India’s Currency Crisis Is A Potential World-Watching Disaster

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First came Cyprus, then Venezuela, and now India. Below describes the result of India’s potentially deadly currency crisis. This crisis is directly due to India’s stringent removal of its central currency notes sweeping the country led by India Prime Minister Narendra Modi’s government.  Narendra Modi banned Rs 500 and Rs 1000 banknotes, comprising of 88% of the monetary value of cash in circulation.  Cash conversion has been reduced to Rs 2000 ($30 USD) per person each day.


As reported by Zero Hedge http://www.zerohedge.com/print/578671

…As a result people are  facing humiliation and stand in queues for as much as 12 hours or more. Often repeated visits to the bank are necessary, with no guarantee that the bank will have cash available for the conversion. Old and disabled people, the 25% of India’s society without  ID-cards, and women (unless they are prepared to be molested) don’t even have this chance. For those who are able join the queues, the scene has turned into a battlefield, with people fighting among themselves and getting brutalized by the police. But so far most people seem to still carry a favorable opinion of Modi, backed by cult-like “intellectual” climate created by the salaried middle class … and supported by the international media and institutions like the IMF, i.e., people who are sitting in Western cities have no clue about the realities on the ground. But all this will change as the stories of personal suffering should eventually start to dominate over the propaganda—reality does have a way of catching up. But India’s descent toward a police state is now written in concrete.

The following video is a good update on the events unfolding in India with regards to Prime Minister Modi imposing currency restrictions which could lead to cascading economic global events. Jayant Bhandari provides investors first hand accounts of the dire, serious consequences the poor are facing in India and the merits, prudence of gold and silver stewardship.

India’s extreme superstitious society and cast system has led many to believe that this demonetization will reduce corruption and anything but support of Modi’s actions is anti-national and unpatriotic.  Yet resistance is certainly to happen especially if the result of this action will lead to massive deaths due to lack of available  funds.  Even tourists cannot get their money from ATMs.

Without trying to misinterpret words, Prime Minister Modi  seems to advocate for an Orwellian-like digital currency system as he went on TV explaining how funds can be reached digitally using a smart phone.  He explains this will stop the black markets which have consumed huge parts of the country.

The question we have is how are millions of poverty-stricken Indians going to acquire a smart phone when they can barely afford to eat?

Perhaps just like in North America, public education and the mass-media have become instruments of propaganda.

A cashless society is nearly the same sentiments the CEO of Mastercard Ajaypal “Ajay” Singh Banga has said in several interviews over the past decade.  In Ajay’s case at least he accepts privacy issues even if he may have looser attachments to them.

 

With the growing police state, there is fear among small businessmen and those with savings outside of the banking system. As Zero Hedge reports, they are now deemed to be criminals and it is their job to prove themselves innocent.

They are extremely afraid of facing tax inquiries, which always involve heavy penalties and large bribes (the level of which has gone up noticeably in this police state). Whatever small focus they previously had on wealth-creation is now gone.

Historically, India has been a negative-yielding economy. Interest rates have mostly been negative in real terms. Stock market returns are negative-yielding, even before adjusting for business and jurisdictional risks. In such an environment, savers have no option but to keep their money in gold, or outside the formal economy.

Any oppression of savers forcing them to direct their money into the negative-yielding formal economy will only lead to even more of their savings going into gold and escaping to foreign jurisdictions, eventually making India much less well-off. Even in the short-term, India’s economy is rapidly going into paralysis.

…Protesting farmers in India. Buyers cannot buy products for they no longer have access to their own money. Unable to sell, sellers are stuck with their produce and cannot pay their debts, driving them  and their creditors into bankruptcy. This is a very complex vicious cycle. Even if liquidity is eventually restored — which is unlikely — the demonetization has crippled the production system.

The banned Rs 500 and Rs 1,000 banknotes are today the most used currency. Those who have these banknotes and are afraid of going to the bank.  Gold and silver prices have doubled U.S. prices. In the local market, if you want to buy gold or silver, you must pay in the banned banknotes which the sellers to do not want to accept.

Zero Hedge reports

Many workers from factories and shops, even if they have not yet been thrown out of work for lack of demand or due to the cash-crunch affecting their employer, have found a very lucrative profession. They now work for the money-converting mafia. This system is already fully in place a mere two weeks after the announcement of the ban.

The underground system is rapidly distributing the banned currency notes across a large number of people who then deposit them. This market is so liquid and easily accessible, that for all intents and purposes there is no way that someone with the banned notes cannot exchange them, albeit at a loss. So much for Modi’s claim that those with large amounts of undeclared money won’t be able to convert or deposit it.

But this will get much worse. When all this is over, hundreds of thousands of small-time bullies trained by the mafia will have made a small fortune. They will have also have found out who the rich people with cash are. A social scientist will conclude that this segment of society will be extremely corrupt and criminal. These people will have gotten a taste for easy money, in contrast to patient and laborious wealth-creation.

What is confusing is how a country like India which has more gold and silver in the hands of its citizens than majors countries have in holdings can be facing such a dangerous currency crisis when the price of these commodities are double and even triple North American prices?

Conclusion

India is facing a highly uncertain future. What is at stake is the lives of a over a billion people.  Problems and unintended consequences are bound to surface.  Solutions are required now!  Education is required now!  Responsible Government is required now! Sympathy is required now!

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About Author

Leslie Michael Jr. was born and raised on the Westcoast of British Columbia, Canada. He is a lecturer of Money Uncensored, a series of presentations designed for North Americans and people from around the globe to better understand the financial direction this world is headed and what they can do to protect themselves financially.

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