Cash Confiscation and the Case for Gold
Last month, India banned 500- and 1,000-rupee notes. In that country, somewhere between 70% and 95% of all transactions are cash-based. It meant the end of large-denomination currency that the government could not keep track of on a continuous basis.
The central bank asked all banks to track the movement of new notes from banks’ currency chests, and to put in place a reporting system to track those notes as they move through the local economy. And lest any funny business occur, banks were also told to preserve their security camera footage for Indian authorities.
The goal of the cash ban was to root out “black money” from corruption and tax evaders. But suppose you’re a law-abiding citizen, but don’t trust your local bank (not a bad idea in India, or the US). Suppose you like keeping a stash of money on hand just in case, and don’t see why the government needs to know.
You convert your cash into bullion and jewelry. It’s happening all over India.
India’s cash ban has been in place for six weeks, and the results have been widely considered a debacle. Even the amount of illicit cash has turned out to be less than government estimates. Indians so far have turned in 12.6 trillion rupees (about $185 billion). More than 80% of these notes have been validated, meaning the money has been legitimately accounted for.
What about arrests resulting from the cash ban? The authorities have yet to announce any billion-rupee smoking guns. The ban hasn’t netted any underworld kingpins in graft or tax evasion.
And among the arrests that have been made? There are at least six cases where bank officials were arrested for corruption and money laundering. How ironic that most of the illegitimate activity has come from a sector of the economy most closely associated with government-regulated legitimate money—the banks themselves.