The election of Donald Trump as America’s 45th president was such a shock it totally overwhelmed one of the other big surprise news stories on Tuesday: The sudden move by the Indian government to withdraw 500 and 1,000 rupee notes – the largest-denomination such bills – from circulation, with immediate effect.
The move, which was called a “surgical strike” on tax evasion in the largely cash-based economy, is said to involve upwards of 85% of the currency in circulation by value. Holders of the notes will have to take them to banks and redeem them with new, larger-denomination bills, in the process showing who owns (and, presumably, who owes taxes on) what. But the country’s finance minister also said that it was part of a longer-term policy to create a “cashless society” in which everyone would have access to modern financial services.
The rupee note shock comes on the heels of growing calls for governments to more forcefully move away from physical currency. One notable advocate for radically limiting its use is Harvard professor and former International Monetary Fund chief economist Kenneth Rogoff, who recently published a book called “The Curse of Cash.” In it he argues that clamping down on cash would not only help in the fight against organized crime, but would also allow central banks to better manage the economy by driving interests rates below zero (you can’t charge people for saving their money if that money is sitting in boxes). And, of course, there is the ongoing problem of counterfeit currency, which forces governments to regularly undertake painfully expensive upgrades of notes.
However and for whatever reasons it is done, moves by governments to discourage the use of physical currency will have significant impacts on consumer behavior, giving digital payments a boost: Following the rupee ban, FreeCharge, a local firm which provides an online wallet facility for recharging prepaid mobile phone and other services, reported an astounding 12-fold one day jump in average customer wallet balances. As money is moved from physical to digital cash, a portion of that digital cash will invariably become mobile money, in turn further driving consumer adoption of mobile wallets and other mobile payment technologies and practices, and not just in the country where the cash crunch is taking place.
Which means that the next time a government moves to address the curse of cash, many individuals will already be prepared with ample digital wallets when they hear the news, no doubt via a call or app on their phones.