Money makes the world go round: The power that shapes nations and lives

Vedamulam Idam Braamhyam

Krushimulam Idam Dhanyam

Bharyamulam Idam Gruham

Dhanammula Midam Jagath

This rather well-known Sanskrit expression is credited to the legendary Chanakya, author of ‘Artha Shashtra’, who assisted the first Mauryan Emperor Chandragupta in his rise to power and establishment of the historic Mauryan Empire. It says that while the Vedas are the route for divine knowledge, the housewife the pillar of the household, agriculture the primary source for food grains, and money is the sine qua non for enjoying worldly pleasures or, as another saying goes, “money makes the world go round.”

In my childhood, my maternal uncles, while leaving after a visit, always presented a gift of money, usually comprising crisp currency notes, for which I developed a passion ever since. Decades later, as a Probationary Officer in the State Bank of India, I would watch, literally mesmerised, as the cashiers counted notes in bundles with lightning speed.

The unique features that denote a nation’s identity, are its national flag, the language and the currency. The dollar, the pound, the yen, the dinar and the yuan, for example, remind one of the USA, UK, Japan, Kuwait and China.

The strength of the currency is one of the main indicators of the robustness of a country’s economy. As is the Purchasing Power Parity (PPP), which compares the purchasing power of different countries’, which would enable a consumer to buy the same ‘basket’ of goods or services in those countries.

Currencies also act as units of account, providing a standard for measuring the value of different goods and services and a foundation for the arrangement of deferred payment, thereby supporting economic growth and facilitating trade and investment. As things stand today, the dinar is the strongest currency in the world, followed by the Euro and the US dollar.

Starting as a non-monetary unit in 1999, the Euro was issued as currency notes and coins in 2002, and has, in an extremely interesting development, replaced the national currencies of participating states and others.

A somewhat similar situation obtained in the United States of America, before the War of Revolution. The colonies which became independent from British monetary regulations, each issued paper money. It was only in 1792 in the United States that dollar became the country’s standard currency.

Likewise, in pre-independence India, erstwhile Princely States used a variety of currencies and minted their own coins. The official currency of the Nizam's state of Hyderabad, for instance, was Hali. The British rupee was widely used especially in border areas and along railway lines.

The Indian rupee comprised 16 annas, with four paise making one anna until 1957, when the decimal (metric) money system was introduced and the naya paisa, and its multiples, replaced them.

Among the major developments in the monetary system of India, was the devaluation of the rupee, which took place in 1966. The country was facing its first balance of payments crisis. India’s economic management drew scrutiny from foreign donors with the country being on theverge of breaching the requirements of reserve set by them.

Foreign exchange reserves had fallen to an all-time low since Independence. The termination by the USA, of the PL480 arrangement of food - aid only made things worse and donors began to dictate the direction of economic policies.

The USA only extended financial aid of $600 million as against the originally promised $900 and the promised aid from the Aid – India Consortium also, similarly, was reduced to $642 million as originally promised $ 1255 million.

Recession and foodgrain shortages followed. Soon, it became clear, particularly to the World Bank that the measure of evaluation failed to liberate economy. And India returned to its socialist status quo ante and the import/licence raj returned.

On the whole, despite the initial relief in terms of reduction in the severity of the foreign exchange crisis and increased exports, the step was largely regarded as a failure.

On 8 November 2016, the government of India announced the demonetisation of all Rs 500 and Rs 1,000 banknotes of the Mahatma Gandhi series and the introduction of new Rs 500 and Rs 2,000 banknotes for exchange with those demonetised. The expectation was that this decision would curtail the shadow economy, increase cashless transactions and reduce the use of illicit and counterfeit cash which was feared to be funding illegal activities and terrorism.

The announcement was followed by prolonged cash shortages, which created significant disruption throughout the economy. The BSE Sensex and Nifty 50 stock indices fell over 6% on the day after the announcement. The move reduced the country's industrial production and its GDP growth rate. It is estimated that 1.5 million jobs were lost.

Knowledgeable analysts felt that the effort had failed to remove black money from the economy. It was also criticised as poorly planned and unfair, and was met with protests, litigation, and strikes against the government in several places across India.

The move, however, also saw a significant increase in digital and cashless transactions throughout the country.

The consensus is that demonetisation was not the right move to target black money, and was unsuccessful. Moreover, it was based on an incorrect understanding of what constitutes black money. By and large, it missed its stated goals of curbing black money, and counterfeit currency while, at the same time, significantly harming the country’s economy, and causing immense hardship.

Tax revenues, no doubt, increased, as did digital transactions, but disruption of the functioning of the cash – dependent informal sectors, and job losses, outweighed the impact of those benefits.

And coming, as it did, in the wake of the economy of the country preparing for the introduction of the Goods and Services Tax (GST), the step disrupted small and medium sized businesses. Banks may have experienced an influx of cash and a partial formalisation of the financial system may have resulted, including increase in tax filings and, a boost to digital transactions. However, the invalidated notes soon returned to banks, and the main objective ofcurbing corruption and black money was not achieved to the desired extent.

While on the subject of money, real or artificial and currencies, I am reminded of a famous number by the legendary pop group of 1960s. ‘The Beatles’. The lyrics went “……Your loving give me a thrill, but your loving don’t pay my bills!”

Then there was this song from the extremely popular Hindi movie ‘Kala Bazar’, of 1960 vintage the lyrics of which went:

"Teri dhoom har kahin

Tujhse yaar koi nahin

Humko to pyaretusabsepyara

Duniyakigaadikapahiya

Tuchortu hi Sipahiya

Rajonka raja rupaiya!"

Another unforgettable song, with the same theme, figured in another popular movie of those times, ‘Kathputli’, the lyrics going:

“Duniyameinchandsurajhainkitnehaseen

Uthna hi sun mere bhaiyadilkolubhayerupaiya!”

For a long time now, I have given up the habit of sporting the few items most people carry on their person, such as a wristwatch or a wallet containing money. I had, as a result, long ago forgotten, what currency notes looked like at all. And, now, with the advent of plastic money in the shape of bank cards, the adieu to currency notes has become more or less final. Gone are the days when one carried the currency of the country of destination, or the omnipotent US dollars, while travelling abroad. The bank card with packing enough wallop to last the duration of the trip does the job.

Even the occasional card game my friends and I used to play no longer involves carrying cash. The plastic coins with various denominations written over their sides, which I borrow for the occasion from Nizam Club, where I am a member, serve the purpose more than adequately.

There is, however, in my opinion, no substitute at all for the thrill. I felt when I heard the jingling of the ringing bell as the slot machine in a the Casino I once visited at Las Vegas told me I had hit the jackpot with the ecstatic, musical rumble of the dropping of several plastic coins of various nominations, dropping on to the crucible below!

(The writer was formerly Chief Secretary, Government of Andhra Pradesh)