India’s cash ban continues to create problems…
Here are a few of the headlines regarding this issue:
In Its Third Month, India's Cash Shortage Begins to Bite (NY Times)
Cash-ban distress leaves scant room for India budget giveaways (Times of India)
Indian Bank's World-Beating Profit Growth at Risk on Cash Ban (Bloomberg)
A normal would see these developments and think “the cash ban will probably be reversed… after all, it’s having a negative impact on the economy.”
The only problem is that the political class is not comprised of normal people. And they don’t care about the economy. All they care about is remaining in power.
Put another way, unless a policy results in getting kicked out of office, it’s not considered a problem.
Just look at India, despite the clear evidence that banning some 86% of cash in circulation has been an economic disaster, the country is pushing forward by… banning more cash.
A high-level committee on digital payments has suggested a tax to discourage cash transactions, a cap on the maximum allowable limit for large-size cash transactions and a complete abolition of charges on card payments to incentivise digital transactions.
Some of these recommendations of the Chandrababu Naidu-headed committee of state chief ministers could find a mention in the upcoming Union Budget on February 1. The recommendations seek to make digital transactions more cost effective and attractive than cash transactions. The committee has suggested a banking cash transaction tax on transactions of Rs 50,000 and above.
Source: Economic Times of India.
So, India banned small cash denominations, the economy tanks, and now India wants to tax LARGE transactions and put a cap on the limit of large-size cash transactions.
Again, for the political elite, no matter how awful a policy is, it’s not considered a problem until someone is kicked out of office.
If you think plans are not underway for a similar cash ban in the US, you’re mistaken. In the last 12 months everyone from the Chair of the Federal Reserve to former Treasury Secretaries have either trashed cash as an investment
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Chief Market Strategist
Phoenix Capital Research
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