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A Note Of Trust

History tells us that faith in a currency is what keeps it afloat

Written by Yoginder K. Alagh |
December 27, 2016 12:14:49 am
demonetisation, demonetisation effects, currency ban, RS 500 notes ban, RS 1,000 notes ban, demonetisation impact, PM Modi, Modi, narendra Modi, PM Modi demonetisation, note exchage, Demonetisation banks, ATMs, ATm queues, bank queues, arun jaitley, india ews, demonetisation news, indian express news As our hakims taught us, somewhat painfully, faith can be disordained and then the Rs 500 or Rs 1,000 note is good only to wrap bhajias and samosas in.

The Italian economic historian Carlo M. Cippola wrote a delightful book on the history of money. That slim book reminded us that, through history, many things have played the role of money. He developed the concept of ghost money, or money which has disappeared as a store of value or for transactions but continues as a unit of accounting because of historical memories. I have memories of times when cowries, or seashells, were money. The cowries had actually disappeared, but they were still used as a measure of accounting. In those days, the paisa was round and a relatively big coin. The paisa with a hole in it came later.

I grew up in the foothills of the salt range in the then Punjab province, a somewhat rough region. My village was on the same latitudinal line as Kabul and the names of some areas involved in the present conflict in Afghanistan, Herat for example, ring a bell from childhood memories. My tribe respected elders and I was trained that if one met the great grandfather, the great beagle so to say, one had to touch his feet. He, and we, took this business seriously. He would take off his gold-embossed jooti and we would touch his feet. He would then very ceremoniously take out his woolen purse and give one a paisa. After all, he had responsibilities towards the youth of the future. The head beagle would give you the old round paisa. Great grandfather would, I guess, keep a stock for he had many male descendants. We were trained to accept the paisa with humility, even though inflation was taking a toll. One of my cousins, a spoilt brat, would throw away the coin. That was not considered kosher.

The story of ghost money tells one that money is a matter of cultural history and faith. In itself, it is useless. As our hakims taught us, somewhat painfully, faith can be disordained and then the Rs 500 or Rs 1,000 note is good only to wrap bhajias and samosas in. This business of faith in currency is serious. You work hard, you pay your taxes and your wife takes money from you to keep you and your family alive. But then she has a culture. Her mother taught her that. From the kitchen money, she sets aside a small note. This goes on every day and she has a pile. In fact, it could be more than Rs 2,50,000. But rules are rules and now that pile of money is bad.

Indians are great savers. Countries at our level of per capita income have a savings rate well below ours. Pakistan, for example, has a savings rate half of ours. When I was a young man studying at Wharton in the University of Pennsylvania, young ladies would ask me why there were so few Indians on the dance floor. I told them that that way we save the price of a Coke. FDI companies talk of consumption-led growth in India and come to grief. But she saves because she has faith in the currency. Otherwise it is a piece of paper. Today it is no longer her saved treasure. Hundreds of rules, ordinances and the like have been thrust on her. Will she save again? I think she will. I say so partly because I am an optimist.

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I also say so because I pray that the governor of the country’s Central bank knows all that I am saying better than me. For all my compatriots, he is the head beagle in the theory and practice of money. Also, I hope the hakims will learn, because whatever they may have gone through, when selected at the age of 20, they were the best the country had to offer. They swear by the Constitution and money is a part of our rights. But she will worry, perhaps in her subconscious mind, that her new note is not what the old one was and can be changed.

The writer, an economist, is a former Union minister

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