Years ago, after announcing the withdrawal of 500 and 1,000 Rupee notes, India imposed daily withdrawal limits, resulting in long queues around Automated Teller Machines, which soon ran out of cash. Between November 9 and December 31, 2016, the Reserve Bank of India issued 57 official circulars constantly revising the conditions for deposits and withdrawals, as the government grappled with the fallout of the cashless policy.
As presently witnessed by Nigerians, the Central Bank of Nigeria, with Godwin Emefiele as governor, seems to be toeing the same path. But the stroll pits it against the people, who are consumers in various sectors of the economy.
Demonetisation is the act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change in national currency.
That the implementation of the demonetisation policy has come in different ways to different countries is no more news, as some implemented it with ease, and others with difficulties, throwing the consumer market into chaos.
For example, India was plunged into chaos on November 8, 2016, when the Prime Minister, Narendra Modi, in a 48-minute address, announced that some 14 trillion worth of 2,500 and 1,000 Rupee notes (86 per cent of all the currency in circulation) would become illegal by midnight. People would have until the end of the year to deposit them in bank accounts (and pay whatever taxes and fines the authorities decided to impose on them), as they were no longer legal tender.
The unforeseen shock-and-awe announcement, Modi said, fulfilled a declared campaign objective to fight ‘black money’ – cash made from tax evasion, crime and corruption. The PM declared that his announcement would not only rid the nation of black money, but would also render worthless the counterfeit notes that were reportedly printed by Pakistan to fuel terrorism against India.
The initial stunned reaction the implementation of the policy generated was reportedly followed by a jumpy struggle to unpack the expiring notes: the very night of the announcement, people rushed to petrol pumps to fill up their tanks, jewellers tripled their sales and loans were hastily returned. There were unexpected consequences too. Indians, who had hidden away their savings in various places at home for a rainy day, found that their years of thrift would soon be worthless. In most cases, relatives had not known how much they stashed away.
Regrettably, the initiative also affected the poor. The replacement of bills caused a massive disruption to the overall economy, especially due to cash shortages throughout the nation.
Given the chaos that characterised the implementation of the policy, India has since 2016 remained a reference point, particularly whenever any country embraces a similar policy.
Due to bad implementation of the demonetisation policy in India, just as has been done today in Nigeria, consumers across different spheres of the economy were negatively affected in five ways.
Typically, agro product vendors, who depend on daily sales, recorded a massive drop in customer traffic and thus were forced to shut their shops. Since labourers work on farms without official employment contract, they make up a substantial part of an informal economy. As a result, without a regular flow of customers, it becomes hard for them to survive. Majority of players in this informal sector depends on cash transactions.
The ban on the 500 and 1,000 Rupee bills tremendously affected migrant labour workers –those who travel to find work. Similar to the informal economy, these labourers typically rely on cash transactions. Due to the fact that such cash transactions occur privately, without the interference of banks, the demonetisation policy made it even more difficult for the migrant labourers, who already travel far from home, leaving their families behind, in the hope of a decent job.
Demonetisation also negatively impacted small business owners, who ply their trades on the streets. As the citizens had only 50 days to exchange their notes, customer flow completely stopped for many businesses. Additionally, many of these small business owners could not afford to stand in the long lines outside the banks.
For a wealthy family, losing few days’ income does not make a big difference. However, for the poor, losing the income of even two days has an impact. As a result, people began skipping the purchase of some essential items, and even meals, to keep their businesses running.
The low-income, working-class people suffered from the new policy. Typically, the working-class have basic jobs with fairly low wages. Due to shortage of cash, many low-income earners experienced delayed salary payments. As a result, it became difficult to run households. Think of children going to school, young adults getting ready for college and other responsibilities.
Since the implementation of India’s demonetisation policy, a few years down the line, daily-paid workers, such as housekeepers, found it increasingly difficult to manage their lives. Cash shortages made it difficult for them to get paid on time, which led to skipping meals or working twice as much for low wages. It also became hard for these workers to buy basic necessities or even pay for their children’s tuition. As a result of the financial strain, some children were compelled to work, no matter how little, to bring in some money.
The demonetisation in India initially had a negative impact on the poor, caused mainly by the transition. But the Modi government described it as a “fight for the poor against the corrupt rich.” With the policy, the problems of poor communities seem to have alleviated so much that the Indian economy rebounded. Despite the chaos the policy created, Modi has high ratings in India.
Against the foregoing, macroeconomists and other experts are asking whether Nigeria is at the moment toeing the same fiscl path and is putting in place buffers for the poor when making such a significant change.
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