China As A Superpower: "They Will Not Be Humiliated Again"

He is the co-author of Red Star over the Pacific: China’s Rise and the Challenge to U.S. Maritime Strategy, Indian Naval Strategy in the Twenty-first Century and Chinese Naval Strategy in the 21st Century: The Turn to Mahan. He is also co-editor of Strategy in the Second Nuclear Age: Power, Ambition and the Ultimate Weapon and Asia Looks Seaward: Power and Maritime Strategy.

He holds a PhD from the Fletcher School of Law and Diplomacy, Tufts University, an MA from the School of Advanced International Studies, Johns Hopkins University and a BSFS from the School of Foreign Service, Georgetown University.

E Tavares: Prof. Yoshihara, thank you for being with us today. China has been very busy building up their military capabilities in recent years. Broadly speaking, what are their medium and long term intentions?

T Yoshihara: One way to gauge China’s longer term intentions is to assess what Chinese leaders are saying today. President Xi Jinping has articulated a vision for China over the next few decades. This vision has been termed the “Chinese Dream” or the “great rejuvenation of the Chinese nation.” These slogans capture goals, milestones, and timelines.  

In terms of timeframe, the Chinese refer to the “two one hundreds”: i) the centenary of the founding of the Chinese Communist Party in 2021; and ii) the centenary of the founding of the People’s Republic of China in 2049.

By 2021 China hopes to become what the Chinese call a “moderately well-off society.” By mid-century China hopes to be on par with other developed countries. Most measures for tracking China’s progress are socio-economic in nature: disposable income, socioeconomic equality, access to higher education, access to healthcare and so forth. To achieve these objectives, China still hews to the basic principle laid out by paramount leader Deng Xiaoping, namely, peace and development. The concept of peace and development derives from the notion that China needs a peaceful external environment to develop economically.  

But there are also external components to China’s long term goals, particularly China’s relations with the rest of the world. President Xi Jinping offers some hints. He has discussed the prospects for “democratizing” the international system. This is code for a transition from a unipolar world dominated by the United States to a multipolar world. As China rises, China envisions the emergence of a new global configuration in which China is a great power among other coequal great powers, including the European Union, India, and Russia, in the international system. This aligns with the “rise of the rest” hypothesis. As China gets very strong, it would also seek to amend the rules that have governed the current international order in ways that accommodates China’s interests as a great power.  

China’s rise thus raises a series of important questions about the implications for Asia. What does China want in East Asia as it rises? Would China seek to become the dominant power in East Asia? Would it seek a dramatically reduced role for the United States? More troubling, would China seek a Sino-centric regional order in which many of its neighbors, including Japan, must acquiesce to its strategic prerogatives?  

ET: So “power” for China is not just economic power, where they have performed spectacularly in recent decades. What they also envision is establishing themselves as a great military power to adequately achieve the goals you outlined, correct?

TY: Absolutely. China’s rise must be measured in terms of “comprehensive national power,” a phrase Chinese strategists use to asses China’s ascent. Comprehensive national power includes all instruments of national power, including political, diplomatic, economic, social, ideological, cultural, and, importantly, military power.

For decades after China opened itself in the late 1970s, China more or less accepted the U.S.-led liberal international order.  Being a member of the order was essential for China’s national development. But to join the order, it struck a bargain with the United States: it would accept American primacy in East Asia in exchange for access to the U.S.-led order.  

However, as China has gotten much stronger, this grand bargain has come under strain, especially over the last decade. This strain is reflected in an ongoing debate within China: should a great power like China continue to depend on the goodwill of another great power, the United States, for its economic well-being and national security? As China becomes more powerful, some Chinese believe that no self-respecting power should depend on outsiders but should rely on its own power, including military power, to determine its destiny.

ET: Is it fair to say that the bulk of their impressive military development of late is intentionally targeting U.S. capabilities in the region, and even bypass defense protocols to strike the U.S. homeland?

YT: If China seeks to revise the grand bargain it struck with the United States, if China seeks to be a great power in a multipolar world, and if China seeks to be the dominant power in East Asia, then China needs to seek a significantly reduced role of the United States in the region. If you accept these propositions, then China clearly needs the capability to counterbalance America’s military dominance in Asia today.

But there are specific contingencies, including those related to Taiwan, that have compelled China’s military modernization. In particular, the 1995-1996 Taiwan Strait crises demonstrated to China that it needed military capabilities to respond to American military power. At the height of the crises, the Clinton Administration deployed two carrier battle groups in the vicinity of Taiwan as show of American resolve. Chinese leaders learned to their utter horror that they lacked credible military options to respond to this U.S. show of force. They thus concluded that they needed certain capabilities to ensure that they are not humiliated again.

Given the structural change in the balance of power in Asia and the various regional flashpoints that might involve China and U.S. intervention, it is not surprising that many Chinese military capabilities frequently match a discernible U.S. military target.  

ET: Have they reached military parity with the U.S. and if so in what terms?

YT: In terms of conventional military power, China has not reached parity with the US across the board. The United States is also qualitatively superior across many measures of military power. However, such broad military parity is not necessary for China to pose serious challenges to the United States. In certain niche areas China has already achieved tremendous advances and has even surpassed those of the United States.

It is actually more useful to think about asymmetries in the competition through which China has pitted its strengths against America’s military weaknesses. For instance, China has developed a very large family of missiles that can be launched from ships, submarines, aircraft, and trucks to attack U.S. platforms and bases in the Pacific. These missiles have furnished China a competitive advantage at sea: relatively inexpensive Chinese anti-ship missiles could inflict crippling damage to a U.S. aircraft carrier that costs billions of dollars to build. And, it takes only one missile to get through to put out of action a surface combatant essential to America’s regional strategy in Asia.

Chinese missiles also threaten U.S. bases in the Western Pacific. American bases there represent massive concentrations of U.S. capital in a few key locations. This means that China can direct the bulk of its missile prowess against a few positions to do some real damage to, if not severely cripple, America’s ability to project power in the region.

China is becoming very competitive in the missile arena, in part, because it is filling a strategic vacuum left behind by the superpowers during the Cold War. The Intermediate-Range Nuclear Forces Treaty committed both the US and the then Soviet Union (and now Russia) to eradicate entire classes of missiles prohibited by the treaty. Unconstrained by the treaty, China embarked on a missile buildup that has now made it the most potent conventional missile power in the world.

ET: North Korea is also aggressively developing their missile capabilities, which could be used to deliver their nuclear arsenal. Its economy can only survive because of Chinese support. And this situation could precipitate the occurrence of some of the scenarios you described. Is China using that country as a proxy to test the resolve of, and even wage war against, the U.S. and its regional allies? Or are they equally concerned with what’s going on in Pyongyang?

YT: China is in an unenviable position. China’s prime directive is stability including stability along its periphery. North Korea clearly falls in that category. North Korea has served as a geostrategic buffer on the Korean Peninsula. After all, Mao intervened in the Korea War to prevent a noncommunist power from being established on China’s borders. China abhors the possibility of countless Korean refugees pouring across the border owing to regime collapse or war. Perhaps even worse from China’s perspective is a unified Korea led by Seoul and aligned with the United States.

But, stability has to be balanced against other liabilities. North Korea’s nuclear ambitions could trigger broader regional proliferation across threshold nuclear powers like Japan, South Korea, and Taiwan. During different periods of the Cold War, all three powers have considered or pursued an independent nuclear option. North Korea’s actions are putting even more pressure on these countries to revisit the unthinkable option. A nuclear Japan would presumably be a nightmare for China.

ET: It is an odd situation that the U.S. has to deal with serious security concerns engendered by one of its key trading partners, in fact a major supplier of manufactured products. How has the U.S. government reacted to this? President Obama tried that pivot to Asia, which did not seem to be that successful. Do you sense any change in this regard with the new Trump administration?

YT: The United States has long pursued a dual-pronged approach to China. One prong is engagement. For decades, the U.S. has engaged China economically, diplomatically, culturally, and, to a lesser extent, militarily. This can be described as comprehensive engagement with China.

However, engagement is not (or should not be) an end in and of itself. It seems to me the intermediate goal is to make China a responsible stakeholder. In theory, enmeshing China in the U.S.-led liberal international order would give China an ever larger stake in the current order and thus incentivize Beijing to build on and defend the order.  

The other prong is deterrence. Deterrence requires the United States to maintain significant military presence in the western Pacific to deter China from changing the status quo unilaterally. Deterrence helps to lock in the current order and to buy time so that engagement with China can do its work. Engagement and deterrence are thus very much interrelated.

But, the risk is that engagement has made China very wealthy and powerful. If fact, China has become so wealthy that it has acquired the tools, both military and non-military, to unilaterally change the status quo. This is sort of like feeding the beast. And, it undermines deterrence. This dual-pronged approach is thus in tension with each other as well. 

The Obama administration’s pivot to Asia was in part designed to bolster the deterrence piece of the equation even while engaging China. The Trump administration’s strategy toward China is still unclear, but we see glimmers of his approach.  By questioning China’s trade practices and by promising a military buildup, Trump may be revisiting both prongs of engagement and deterrence. It remains to be seen if modifying both prongs will be more effective in managing the relationship between China in the U.S.

ET: Certainly as part of that engagement both countries have deepening cultural ties. Many Chinese students attend American universities, including children of prominent party officials. Likewise, the U.S. has been investing significantly in China on many fronts, including learning institutes. This raises the question of how aggressive China would actually be in all these scenarios. Throughout its extensive history it has never really ventured much beyond its borders, militarily at least. In fact quite the opposite, they have been the victims of invasion, including the Mongols and even several Western powers during the “century of shame”. Can we not say that their geopolitical ambitions are driven more by defensive rather than offensive ambitions?

YT: This engagement strategy has clearly produced a great deal of people-to-people and cultural exchanges. The question is to what extent such exchanges are fundamentally reshaping Chinese perceptions towards the U.S. It is not clear to me that there is necessarily and always a positive correlation. 

Let’s look at history. The UK and Germany prior to World War I were very close. Many members of the German royal family studied in Britain. Kaiser Wilhelm was the grandson of Queen Victoria. There was a great deal of economic, diplomatic, and cultural interchange between the two. Yet, Germany made strategic choices that stimulated a diplomatic and naval rivalry with Britain.

More generally, it is easy to misread the resolve of other nations. Past adversaries have grossly misread the United States.  The notion that you could get the U.S. to back down by giving America a bloody nose informed Imperial Japan’s calculation when it attacked Pearl Harbor and Osama Bin Laden’s calculation when he orchestrated 9/11.

The question is whether these cultural exchanges will dispel Chinese misconceptions and biases about the United States. That’s hard to tell.

Whether China has been defensive historically is a subject of intense debate. But, even if we accept that China is primarily defensive, it is worth considering how China’s neighbors view China’s strategic orientation. Even if China genuinely believes that it is only seeking to defend its interests in East Asia, those inhabiting Asia, like Japan, might draw some very different conclusions about China’s posture.

 ET: When we look back at history one of the major driving factors – and an often forgotten one – is demographics. And China appears to be in trouble here. What are your views here?

YT: As a result of the one-child policy, China is already suffering from rapid ageing and population decline. India will overtake China in terms of population size in the not so distant future. China’s labor force began shrinking in 2012. The elderly population as a percentage of the total population is rising fast. As the cliché goes, China will get old before it gets rich. This is meant as a contrast to Japan, which reached its stage of demographic decline after it had developed into an advanced economy. 

What this means for China’s security is unclear. On the one hand, an aging society might become more risk averse.  In a one-child society, parents may be less willing to risk losing their sole offspring in a bloody conflict. On the other hand, it is plausible that demographics might compel China to act sooner rather than later to resolve disputes before population decline constrains China’s options. In other words, China may feel it needs to hurry to settle security problems before it’s too late. 

ET: The U.S. is also facing some internal issues. As everyone knows its society is incredibly divided today. Both parties can’t even agree on building a wall south of the border, much less on a broader defense policy. Is this undermining the U.S.’ ability to project power and defend its allies in a time of crisis? And how is China viewing all this?

YT: America’s allies and friends in the Western Pacific are watching the United States very closely. While they have always worried about U.S. commitments to the region, political developments in the US have only added to the anxiety.  

China, too, is closely observing the U.S. As I explained earlier, China still needs a stable external environment to grow economically. That means unstable or even hostile relations with the United States could do real harm to China’s long-term goals.    

For the United States, the question is whether it can maintain the longstanding consensus about its power and purpose in Asia. Since the end of World War II, the consensus has been that American primacy in the Pacific disproportionately benefits U.S. economic and security interests. To what extent this consensus will hold will be the question on the minds of everyone on both sides of the Pacific.

ET: Thank you very much for your insightful thoughts.

YT: Thank you.

A Well-Kept Open Secret: Washington Is Behind India’s Brutal Experiment of Abolishing Most Cash

Preface: Washington"s Blog reached out to Dr. Haering after reading several excellent articles on India"s cash ban.  Dr. Haering then combined the information into a single article for us. We lightly edited the article for spelling and grammar.

By Norbert Haering, a German financial journalist, blogger and PhD economist, who received the 2007 getAbstract Best Business Book award and the 2014 prize of the German Keynes Society for economic journalism. His best-selling book (in German) “The abolition of cash and the consequences” was published in 2016. Originally published on norberthaering.de (http://norberthaering.de/en/home/27-german/news/745-washington-s-role-in-india). Republished with permission of the author.

In early November, without warning, the Indian government declared the two largest denomination bills invalid, abolishing over 80 percent of circulating cash by value. Amidst all the commotion and outrage this caused, nobody seems to have taken note of the decisive role that Washington played in this. That is surprising, as Washington’s role has been disguised only very superficially.

U.S. President Barack Obama has declared the strategic partnership with India a priority of his foreign policy. China needs to be reined in. In the context of this partnership, the US government’s development agency USAID has negotiated cooperation agreements with the Indian ministry of finance. One of these has the declared goal to push back the use of cash in favor of digital payments in India and globally.

On November 8, Indian prime minster Narendra Modi announced that the two largest denominations of banknotes could not be used for payments any more with almost immediate effect. Owners could only recoup their value by putting them into a bank account before the short grace period expired at year end, which many people and businesses did not manage to do, due to long lines in front of banks. The amount of cash that banks were allowed to pay out to individual customers was severely restricted. Almost half of Indians have no bank account and many do not even have a bank nearby. The economy is largely cash based. Thus, a severe shortage of cash ensued. Those who suffered the most were the poorest and most vulnerable. They had additional difficulty earning their meager living in the informal sector or paying for essential goods and services like food, medicine or hospitals. Chaos and fraud reigned well into December.

Four weeks earlier

Not even four weeks before this assault on Indians, USAID had announced the establishment of “Catalyst: Inclusive Cashless Payment Partnership”, with the goal of effecting a quantum leap in cashless payment in India. The press statement of October 14 says that Catalyst “marks the next phase of partnership between USAID and Ministry of Finance to facilitate universal financial inclusion”. The statement does not show up in the list of press statements on the website of USAID (anymore?). Not even filtering statements with the word “India” would bring it up. To find it, you seem to have to know it exists, or stumble upon it in a web search. Indeed, this and other statements, which seemed rather boring before, have become a lot more interesting and revealing after November 8.

Reading the statements with hindsight it becomes obvious, that Catalyst and the partnership of USAID and the Indian Ministry of Finance, from which Catalyst originated, are little more than fronts which were used to be able to prepare the assault on all Indians using cash without arousing undue suspicion. Even the name Catalyst sounds a lot more ominous, once you know what happened on November 9.

Catalyst’s Director of Project Incubation is Alok Gupta, who used to be Chief Operating Officer of the World Resources Institute in Washington, which has USAID as one of its main sponsors. He was also an original member of the team that developed Aadhaar, the Big-Brother-like biometric identification system.

According to a report of the Indian Economic Times, USAID has committed to finance Catalyst for three years. Amounts are kept secret.

Badal Malick was Vice President of India’s most important online marketplace Snapdeal, before he was appointed as CEO of Catalyst. He commented:

“Catalyst’s mission is to solve multiple coordination problems that have blocked the penetration of digital payments among merchants and low-income consumers. We look forward to creating a sustainable and replicable model…. While there has been … a concerted push for digital payments by the government, there is still a last mile gap when it comes to merchant acceptance and coordination issues. We want to bring a holistic ecosystem approach to these problems.”

Also in September, McKinsey Global Institute issued a report titled “How digital finance could boost growth in emerging economies”.  The authors acknowledged “collaboration with the Financial Services for the Poor team at the Bill & Melinda Gates Foundation”. They thanked more than ten Gates Foundation (BTCA) people for contribution to the report, including Gates Foundation’s India head Nachiket Mor, whom we will meet again later. The Gates Foundation and USAID are key members of a Better Than Cash Alliance, which we will also look at more closely. In mid-December, seemingly unfazed by ample evidence that taking away cash in India has been the exact opposite of helping the poor and promoting “financial inclusion”, McKinsey-partner Susan Lund and study contributor Laura Tyson published “The promise of digital finance”, making fantastic claims about the advantages of pushing back cash-use in favor of digital, including ten percent higher GDP for countries like India.

Ten months earlier

The multiple coordination problem and the cash-ecosystem-issue that Malick mentions had been analysed in a report that USAID commissioned in 2015 and presented in January 2016, in the context of the anti-cash partnership with the Indian Ministry of Finance. The press release on this presentation is also not in USAID’s list of press statements (anymore?). The title of the study was “Beyond Cash”.

“Merchants, like consumers, are trapped in cash ecosystems, which inhibits their interest” in digital payment it said in the report. Since few traders accept digital payments, few consumers have an interest in it, and since few consumers use digital payments, few traders have an interest in it. Given that banks and payment providers charge fees for equipment to use or even just try out digital payment, a strong external impulse is needed to achieve a level of card penetration that would create mutual interest of both sides in digital payment options.

It turned out in November that the declared “holistic ecosystem approach” to create this impulse consisted in destroying the cash-ecosystem for a limited time and to slowly dry it up later, by limiting the availability of cash from banks for individual customers. Since the assault had to be a surprise to achieve its full catalyst-results, the published Beyond-Cash-Study and the protagonists of Catalyst could not openly describe their plans. They used a clever trick to disguise them and still be able to openly do the necessary preparations, even including expert hearings. They consistently talked of a regional field experiment that they were ostensibly planning.

“The goal is to take one city and increase the digital payments 10x in six to 12 months,” said Malick less than four weeks before most cash was abolished in the whole of India. To not be limited in their preparation on one city alone, the Beyond Cash report and Catalyst kept talking about a range of regions they were examining, ostensibly in order to later decide which was the best city or region for the field experiment. Only in November did it became clear that the whole of India should be the guinea-pig-region for a global drive to end the reliance on cash. Reading a statement of Ambassador Jonathan Addleton, USAID Mission Director to India, with hindsight, it becomes clear that he stealthily announced that, when he said four weeks earlier:

“India is at the forefront of global efforts to digitize economies and create new economic opportunities that extend to hard-to-reach populations. Catalyst will support these efforts by focusing on the challenge of making everyday purchases cashless.”

Catalyst is housed at IFMR, an Indian research institute, of which Gates Foundation India’s CEO Nachiket Mor is a board member, has many US-Institutions as funders, including many members of a group called Better Thank Cash Alliance, including USAID, Gates Foundation, Ford foundation, Citi. IFMR is a member of the “Alliance for financial inclusion”, which is financed by the Gates Foundation (BTCA).

Veterans of the war on cash in action

Who are the institutions behind this decisive attack on cash? Upon the presentation of the Beyond-Cash-report, USAID declared: “Over 35 key Indian, American and international organizations have partnered with the Ministry of Finance and USAID on this initiative.” On the ominously named website http://cashlesscatalyst.org/ one can see that they are mostly IT- and payment service providers who want to make money from digital payments or from the associated data generation on users. Many are veterans of what a high-ranking official of Deutsche Bundesbank called the “war of interested financial institutions on cash” (in German). They include the Better Than Cash Alliance, the Gates Foundation (Microsoft), Omidyar Network (eBay), the Dell Foundation Mastercard, Visa, Metlife Foundation.

The Better Than Cash Alliance

The Better Than Cash Alliance, which includes USAID as a member, is mentioned first for a reason. It was founded in 2012 to push back cash on a global scale. The secretariat is housed at the United Nations Capital Development Fund (UNCDP) in New York, which might have its reason in the fact that this rather poor small UN organization was glad to have the Gates Foundation in one of the two preceding years and the MasterCard Foundation in the other as its most generous donors.

The members of the Alliance are large US-Institutions which would benefit most from pushing back cash, i.e. credit card companies Mastercard and Visa, and also some U.S. institutions whose names come up a lot in books on the history of the United States intelligence services, namely Ford Foundation and USAID. A prominent member is also the Gates Foundation. Omidyar Network of eBay founder Pierre Omidyar and Citi are important contributors. Almost all of these are individually also partners in the current USAID-India-Initiative to end the reliance on cash in India and beyond. The initiative and the Catalyst program seem little more than an extended Better Than Cash Alliance, augmented by Indian and Asian organizations with a strong business interest in a much decreased use of cash.

Reserve Bank of India’s IMF-Chicago Boy

The partnership to prepare the temporary banning of most cash in India coincides roughly with the tenure of Raghuram Rajan at the helm of Reserve Bank of India from September 2013 to September 2016. Rajan (53) had been, and is now again, economics professor at the University of Chicago. From 2003 to 2006 he had been Chief Economist of the International Monetary Fund (IMF) in Washington. (This is a cv item he shares with another important warrior against cash, Ken Rogoff.) He is a member of the Group of Thirty, a rather shady organization, where high ranking representatives of the world major commercial financial institutions share their thoughts and plans with the presidents of the most important central banks, behind closed doors and with no minutes taken. It becomes increasingly clear that the Group of Thirty is one of the major coordination centers of the worldwide war on cash. Its membership includes other key warriors like Rogoff, Larry Summers and others.

Raghuram Rajan has ample reason to expect to climb further to the highest rungs in international finance and thus had good reason to play Washington’s game well. He already was a President of the American Finance Association and inaugural recipient of its Fisher-Black Prize in financial research. He won the handsomely endowed prizes of Infosys for economic research and of Deutsche Bank for financial economics as well as the Financial Times/Goldman Sachs Prize for best economics book. He was declared Indian of the year by NASSCOM and Central Banker of the year by Euromoney and by The Banker. He is considered a possible successor of Christine Lagard at the helm of the IMF, but can certainly also expect to be considered for other top jobs in international finance.

A flying-start in 2013

In 2013, the year after BTCA was founded, Rajan, former Chief Economist of the International Monetary Fund (IMF) in Washington, took over the post of Governor of the Reserve Bank of India (RBI).  One of his first decisions was to set up the “Committee on Comprehensive Financial Services for Small Businesses and Low Income Households”. He put Nachiket Mor in charge of it, a banker an board-member of the RBI. In March 2016 the Gates Foundation made Mor head of its India country office. A reward?

Somewhat counterintuitively, the Mor Committee that was to foster financial inclusion of the poor and of rural areas, was heavily dominated by big finance and law firms, with a strong US bias and. Members included Vikram Pandit, former CEO Citigroup, a member of the Better Than Cash Alliance, and Bundu Ananth, President of IFMR Trust. A further member of the Mor Committee was a representative of the National Payments Corporation of India the umbrella organization of payment service providers, which aims to move India to a cashless society. Another member was credit Rating Agency CRISIL, majority-owned by the US Rating giant Standard & Poor’s.

In May 2016, RBI announced plans to print a new series of banknotes and announced in August that it had approved a design for a new 2,000 rupee note.

As a Central Bank Governor, Rajan was liked and well respected by the financial sector, but very much disliked by company people from the real (producing) sector, despite his penchant for deregulation and economic reform. The main reason was the restrictive monetary policy he introduced and staunchly defended. After he was viciously criticized from the ranks of the governing party, he declared in June that he would not seek a second term in September. Later he told the New York Times that he had wanted to stay on, but not for a whole term, and that premier Modi would not have that. A former commerce and law Minister, Mr. Swamy, said on the occasion of Rajan’s departure that it would make Indian industrialists happy:

“I certainly wanted him out, and I made it clear to the prime minister, as clear as possible…. His audience was essentially Western, and his audience in India was transplanted westernized society. People used to come in delegations to my house to urge me to do something about it.”

A disaster that had to happen

If Rajan was involved in the preparation of this assault to declare most of Indians’ banknotes illegal – and there should be little doubt about that, given his personal and institutional links and the importance of Reserve Bank of India in the provision of cash – he had ample reason to stay in the background. After all, it cannot have surprised anyone closely involved in the matter, that this would result in chaos and extreme hardship, especially for the majority of poor and rural Indians, who were flagged as the supposed beneficiaries of the badly misnamed “financial inclusion” drive. USAID and partners had analyzed the situation extensively and found in the Beyond-Cash-report that 97% of transactions were done in cash and that only 55% of Indians had a bank account. They also found that even of these bank accounts, “only 29% have been used in the last three months“.

All this was well known and made it a certainty that suddenly abolishing most cash would cause severe and even existential problems to many small traders and producers and to many people in remote regions without banks. When it did, it became obvious, how false the promise of financial inclusion by digitalization of payments and pushing back cash has always been. There simply is no other means of payment that can compete with cash in allowing everybody with such low hurdles to participate in the market economy.

However, for Visa, Mastercard and the other payment service providers, who were not affected by these existential problems of the huddled masses, the assault on cash will most likely turn out a big success, “scaling up” digital payments in the “trial region”.  After this chaos and with all the losses that they had to suffer, all business people who can afford it, are likely to make sure they can accept digital payments in the future. And consumers, who are restricted in the amount of cash they can get from banks now, will use opportunities to pay with cards, much to the benefit of Visa, Mastercard and the other members of the extended Better Than Cash Alliance.

Who knew?

In a report of news agency Reuters from December named “Who knew?”, unnamed Indian official sources want to make us believe that only the prime minister himself and a handful of people, knew of the plans. The Reuters report names only one of the supposedly five who knew, a high-ranking official of the finance ministry. Tellingly, there is not a single mention of any foreign involvement, despite a formal cooperation of the finance ministry with USAID, aimed at pushing back cash in favor of digital payments. This makes the Reuters piece another piece of evidence in favor of the hypothesis that a strong and not fully legitimate force behind the brutal intervention that happened in November is being covered up.

The hypothesis that a main driver behind the demonetization were U.S. interests, does not at all imply that the Indian prime minister and other Indian constituents did not have their own interests associated with it.  It is hardly possible to get the elite of a country to do something that goes against their own interests, but it is fairly easy to get them to do something that helps significant fractions of them, but hurts the majority of the people. A few possible such interests, taken from readers’ suggestions are recapitalising the public banks, which were staggering under the weight of bad loans to cronies, the interests of online payment platforms and online marketplaces as well as retail chains, which, curiously, as an Indian journalist tells me, were well supplied with cash in their in-store ATMs and benefited from the wiping out of informal competition.

Why Washington is waging a global war on cash

The business interests of the U.S. companies that dominate the global IT business and payment systems are an important reason for the zeal of the U.S. government in its push to reduce cash use worldwide, but it is not the only one and might not be the most important one. Another motive is surveillance power that goes with increased use of digital payment. U.S. intelligence organizations and IT companies together can survey all international payments done through banks and can monitor most of the general stream of digital data.  Financial data tends to be the most important and valuable.

Even more importantly, the status of the dollar as the world’s currency of reference and the dominance of U.S. companies in international finance provide the US government with tremendous power over all participants in the formal non-cash financial system. It can make everybody conform to American law rather than to their local or international rules. German newspaper Frankfurter Allgemeine Zeitung has recently run a chilling story describing how that works (German). Employees of a German factoring firm doing completely legal business with Iran were put on a US terror list, which meant that they were shut off most of the financial system and even some logistics companies would not transport their furniture any more. A major German bank was forced to fire several employees upon U.S. request, who had not done anything improper or unlawful.

There are many more such examples. Every internationally active bank can be blackmailed by the U.S. government into following their orders, since revoking their license to do business in the U.S. or in dollar basically amounts to shutting them down. Just think about Deutsche Bank, which had to negotiate with the US Treasury for months whether they would have to pay a fine of 14 billion dollars and most likely go broke, or get away with seven billion and survive. If you have the power to bankrupt the largest banks even of large countries, you have power over their governments, too. This power through dominance over the financial system and the associated data is already there. The less cash there is in use, the more extensive and secure it is, as the use of cash is a major avenue for evading this power.