If the poor don't have cash savings, why would they be troubled by demonetisation?

When the currency swap decision was announced, many argued - poor don't have cash savings. Hence, they would be less inconvenienced. Suyash Rai of NIPFP rightly sheds light on this aspect using evidence on the 'economic lives of the poor', correcting these misconceptions.

The bottom line is that rich and middle class use savings to cushion the risks and uncertainties. It's a different case with the poor. The poor smoothen their consumption cycles using credit. It means that the poor are constantly borrowing, paying up, re borrowing to deal with risks, uncertainties and their irregular income cycles. In technical terms, the ratio of transaction value to asset value is high for the poor.

Currency Swap directly affects the transactions by crushing the tool of transaction. It's difficult for the poor to borrow now, and hence increase their exposure to the risk.

Quoting from Suyash Rai's article
Most poor households have small, irregular and unpredictable incomes. This forces them to do high frequency financial transactions in order to smooth their consumption. They are transacting intensively in the process of cash-flow management, to transform irregular income flows into a stable flow of consumption from day to day. When the poor flounder in this high wire act, they may go hungry. These are not the concerns of the middle class: their income is much more stable, and they can use their savings as a buffer. I fear that much of the commentary on de-monetisation lacks an appreciation of this distinction.
This evidence is from "Portfolios of the poor: How the World's Poor Live on $2 a day".

On a broader level, the discourse on currency swap (i) illustrates the importance of the knowledge of both micro and macro economics; (ii) displays huge gaps in our understanding of the economic lives of the poor. Or is it a reluctance to understand rather than a lack of body of knowledge?

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