economists and political analysts slammed the government’s move as “<a href="http://www.ndtv.com/india-news/note-ban-an-unguided-missile-amartya-sen-arun-shourie-slam-government-1653656?site=full">despotic</a>”. This policy drive discarded the norms of democratic decision-making, which necessarily involves the public, is driven by their demands and settled through their deliberation.</p>
<p>Under the leadership of Prime Minister Narendra Modi, the BJP argued that the sudden announcement of the notes ban was simply the most efficient way of achieving its goals. </p>
<p>However, <a href="https://en.wikipedia.org/wiki/2017_elections_in_India">this year’s state elections</a> in India may also be a factor. The BJP achieved another “<a href="http://www.bbc.com/news/world-asia-india-39228615">decisive</a>” result in the most-recent campaign. Certainly, its timing can be seen as the ruling party taking advantage of its power to jeopardise and inconvenience the very cash-driven campaign plans (think election freebies and rallies) of opposition parties.</p>
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<img alt="" src="https://images.theconversation.com/files/158838/original/image-20170301-29942-14vj0mw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/158838/original/image-20170301-29942-14vj0mw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=481&fit=crop&dpr=1 600w, https://images.theconversation.com/files/158838/original/image-20170301-29942-14vj0mw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=481&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/158838/original/image-20170301-29942-14vj0mw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=481&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/158838/original/image-20170301-29942-14vj0mw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=604&fit=crop&dpr=1 754w, https://images.theconversation.com/files/158838/original/image-20170301-29942-14vj0mw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=604&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/158838/original/image-20170301-29942-14vj0mw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=604&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Political parties often recruit Bollywood stars like Salman Khan and give out freebies at election rallies.</span>
<span class="attribution"><span class="source">Al Jazeera English/flickr</span></span>
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</figure>
<p>Even though the BJP portrayed the demonetisation drive as a major public problem-solving measure, the government never clearly defined the problems. This isn’t to say that it didn’t offer a range of objectives. The notes ban was going to flush out black money (assumed to be in cash only), curb counterfeiting and illegal cash transactions, and move India towards a cashless economy.</p>
<p>The Modi government drew a clear link between black (paper) money, corruption and illegal and terrorist activities in the public’s mind. Heavily loaded with the moral sentiments of “redistributive justice”, the BJP aimed to position itself as the people’s crusader against corruption.</p>
<p>Yet the immediate effect of the demonetisation process, apart from massive inconvenience (90 people so far have <a href="http://www.catchnews.com/national-news/deaths-due-to-demonetisation-since-8-nov-here-s-a-list-of-the-casualties-of-pm-modi-s-note-ban-1480484645.html">died</a> in bank queues), was that almost <a href="http://www.thehindu.com/opinion/lead/The-politics-of-demonetisation/article17104627.ece">86%</a> of the currency went back to the banks. In short, the government’s assumptions about the quantity of black money cash were wrong.</p>
<p>And while a demonetisation drive might have several economic objectives, the lack of deliberation and public consultation left no room for clarity on either the grounds or urgency of the measure. Instead, the government’s shifting goals made it look opportunistic.</p>
<p>Still, from the BJP’s perspective, India was always going to encounter transition pains in moving towards a more modern economy. Sure enough, large parts of the population are entering the formal banking system. Major banks such as the State Bank of India have been opening <a href="http://www.deccanchronicle.com/nation/current-affairs/301116/over-30-lakh-new-bank-accounts-opened-since-demonetisation-report.html">50,000</a> new accounts a day.</p>
<h2>Why did the public co-operate?</h2>
<p>The most intriguing political outcome of the demonetisation drive was its seeming legitimacy. The Indian people largely co-operated in spite of the inconvenience and loss of livelihoods. But why did they acquiesce to the suppression of their economic choice and security?</p>
<p>Executing a surprise policy that affects the public at every level but fails to involve them in the decision-making is undeniably undemocratic. Yet, in technocratic terms, it may appear to be the only efficient option. The public apparently believed this to be so.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/S5jdpOGylfs?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">While the execution of the notes ban has been attracted public criticism, the plan itself has found support.</span></figcaption>
</figure>
<p>To maintain the effectiveness of its shock tactic, the government set very short deadlines and made rapid changes to banking regulations in an unprecedented manner. Not only did most people co-operate, but they did so in silence. Except for incidents of agitation against the functioning of banks, no significant voices of protest were raised.</p>
<p>The public’s gracious behaviour can be interpreted as a result of both fear and a sense of social and moral obligation. Any dissent risked provoking a negative government reaction. Furthermore, given the tight deadlines and huge penalties involved, people thought it wiser to play by the rules rather than waste precious time questioning them.</p>
<p>And since the notes ban was supposedly about cleaning up India’s corrupt systems, it allowed the public to feel as if they were participating in the national project of wealth redistribution.</p>
<h2>A breakdown of representation</h2>
<p>The demonetisation drive was clearly based on government management of perceptions about efficiency and legitimacy. The citizens perceived it to be efficient. The government, in turn, flaunted their co-operation as a sign of legitimacy. What emerges is a perception-based democracy, a sure sign of crisis.</p>
<p>It’s important to note that the public’s lack of protest flows directly from a lack of trust in their political representatives. The opposition parties’ failure to mobilise any substantial challenge to the measure (for fear of appearing corrupt themselves) comes as no surprise. </p>
<p>Regional political parties, which have considerable control over state politics, failed to garner any public support against the demonetisation drive. </p>
<p>Public co-operation does not demonstrate public trust in the ruling BJP, either – remember that the Indian people felt a moral obligation to participate in demonetisation. They felt involved, for once, in actively solving their own problems. But they did not trust their representatives enough to think that they could take up their cause against even the functionally difficult aspects of the policy. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/161265/original/image-20170317-14619-1fcrizt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/161265/original/image-20170317-14619-1fcrizt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/161265/original/image-20170317-14619-1fcrizt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/161265/original/image-20170317-14619-1fcrizt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/161265/original/image-20170317-14619-1fcrizt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/161265/original/image-20170317-14619-1fcrizt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/161265/original/image-20170317-14619-1fcrizt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">After the shock ban on notes in circulation, the new Mahatma Gandhi banknote series was introduced.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/ps_sahana/31530585646/">Partha S. Sahana/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>And so demonetisation went ahead. But it is time that politicians understood the deeper significance of the Indian people’s acquiescence as a sign of representational breakdown.</p>
<p>To interpret the people’s hard work and suffering during the note ban implementation as a mark of government legitimacy is to ignore the obvious democratic crisis. A lack of democratic safeguards has overridden the public will with the BJP’s manipulative information management, political gimmicks with social and moral sentimentalities wrapped in nationalistic hyperbole and electoral mayhem.</p>
<p>As the long-term impacts of demonetisation are revealed, the citizens of India will need to acquire the skills to hold the government accountable for a policy that has caused them immense trouble and stands to affect their livelihoods for the foreseeable future.</p>
<p>While elections remain the only practical opportunity for citizens to channel their political grievances in India, the BJP’s notes ban should not be allowed to get lost in the electoral theatre of political histrionics. </p>
<p>If the people are to benefit from a policy that, despite appearances of efficiency, entails unimaginable costs, they must begin to scrutinise its impacts on long-term prosperity and democratically demand the most of what can be made of it.</p><img src="https://counter.theconversation.com/content/73372/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Esha Sen Madhavan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Public co-operation is not proof of trust in government. The Indian people did not trust elected politicians to represent them against top-down policymaking that caused enormous difficulties.Esha Sen Madhavan, University Grants Commission PhD Research Fellow, University of Madras, and Visiting Fellow, Sydney Democracy Network, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/691572016-11-25T07:31:00Z2016-11-25T07:31:00ZModi’s bank note ban has inflicted pointless suffering on India’s poorest<p>The world is full of stark contrasts; and contrasts present great opportunities for spin doctors. In India, the spectre of black money – untaxed stashes of cash hoarded by individuals – coexists with the <a href="https://ourworldindata.org/world-poverty/">world’s highest number of people living in extreme poverty</a>. This contrast has been there for years. </p>
<p>So when Indian Prime Minister Narendra Modi <a href="http://www.nytimes.com/2016/11/09/business/india-bans-largest-currency-bills-for-now-n-bid-to-cut-corruption.html?_r=0">announced an immediate ban</a> on two high-value bank notes – 500 rupees (worth roughly US$7.27) and 1,000 rupees (US$14.54) – to fight the menace of black money, as well as fake currency and terror financing, was it sound policy, or yet more spin? Or was it, as Modi’s predecessor Manmohan Singh has called it, “<a href="http://www.ndtv.com/india-news/monumental-management-failure-dr-manmohan-singh-on-notes-ban-1629571">organised loot and legalised plunder</a>”?</p>
<p>The two notes accounted for <a href="http://indianexpress.com/article/opinion/web-edits/rs-500-rs-1000-notes-are-banks-equipped-to-replace-1874-crore-pieces-of-notes-4364746/">86% of cash</a> in an economy dominated by cash transactions. The idea behind the policy is that banning these notes will lead to more money being taxed, and those taxes will be directed to making all Indians better off. </p>
<h2>Engulfed by crisis</h2>
<p>When Modi announced the <a href="http://www.pmindia.gov.in/en/news_updates/prime-ministers-address-to-the-nation/?comment=disable">decommissioning of the notes</a>, he also announced a roadmap for the future, containing 21 action points. </p>
<p>The prime minister rightly stressed that the benefits of eliminating these notes may not be immediately felt. He described some of the initial implementation hiccups as “<a href="http://www.pmindia.gov.in/en/news_updates/prime-ministers-address-to-the-nation/?comment=disable">temporary hardships</a>”. </p>
<p>The question now is how temporary these hardships will actually be. This needs to be stressed because many of the other policies announced on November 8, for example on the ability to exchange the old notes, and the ability of ATMs to <a href="http://indianexpress.com/article/india/india-news-india/more-than-80-thousand-atms-recalibrated-to-dispense-new-notes-4389909/">dispense new notes</a>, have not yet <a href="http://psainath.org/the-cashless-economy-of-chikalthana/">been met</a>. Yet demonetisation took place with almost immediate effect.</p>
<p>As could have been anticipated, a <a href="http://money.cnn.com/2016/11/18/news/india/india-cash-ban-explainer/">crisis</a> has engulfed the nation. The degree of suffering directly relates to income, with the <a href="http://www.bbc.com/news/world-asia-india-37947029">poorest of the poor</a> worst affected. </p>
<p>Since November 8, <a href="http://www.huffingtonpost.in/2016/11/17/day-9-demonetisation-death-toll-rises-to-55/">55 people have died</a> due to the currency chaos, never mind the suffering hundreds of millions of <a href="http://www.bbc.com/news/world-asia-india-37947029">ordinary people</a>, <a href="http://scroll.in/article/821255/note-demonetisation-what-of-the-women-who-hide-cash-to-feed-their-children-or-to-escape-abuse">mostly among the marginalised</a>, have been enduring.</p>
<p>Basic logistical issues, such as <a href="http://www.huffingtonpost.in/2016/11/11/this-is-how-2-lakh-atms-in-india-will-get-a-complete-makeover/">reconfiguring ATMs</a>, or catering to rural people through <a href="http://www.thehindubusinessline.com/money-and-banking/rbi-ban-on-dccbs-accepting-demonetised-notes-irks-farmers/article9345182.ece">cooperative banks</a> have not been adequately planned, and at best are <a href="http://www.thehindubusinessline.com/economy/agri-business/govt-takes-steps-to-ensure-farmers-get-credit/article9377331.ece">too little too late</a>. The central bank is engaged in a <a href="https://rbi.org.in/Scripts/FAQView.aspx?Id=119">messy fire-fighting exercise</a>.</p>
<h2>Do the ends justify the means?</h2>
<p>The need for demonetising existing high-value bank notes has been investigated time and again in India and <a href="http://www.nytimes.com/2016/05/05/business/international/ecb-to-remove-500-bill-the-bin-laden-bank-note-criminals.html">elsewhere in the world</a>. But for fear of exactly the kind of massive disruption we are now seeing, no sudden decision was recommended for India. </p>
<p>In 2014, a much <a href="http://indianexpress.com/article/india/india-others/rbi-to-withdraw-all-currency-notes-issued-before-2005-after-march/">milder demonetisation programme was implemented</a>, with the central bank withdrawing certain series-notes from circulation gradually, giving citizens adequate time to exchange their cash, rather than cancelling notes overnight.</p>
<p>In opposition at the time, Modi’s Bharatiya Janata Party (BJP) <a href="http://www.huffingtonpost.in/2016/11/11/bjp-had-a-very-different-view-on-demonetisation-in-2014/">opposed this demonetisation policy</a>. It’s unclear why the prime minister has had such a change of heart now.</p>
<p>There is no doubt that the goal of the policy – fighting black money – is worthy. Collateral benefits, such as the shift towards a <a href="http://www.khaleejtimes.com/business/economy/indias-demonetisation-to-train-people-to-shift-to-cashless-economy">cashless economy</a>, are being cited on a daily basis. </p>
<p>From this point of view, the ends are seen to justify the means, and Modi’s “temporary hardships” are merely the birth pangs of a new and rising India.</p>
<p>But are the ends really worth it? The amount of black money held in cash is tiny. Estimates vary but the range, almost always, is in single digits: from <a href="http://www.catchnews.com/politics-news/currency-ban-won-t-affect-netas-only-people-will-suffer-govindacharya-1478824022.html">3%</a> to <a href="http://www.hindustantimes.com/india-news/cash-has-only-6-share-in-black-money-seizures-reveals-income-tax-data/story-JfFuTiJYtxKwJQhz2ApxlL.html">6%</a> or at best up to 10%, a figure mentioned in a few television debates.</p>
<p>So even if the policy works to eliminate black money held in cash, 90% or more of the problem will persist. </p>
<h2>Financial inclusion</h2>
<p>Context is important here. The demonetisation exercise has come after more than two years of a programme called <a href="http://www.pmjdy.gov.in/"><em>Pradhan Mantri Jan-Dhan Yojana</em></a> (PMJDY), the “Prime Minister’s People Money Scheme” in English. </p>
<p>Data from the last census show that in 2011, only <a href="http://www.thehindubusinessline.com/money-and-banking/financial-inclusion-is-still-a-long-way-off-census/article2991474.ece">67% of urban households and 54% rural households</a> had access to mainstream financial services. Getting the remaining households access to banking services is a process known as financial inclusion. </p>
<p>In the context of banning bank notes, financial inclusion is crucial. People who have access to credit cards and operational bank accounts are much better prepared for a demonetisation crisis than those marginalised people whose money is all in cash, primarily in the form of these decommissioned notes. </p>
<p>The intent of the policy is partially to stop poor people living cash-only lives. So India needs to give people the ability to borrow money from banks when required rather than from <a href="http://scroll.in/article/810984/why-small-farmers-in-tamil-nadu-borrow-money-at-exorbitant-interest-rates">money-lenders</a>, a common practice among the nation’s poor.</p>
<p>But <a href="https://theconversation.com/smartphones-in-india-how-to-get-1-25-billion-people-online-65137">smartphone and internet</a> access is yet to reach the majority of Indian households. This is not the time to talk about how online payment services can replace cash. A similar argument can be made about the proportion of people holding identity documents, a prerequisite for opening a bank account.</p>
<p>Social and economic divides are complex areas of study, be they investigations of <a href="https://www.cambridge.org/core/journals/ethics-and-international-affairs/article/eliminating-extreme-inequality-a-sustainable-development-goal-20152030/013C79F9BBBE4DCDFFE4A5348CEAE05F">extreme inequality</a>, the <a href="https://www.brookings.edu/research/why-wait-100-years-bridging-the-gap-in-global-education/">education gap</a>, the <a href="https://theconversation.com/angkor-replicated-how-cambodian-workshops-produce-fake-masterpieces-and-get-away-with-it-68173">digital divide</a>, or financial inclusion.</p>
<p>In general, such divides are narrowed by improving three things: affordability, accessibility and skills. Developing skills by influencing user behaviour in many cases proves to be <a href="http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTGLOBALFINREPORT/0,,menuPK:8816192%7EpagePK:64168176%7EpiPK:64168140%7EtheSitePK:8816097,00.html">the most difficult and time consuming</a>. </p>
<h2>Changing behaviour</h2>
<p>To understand whether it’s possible to change user behaviour in India right now, we need to look at the household-level financial inclusion data. The best possible source is the Reserve Bank of India. </p>
<p>In this analysis, data on use of bank and credit cards comes from three moments in time. The first is the latest available data, from <a href="https://rbidocs.rbi.org.in/rdocs/ATM/PDFs/ATMPC17112016311BE3CCA94143DAAB5462E4C9733E28.PDF">August 2016</a>. The second is from <a href="https://rbidocs.rbi.org.in/rdocs/ATM/PDFs/ATC14012014.pdf">January 2014</a>, when milder demonetisation was introduced and BJP condemned any move towards demonetisation as being “<a href="http://www.huffingtonpost.in/2016/11/11/bjp-had-a-very-different-view-on-demonetisation-in-2014/">anti-poor</a>”. The third reflects the same amount of time between the first and the second points, and comes from <a href="https://rbidocs.rbi.org.in/rdocs/ATM/PDFs/BAC062011FL.pdf">June 2011</a>.</p>
<p>My analysis of the data from these time points shows that growth in the number of valid credit and debit cards from January 2014 to August 2016 was 85%; much higher than the 55% growth rate in the previous corresponding period.</p>
<p>But when it comes to transaction value, there’s a slowdown in the growth of the cashless economy. Between January 2014 and August 2016 it was 35%, down from 61% in the previous period. </p>
<p>All this means that PMJDY did not <a href="http://www.thehindu.com/opinion/op-ed/pradhan-mantri-jan-dhan-yojana-a-bank-account-for-mary/article7547033.ece">prepare the ground</a> for demonetisation adequately. Indeed, many PMJDY accounts, had been <a href="http://indianexpress.com/article/india/india-news-india/jan-dhan-yojana-zero-balance-account-investigation-opposition-want-answers-inquiry-3029927/">left unused</a> for years. Until now, that is, when it’s being suggested that some of these PMJDY bank accounts are being misused to <a href="http://timesofindia.indiatimes.com/city/bengaluru/Parallel-economy-springsup-Jan-Dhan-accountsused-to-launder-money/articleshow/55423362.cms">launder money</a> rendered invalid by demonetisation. </p>
<p>This is not an unlikely scenario given how <a href="http://www.zerohedge.com/news/2016-11-10/gold-price-skyrockets-india-after-currency-ban">market forces</a> operate. And surely, this is not the kind of user behaviour the government wanted to encourage.</p>
<h2>Stop the spin</h2>
<p>What is the right name for what has happened in India in recent weeks? Is it demonetisation, <a href="http://thewire.in/81067/demonetisation-p-chidambaram-video-interview-500-rs-1000-rs-notes/">half-a-demonetisation</a>, a <a href="https://theconversation.com/modis-surgical-strike-on-black-money-relies-on-uptake-of-electronic-payments-68675">surgical strike</a> or <a href="http://indianexpress.com/article/business/economy/demonetisation-appears-to-be-carpet-bombing-and-not-surgical-strike-supreme-court-4376618/">carpet bombing</a>? Some in leading think-tanks would identify it as <a href="https://www.brookings.edu/research/from-poverty-opportunity-putting-the-market-to-work-for-lower-income-families/">poverty tax</a>. </p>
<p>This is a debate for economists, academics and policy-makers like me. But the poorest of the poor feel the pain firsthand; they do not need to debate what to call this crisis. There is no doubt that, wherever you live in the world, <a href="http://www.pbs.org/wnet/need-to-know/opinion/america%25E2%2580%2599s-poverty-tax/13863/">it’s expensive being poor</a>. Nowhere more so than in India today. </p>
<p>Let’s stop the spin: demonetisation was the wrong policy at the wrong time. The economy was not ready to turn cashless, and millions of people have been left behind. As usual, it’s the poor who suffer most. Let’s hope the promised better days come sooner rather than later.</p><img src="https://counter.theconversation.com/content/69157/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ranjit Goswami does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>India is engulfed in chaos after Prime Minister Narendra Modi introduced the wrong policy at the wrong time.Ranjit Goswami, Vice-Chancelllor, RK UniversityLicensed as Creative Commons – attribution, no derivatives.