Kenneth Rogoff’s latest book “The Curse of Cash” could not have been timelier in the India context; as the 50 day limit of De Mo ends and the slithering lines before ATMs show no signs of abating. The tingling interest for all was the balance in banking accounts. Unfortunately, the balance sheet is shrouded in secrecy; it’s anybody’s guess, how much has been deposited and what would be the amount that would be junked. That would be proof of the pudding of this huge surgical strike by a government. Possibly as a diversionary tactics, the Prime Minister has unveiled a mini package of pre-budget goodies.
There is a saying; good accounting is sine-qua-non of sound accountability in a liberal democracy. The Enron scam and Satyam scandal are still vivid in our memory. The bluff and bluster about demonetization will not take away the major charges that it has inconvenienced a large number of wage earners, both in the rural and urban landscape, very adversely and dipped industrial and agricultural activities significantly. The real beneficiaries have been financial providers like Paytm, who are having a ball. In this backdrop, for Mr. Arun Jaitley, to say, that there has been no riot anywhere is palpably insensitive. History is record to many such false complacency, where despotism has led to regime change!
Rogoff writes how most economists seem content to let paper currency ride quietly in to the sunset and foolishly contend that it does not matter. Delving deep in to data he brings out how in US and Europe around 80 percent of currency supply in large denomination notes circulates in underground economy, helping to facilitate tax evasion, crime, and corruption on a large scale. Tax evasion through ingenious methods accounts for around 3 percent of GDP of United States. He makes a strong case for scrapping high denomination 100 dollar notes in US and have only small currency notes, with the rest being digitally handled in manifold forms like Cheques, credit/debit cards, ATMs. But he is no evangelist for digital and the book raises two interesting debates viz. to supplant existing currency system with bit coins and the legitimate concerns regarding right to privacy.
The libertarians hold the view that new web based transaction technology can free people from the tyranny of government currency and regulations. Rogoff brings out how the crypto currencies involve significantly low transaction cost compared to wire services where it can involve 10 percent of amount transmitted. However, experience brings out how the value of bit coin varies wildly. Besides their privacy features allow dodgy retail merchants to operate stealthily or facilitate underworld market places such as Silk Road. At the end of the day no government can tolerate financial transactions that protect anonymity of criminals and terrorists. There is a need to design a regulatory regime for crypto currencies.
The issue of right to privacy is another important facet that Kenneth adroitly handles. The Snowden paper clearly brings out the eavesdropping capability where it can monitor cell phones, emails. Security cameras are everywhere. There is a huge battle over privacy across the technology spectrum about conditions under which private companies can be forced to share their data base for criminal activities. Nevertheless there can be little doubt that government must have the authority to prevent alternative transaction media from infiltrating in to legal economy on a sustained basis.
Prof. Prabhat Patnaik in an impassioned argument has questioned the move towards cashless economy as a transgression of an individual’s right to privacy: how he manages his assets and in what form. Rogoff’s book is powerful rejoinder how such Utopic notions do not sit easily on the prevailing environment where terrorist funding is a stark reality. Right to privacy is not absolute, as we would like to pervade but a reasonable restriction on activities which are patently illegal, corrupt and criminal activities. Sadly, the demonetization had a subterranean political script to it: how to deprive political contenders from the benefit of high denomination cash in ensuing elections. Its tectonic impact has however been on a large number of ordinary people for whom elections are a five year interregnum for high decibel rhetoric like digital India.
Rogoff does not have many economists on his when he advocates demonetization of high currency notes. And is understandably upbeat that. ECB has plans to discontinue 500 Euro notes.
He also counsels caution that such a process should not be hustled as was done by countries post WWII, with bad consequences. The book has a fascinating account of how the Swedes have installed card reading machines in many churches so that the donation can be made by card. It’s an innovation which is worth emulating trying in all our religious places to establish our secular credentials. The political parties should also agree on digital payment of corporate funding of elections and bring up a suitable legislation instead of parrying directive of Chief Information Commission to reveal their source of funding. The political parties must make a beginning on transparency in monetary transaction before needling the hapless with a draconian De Mo. At the same time privacy cannot be a shenanigan for money laundering.
The author teaches constitutional law