The Homonym: How demonetisation tried to kill two birds with one pun

…and ended up with two in the bush.

On the eve of 9th November 2016, the government of India made an unprecedented decision: about 86% of the currency in the country was declared invalid overnight. The move was aimed at the holders of “black money”, who stored their illegal money in cash to escape detection. Now, these people would be forced to deposit their money in the banks, and face a hefty penalty, or give up and watch their illegal savings turn into “worthless pieces of paper”. Soon, however, it became clear that the black-money holders had a third option: to sneak their money into the banking system while nobody was looking. That was when the government began to focus on another benefit of demonetisation: a transition to a cashless society.

What they didn’t realise was that they were dealing with a homonym.

A homonym is a word that is the same as another in sound and spelling, but different in meaning. One example of a pair of homonyms is the words chase, meaning “to ornament a metal”, and chase, meaning “to pursue”. Or the words bear, meaning “support or yield”, and bear, meaning “any one of a group of large and heavy animals that have thick hair and sharp claws and that can stand on two legs”.

Another, more complex, example is the word “demonetisation”.

At first glance, “demonetisation” does not seem like a homonym—in fact, it’s not a homonym in the strict dictionary sense. Demonetisation basically means devaluing the money in question. The differences lie in what the purpose of the demonetisation was, and how it is carried out.

You won’t find those differences in an ordinary dictionary, though you may find a hint even there. My dictionary has two sub-definitions for the word “demonetize”:

The first variant is like simply declaring “you cannot use this as currency any more”, while in the second one you actually take the currency away and out of circulation. These two definitions hint at two different ways in which demonetisation can be carried out. It is a subtle difference, but an important one.

Two kinds of demonetisation

There were two main reasons for the demonetisation of 8th November:

  1. To surprise the dishonest who hoard their money in cash, and catch them red-handed.
  2. To encourage digital and non-cash payments, as part of a transition to a cashless society.

Both are good reasons, but, unfortunately, they cannot be done at the same time. That’s because the two demonetisations need to be carried out in different ways, and they can’t be mixed together.

The first demonetisation has to be a surprise operation. Nobody should know it’s going to happen; otherwise it won’t work. If the money-hoarders knew about the operation in advance, they would quickly convert their money before the demonetisation even happened—either by depositing it in the bank, or exchanging it for something else, like gold or jewellery, that wouldn’t be affected by demonetisation. It would help if converting notes was made as difficult as possible, to prevent the switch from happening later. Secrecy is also important, and a sudden announcement with no warning beforehand is the perfect way to carry out the operation.

The second demonetisation, on the other hand, cannot be a surprise. It is a move involving everyone in the country, and expecting them to make a switch from one payment infrastructure to another. This switch cannot happen overnight: people have to be aware of it, and they should be informed well in advance. The European Central Bank, prepared for over three years before the Euro came into use, and everyone in every country was fully aware of what was going to happen. In India, this also means everyone should be familiar with and have access to the other payment system.

At this point, it seems like they were doing the first demonetisation. The announcement was sudden, without much warning. It was hard to get currency-notes converted, because there weren’t many new notes available to convert them to. And we’re sure they weren’t trying the second demonetisation, because that implies people should be able to switch to non-cash payment systems—which they are not.

Looking further, however, the situation gets more confusing.

The first demonetisation is meant to aim specifically at black-money hoarders. Now, hoarders like to save their money in high-value notes. That’s because those notes are easier to hide, and take up less space. If the notes are large enough, then chances are that only crooks will use them: they’ll be too big and useless for ordinary people to deal with. So it’s best to demonetise the highest-denomination notes possible.

The last time demonetisation happened, in 1978, the target was ₹1000, ₹5,000 and ₹10,000 notes, accounting for only 2% of the currency in circulation. This was very effective because it was used mainly by crooks, while ordinary people barely knew they even existed.

The second demonetisation, on the other hand, is meant to push people to stop using cash altogether. The idea is to reduce the amount of money in circulation, so that people are encouraged to move to alternative modes of payment instead. This move should ideally affect everyone in the country, while making sure that the do indeed have an alternative option to switch to.

What happened on the the eve of 9th November, however, was a confused mixture of both.

Here, the notes demonetised were both the highest-possible denominations and the ones that most people used. In keeping with the second demonetisation, people—including crooks—were given alternative options to switch to. But since cash is the only payment option for a lot of people, the only alternative option was more cash. This was the new ₹2000 notes, which were unfortunately useless as it was hard to get change for them. It will turn out to be useful for black-money hoarders, however, as they are even better at storing cash than the old ₹1000 notes.

There was a good reason for the ₹2000 notes. In keeping with the first demonetisation, they had to make the move suddenly so that nobody knew about it. This meant that there wasn’t much time to print the replacement notes. So they made the notes big so that they would have to print less of them. But the ₹2000 notes turned out to be useless to a lot of people—entire ATMs giving only 2000s were standing deserted, while long queues spiralled out of nearby ATMs dispensing smaller, more usable notes—so the government started printing new ₹500 and smaller notes about a month later.

That, by the way, goes against the first demonetisation, whose aim is to remove the notes from circulation, not replace them with new ones. But it had to happen this time, because everyone in the country was affected, and a lot of them have to use cash.

Did it even work out?

After the mixup, did this demonetisation operation actually work out, and was it worth the trouble?

The second demonetisaton has given mixed results. Those who are able to go cashless have now been pushed to do so — as the meteoric rise of mobile wallet company PayTM and its cousins suggest. But those who are not yet ready to make the cashless move are stuck with no way to pay. The rural parts of the country have been especially badly hit, as have the daily-wage labourers in the cities who suddenly find themselves out of jobs — and therefore, out of money and means for survival. This is a clear indication that going cashless is not an option for them: if it was, they would surely have done it by now.

If you remember that India was predicted to become more cashless even without demonetisation, the whole operation — as far as the second demonetisation is concerned — seems kind of unnecessary. In fact, it might even be counterproductive. Many people have been badly hit by demonetisation. They are completely opposed to it — and, by extension, they may now become opposed to the idea of a cashless economy itself. (Whether a cashless economy is actually a good thing or not is the topic for another day).

The first demonetisation seems to be a failure, in the sense that it didn’t give all the results expected. Firstly, only 6% of the “black money” in the country is actually stored in cash. The rest of the cache is hidden in a variety of other ways, ranging from houses to gold to real estate, none of which has been affected by demonetisation. As for the little black money that is stored in cash, most of it seems to have come into the banks already—even as hoarders have started rebuilding their collections using the new currency notes.

Though the first demonetisation has failed in its primary aims, there have been some beneficial side-effects. One is the elimination of counterfeit notes. Though comprising only about 0.02% of the currency in circulation, they did quite a bit of damage as they were use to fund terrorist activities. A mini-demonetisation was already conducted a few years ago to curb counterfeiting, but the current one has also helped. Though there was no time to add new security features, the changed design of the new notes will be enough to keep counterfeiting at bay for a while. The second side-effect is that terrorist outfits have also run out of money, as their saved funds of cash have turned useless.

So it seems that demonetisation has given some results, if not as much as hoped for. The next part of our question is: was it worth the trouble?

Some people are saying that we should all applaud the government for a successful operation, while others are saying that it’s a monumental mismanagement and a failure and we should never let it happen again.

The confusion lies in what they mean by “we”.

“We” may seem like a simple word, until you try to explain it to someone. My dictionary has a longish description, listing the following uses:

In the demonetisation discussions, people seem to be using the condescending sense of “we” a lot. They must be knowing each other very well.

Stones in the Dal

K.C. Chakrabarty, the former deputy governor of the RBI, has given a good description of the demonetisation situation. He said: “If you purchase dal from the local kirana store. In the dal, there are some stones. You pick out the stones, clean and then cook. You never throw away the dal.”

Chakrabarty was not quizzing people on their kitchen management practices. He was using what is known as a simile. To put it simply, a simile is a figure of speech used to compare two things and highlight their similarities. In this case, he is comparing the cash everybody uses to the dal. The few stones in the dal were the counterfeit notes—though they could well be the other forms of “black money” that demonetisation was supposed to combat.

The question is: was it worth throwing away all that dal, just to get rid of a few stones?
Surprisingly, the answer is often “Yes”.

To the relatively well off, it makes sense to throw away a whole packet of dal, rather than take the painstaking effort of picking out each and every stone. With corruption being rampant in this country, the stones are getting more and more. So to them, it’s worth losing a bit of dal to get rid of all those stones. They can afford to get more dal if they need to—or, at worst case, order a cashless pizza. The answer is obviously: Yes.

The people who are finanically poorer will have a bit more to deal with. Throwing away dal may mean less money for a few months, and spending weekends at the ATM. But they may still find it worth going through that exercise, if the food will have fewer stones at the end of it. They, too, will answer: Yes.

At this point, it’s worth remembering that there are people whose cache of black money is not cash. To them, demonetisation as it has been conducted, with its “anti-corruption” slogans, is a good thing—because it’ll distract people from all the other ways in which they save their wealth. They’d rather lose the stones in the dal than the gravel in the potatoes.

For all the people who say “Yes”, there are also many people for whom the answer is an equally clear “No”.

Some people depend on dal for their livelihood. When the dal supply stopped, people were unable to pay them, and they consequently had nothing to eat. Naturally, they sympathise with the millions of others like them, and think that, given all they are going through, getting rid of a few stones is far from worth it. They would rather have the stones.

There are some families who are barely past the poverty line. Any setback, like a sudden illness or death in the family, can send them back on a downward spiral. Demonetisation is also one such setback. Compared to a destroyed livelihood, things like a few more taxes for the government are far from important—specially when the good effects rarely benefit them directly.

On this side are also people who are personally well-off, but have the luxury of being free to care for the less fortunate. They, too, think of the impacted families as people and not data points—and looking from that perspective, even a single million affected people is not acceptable.

There is no “we” who can decide whether things are good or bad after demonetisation . It all depends on whether people are personally going to benefit or lose out from the operation. Each side is equally clear that their view is correct, so it looks like there is no middle ground.

Luckily, we don’t need a middle ground, because we can call a homonym to the rescue. With apologies to Lord Vetinari, the consensus on demonetisation can be summed up thus:

Demonetisation has done a lot of damage to a lot of people, but we will enjoy its good effects momentarily.

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