Demonetisation nightmare

Abstract

The effects of what is commonly known as demonetisation are now fully playing out. But what we get to see is the impact in the proximate areas – largely the urban centres where the media has been able to reach out. As time passes, we will begin to see how agricultural markets are collapsing, trucks are getting stranded and economic activity is slowing down. We are told that this is okay, we need to bear this in the interest of the nation. This argument is false for a large part. While it may affect people having unaccounted wealth, it disproportionately affects the honest tax payer. The importance of currency is in its fungibility or interchangeability. All other assets are specific assets – they have a way of identifying ownership. From a mobile phone to a motorbike, there are identity markers that establish the ownership of the asset. Currency is owned by the bearer, which gives it the nature of fungibility. The sudden move by the government is making a fungible asset into a specific asset, even if it is for a short period, by identifying currency with the bearer’s identity and income. The ridiculous act of applying indelible ink on somebody who has swapped old currency with the new ones undermines the basic nature of currency. There is a difference between income, which is to be accounted and taxed, and holding of currency, which is a medium of transaction.

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