A Ne Win situation: Burma’s three demonetizations

Burma’s colonial experience was bitter. The British hurt Burmese pride and occupied their beloved ‘Suvarnabhumi’. The nature of Burmese society and religion, and the comparatively short period of its colonial experience, prevented the Burmese from integrating with the British Empire. Consequently, imperial Burma saw Indians (and a few Chinese) flood the colony to grab opportunities in this resource rich but under-developed and restive land. The booming population of Indians, and their role as money-lenders and financiers, led to indigenous rebellions from as early as the ‘30s. A largely non-violent but chauvinistic political movement arose, and from this emerged the founding fathers of Burma such as Aung San, U Nu, Ba Maw and Ba Swe. Yet there were millions of ‘foreigners’, ethnic minorities in Burma, serving the Empire, and slowly appropriating the land and forest resources.

The Japanese invasion in 1942 saw many ethnic minorities flee but there were still remnants. Independence led to a self-professed modern, socialist regime which tragically denied entry to returning refugees and formally cast remnant ethnic minorities as second class citizens. This did not lead to a consolidation among ethnic Burmese though—political conflicts erupted repeatedly and culminated in a chaotic split in the Anti-Fascist Peoples Freedom League, Burma’s reigning umbrella alliance, in 1958. Besides the national polity, even institutions such as the armed forces and the Buddhist Sangha were affected. The military, under a grim general named Ne Win who first rose to prominence in the Burma Independence Army during the imperial control, stepped in as a caretaker when the split occurred. Within two years, the army went back to the barracks, handing over power to the elected party. However, Ne Win later launched a coup in 1962 when the new government seemed to be making compromises with minorities, insurgents and communists, in return for eschewing violence. Despite a self-professed ideological core of socialism, one espoused publicly by the leadership, Burmese society had multiple fault lines with a strong strain of paranoid conservatism running through its heart. A mosaic nation was not to the liking of many—this was one reason behind the longevity and strength of the military Junta.

The military Junta declared a “Burmese Way to Socialism” and promised to fundamentally recast Burma. Ne Win ‘graciously’ allowed deposed democratic leaders to run powerful-sounding advisory committees but ultimately the whims of the generalissimo prevailed. In 1974 the junta instituted a sham democracy through a one-party government, headed by Ne Win. Fear of Ne Win’s authoritarian streak made democratic leaders flee or silently acquiesce. As the reins of the country were held by generals who knew little of running a country, ham-handed and ad-hoc decisions became the norm. As with nearly all authoritarian regimes, Burma printed money endlessly to finance their political goals and some showpiece projects—without instituting a proper financial system. This caused money supply and inflation to rise uncontrollably. To grab resources and prove socialistic credentials, the regime executed total nationalization and instituted mindless, debilitating control on all economic sectors. Waves of nationalization broke the back of ethnic minorities as they were historically involved in small business, trade and finance.


The demonetisation of 1964

The economy, unsurprisingly, plumbed and black markets grew exponentially. The Junta, however, did not pause to reflect. They could not slow down their drive to nationalization everything without losing face and revealing their administrative naiveté. Since they jealously guarded power they could not delegate responsibilities, install a proper financial system, or curtail policies that drove galloping inflation. Something had to give. And the dictator’s mind, molded by years in the military, now seized upon on a blitz-like move. In was meant to be a masterstroke large denomination notes, with which the “evil capitalists and deviants” obviously hoarded their money, would be swept away. The reasoning was as follows: The Indians and the Chinese would be the first casualties and inflation would be halted. Therefore, the people would welcome the move. All deviants who had the gall to live outside the control of the state would be broken. The coterie around Ne Win concurred.

The Demonetisation Act of 1964 declared that all Burmese kyat notes of denominations of 50 and 100 ceased to be legal tender overnight. These notes were to be surrendered to Receiving Centres established all over Burma. Reimbursement would be provided if notes were surrendered within a week. For small amounts, spot reimbursement was promised. For amounts between 500 and 4,200 kyats, ‘timely’ reimbursement was guaranteed. Any amount over K4,200 would warrant further scrutiny and the application of an escalating tax. The Junta’s narrative was wrapped in conflicting themes of divisiveness and social justice. The official declaration of the Central Bank proclaimed that this revolutionary move was designed to remove social evils: “The purchasing power of the vast sums of hidden money which could be used to embarrass the Government and the economy, by unsocial acts of hoarding and speculation of essential commodities (by foreigners and evil capitalists).”

Drawing upon popular perceptions and memories of Indian moneylenders and financiers, the Junta claimed that foreign capitalists (meaning ethnic minorities who were never given full citizenship) had historically accumulated money that belonged to the real people, thus hindering the Burmese Way to Socialism. Ethnic Indians and Chinese, already reeling under nationalization, suddenly found themselves destitute. Most of them decided to leave Burma for good. An overwhelming majority of Burmese Indians were small financiers and businessmen—a far cry from the rich and powerful community of pre-war Burma—and now they were even more wretched. It would take the concerted effort of a number of Indian ministries to bring them to India. The Junta on their part did everything to hasten the emigration of their fellow countrymen.

However, the demonetisation did not impact just the ‘evil capitalists’ targeted by the government. In a predominantly cash economy, demonetisation ruined many ordinary people and small businesses. The Junta had, of course, thrown in sops such as partial or complete amnesty (with punitive taxes) and light sentences. This was done to ameliorate the losses of military political elite and regime supporters who had also entered the money-lending and financing business following independence. All these measures came to nought as agencies tasked with managing the demonetization quickly found themselves floundering. These agencies were never brought into confidence in the first place. Consequently, the spot reimbursement limit was halved within a day of the original announcement. The following day spot reimbursements were stopped altogether. The weak central bank suddenly had to oversee the process, but also had to examine surrendered notes and scrutinize returns.

As the whole circus started to break down, the Junta claimed that the small weaknesses and delays were temporary and for the ultimate benefit of bona fide citizens. The redemption deadline was repeatedly extended and when it finally ended four months later, about 78% of notes was returned. Fear of scrutiny kept away some hoarders but the logistical breakdown meant that many people in rural Burma were unable to change their notes. In the end the 1964 Burmese demonetisation was a dismal failure. The state’s endless hunger for funds resulted in a huge quantum of new denomination notes soon matching the demonetized money. Inflation continued unabated. The greatest consequence was the loss of confidence in the kyat. People returned to holding wealth in the form of precious metals and stones. Coins were hoarded and there was soon an endemic shortage of small change. The atmosphere was rife with rumors of further demonetisations.


Demonetisations of 1985 and 1987

The worst, sadly, was yet to come. In 1988, the military junta was essentially rebooted after mass riots and much human tragedy. This crisis, called the “8888 Uprising” was due to two bizarre demonetisations in 1985 and 1987. Once again, the stated main motivations were to curb money supply, and end profiteering and the black market. Inflation, of course, was a perennial bugbear. But this time the narrative also included a new objective: widening the tax base. The Finance Minister stated: “… (the objectives are) to collect taxes from those who engaged in the unscrupulous economic activities…..” Moreover, there were comments that this act would cripple insurgencies such as the Karen Movement. The November 1985 demonetisation struck at the K100, K50 and K20 notes (K100 and K50 notes had been quietly brought back a few years before). Similar to the previous demonetisation an exchange limit and deadline were set.

History repeated itself. The deadline was postponed time and time again, and the exchange limit was decreased. Shockingly, only 25% of the value of surrendered notes was ultimately reimbursed. This demonetisation order also introduced new K25, K35 and K75 notes. The basic nature of the regime had not changed. Therefore, they printed these new notes so fast that money-supply rise rebounded quickly. Even more destructive was the 1987 demonetization. Announced out of the blue by Ne Win on 5 September—apparently without the knowledge of senior officials—K25, K35 and K75 notes, issued just two years earlier, were pulled.

Not even a semblance of an official reason was given this time. Sixty to eighty per cent of notes became worthless overnight, but no exchange or compensation was provided. The Junta soon allowed reimbursement for up to K100, only so that restive students (who were now penniless) would have enough money to leave the cities and return home, instead of rioting in the cities. The affair became even more bizarre two weeks later: strange denominations of K45 and K90 were issued. The choice of these denominations became subject to much speculation. It is widely believed that the extremely superstitious Ne Win believed that the number 9 was lucky for Burma and him personally.

Once again the 1987 demonetisation did not arrest monetary growth nor rein in inflation. There was a sharp contraction, but with the heavy issue of K45 and K90 notes inflation bounced right back again. For the people of Burma, the kyat was no longer a currency they had faith in. Also the argument that the demonetization crippled insurgents soon proved to be false. Insurgents simply carried out transactions in Thai and Chinese currencies. Not to forget that they had their own stable economy based on narcotics, border trading-posts and extortion.


The reckoning

The prospects of further demonetizations resulted in economic chaos. Barter economies based on paddy and commodities boomed. There was a steep demand for smuggled consumer goods which inadvertently strengthened the criminal elements. Rumblings against the regime began right after the third demonetisation order but exploded in March 1988. By August, the whole country was engulfed in violence and disorder. Ne Win suddenly resigned in September, but any hopes of true democracy died when the army executed a coup on it’s puppet government. Thousands would die in the streets but Ne Win held effective power through a succession of military rulers, till debilitated by advanced age.

Despite a name change to Myanmar in 1989 and through relentless suppression of dissent, the socio-economic situation remained bleak for over a decade. After all, root causes of social and economic woes were never addressed. The death of Ne Win in 2008, the reign of the comparatively enlightened General Thein Sein (2011-2016), and now democracy ushered in a host of structural reforms in the Burmese economy.

Though endemic problems in Myanmar’s society remain, economic prospects for the country seem positive. With control of inflation and slightly better discipline in monetary policies, perhaps the citizens of Myanmar will not be subjected to another demonetisation.



  • Brown, Ian. (2013). Burma’s Economy in the Twentieth Century. Cambridge. Cambridge University Press.
  • Taylor, Robert. (2015). General Ne Win: A Political Biography. Singapore. Institute of Southeast Asian Studies.
  • Turnell, Sean. (1999). Fiery Dragons: Banks, Moneylenders and Microfinance in Burma. Copenhagen. Nordic Institute of Asian Studies Press.


PS: This is my article in The Mint, published on October 29, 2017. Here’s the link to the original article.

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Tughlaq’s taxes and Delhi Sultanate’s decline

The Delhi Sultanate had reached its greatest extent at the beginning of Muhammad bin Tughlaq’s reign. He was a very successful military commander who conquered most of the Deccan even before he was crowned in 1324. Unlike Alauddin Khilji, who made the kings of the south accept his suzerainty, Tughlaq annexed these lands outright and foisted Turkic governors and imperial garrisons. However, he is infamous for his blunders such as shifting the capital from Delhi to Daulatabad and the currency experiment. His tax regime, though, which greatly contributed to the Sultanate’s breakup and terminal decline, is less well known.

By 1332, the ambitious capital shift was failing just five years into the programme. His revolutionary attempt to create a token currency had also failed spectacularly. Both experiments had caused great financial loss. One way of recouping losses was to increase tax revenue by all means possible. Alauddin Khilji’s reign (1296-1316) was based on state terror, high agricultural tax (mostly extracted in cash), and very strict market control. This system was prevalent in the territories adjoining Delhi, and the Ganga-Yamuna doab. These regions were highly productive agriculturally, and formed the core “crown lands” of the Sultanate. Tughlaq extended this tax system beyond the Sultanate’s core lands — and his time there were exacting additions. A number of new cesses were levied. Tax was based on (higher) pre-assessed production, rather than on the quantity actually produced. For conversion of kind to cash, the rate used was based on assumed prices and not the actual ones. Therefore, the tax extracted was inordinately high.

A massive uprising erupted in the core lands; the Khilji tax regime was harsh enough, and the increased burdens broke people’s patience. Farms fell into disuse and the cattle were hidden in the forests. Farmers from nearby regions followed suit as they understood that they would also be rendered penniless. The rebels soon carved out small domains. Unfortunately, Tughlaq had returned to Delhi in this period and he unleashed his characteristic wrath. The army was ordered to destroy the rebellion and to plunder the whole region. The Sultanate’s forces swept the region, with Tughlaq himself joining in on some expeditions. The rebel domains were reconquered and thousands were killed. Most of the remnant were forced into banditry.

By ’34-‘35, this agrarian breakdown, the rebellion, and the failed monsoons led to a seven-year famine. Rural economy shrank considerably and food prices soared. A severe decrease in state revenue thus ensued — the whole purpose of the new tax regime had now failed! As the Sultanate weakened, the farthest provinces, Madurai and Bengal, broke away. The agrarian crisis, and other factors, prevented Tughlaq from responding. The heavy taxation had undeniably backfired and a remedy was required. Tughlaq launched a programme to rebuild the rural economy, around 1345. In principle, this plan for resurrecting agricultural production was sound. Tughlaq’s ideas included extending cultivation (to all potential agricultural lands), farming higher value crops and crop rotation, and setting well-defined targets. While advance loans to farmers had existed for centuries, Tughlaq now formulated the first systematic policy of state agricultural loans. Agricultural loans named “Sondhar” were also offered on a grand scale. The belief was that the increased volume of production would offset the heavy taxation: The rebellions would then subside and the Sultanate would be able to reconsolidate. A large number of people offered to serve as imperial officials overseeing this agrarian programme. However, most of these turned out to be insolvents who were only attracted by the money, and perhaps emboldened by the weakened Sultanate. By about ‘47, two crore tankas (gold coins) were disbursed as Sondhar to these officials, who promised results within three years. Tughlaq also incentivised these officials by various gifts and official regalia.

However, Gujarat broke away in ’48. Tughlaq dropped his supervision of the agrarian programme and went to war. The important Deccan province also seceded suddenly. With Tughlaq far away for the foreseeable future, the officials failed to execute the agrarian plans, or simply swindled the state. Muhammad bin Tughlaq died in 1351 chasing the rebels into Sindh, and Firoz Shah Tughlaq inherited an imploding rump state. Firoz Shah acted swiftly to save the economy. The Sondhar loans were publicly written off and the more oppressive taxes were lifted. However, the agrarian rectification he executed (and later emulated by many rulers down the centuries) was largely based on Muhammad bin Tughlaq’s ideas. This time, planning and execution were better, and public anger had subsided. Firoz Shah prevented the Sultanate’s incipient destruction by simply being more cautious than his predecessor. He focused on consolidating core territories and repairing the socio-economic damage of the past two decades. To an extent, Firoz Shah succeeded, but the Sultanate had already declined irrevocably. It never regained its former strength or territorial extent. Weakened by incessant petty wars and crises, the Sultanate fell to Babur in 1526.


PS: This is my article in Daily News & Analysis (DNA), published on October 15, 2017. Here’s the link to the article.

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The Brief Supremacy of a Mountain Kingdom

Despite severe external and internal threats Bhutan emerged as a strong mountain kingdom by the late 17th century. For a brief period, Bhutan played a key role in present day north east – the works of authors such as Karma Phuntsho and Michael Aris shed light on this turbulent past. Decades of conflict had forged a martial state despite the Buddhist heritage. Bhutan entered an expansionist stage by occupying Sikkim, and parts of Nepal, Bengal and Assam. Controlling these areas, and adjacent Cooch Behar kingdom (then comprising of parts of West Bengal, Bangladesh and Assam) was necessary to truly dominate the subcontinent, given the strategic importance of Assam and Bengal. Moreover, the floodplains of Assam and north Bengal were highly productive. Therefore, Mughals, and later the British, sought to control this zone. In 1680 C.E., Bhutan intervened in a war of succession in Cooch Behar. Bhutan favored the rebels and killed the reigning king in battle. The Raikats of Jalpaiguri, kin of the slain monarch, and remnant local forces managed to halt Bhutan. Cooch Behar later sought alliance with Bhutan when the Mughals suddenly invaded from the south. The Mughal Empire had been unstable for a few years due to succession wars, in which Aurangzeb emerged victorious. Following his consolidation, Mughal commanders of the East attempted to conquer Cooch Behar. In subsequent invasions, the Mughals captured more territories and this drove Cooch Behar into Bhutan’s control by about 1714 C.E. The Mughal threat however subsided as their power rapidly declined following Aurangzeb’s death.


Bhutan now started to intervene in the dynastic succession of Cooch Behar. Following another dynastic struggle in the 1750s, a rebel prince sought Mughal aid in return for Mughal suzerainty over Cooch Behar. Bhutan defeated the subsequent Mughal invasion and this solidified Bhutanese supremacy in the region. They appointed a de-facto Viceroy and garrisoned forces in Cooch Behar. In 1765, chaos erupted again when the Nazir (a senior official) conspired with the Chief Priest and assassinated the reigning child-king. The Bhutanese reacted quickly and prevented a coup. Bhutan now enjoyed even more control and military presence in Cooch Behar. It was the same year that a new power arose in the Indian subcontinent. The East India Company established total control over Bihar and Bengal following their victory in the Battle of Buxar.


Bhutan now gained prestige by cementing relationships with Nepal, and fighting off powerful challenges from Tibet. Neighboring kingdoms such as the Raikats also aligned with them. However, Cooch Behar would ultimately undo Bhutan’s ascent. Another dynastic conflict erupted in 1769: Bhutan stepped in once again, imprisoned and exiled the royal family and installed a puppet ruler. This time they grabbed the royal regalia and visibly demeaned the new ruler – acts which incensed the locals. Following the death of the puppet ruler in 1772, Cooch Behar rebelled. They drove off the foreign forces and installed their own king. Bhutan struck back and was soon victorious. The new puppet ruler however died before the Bhutanese could reconsolidate. In the meantime, the Nazir fled with the deposed king and requested the East India Company to intervene.


The Great Famine of 1770 and the ensuing Sanyasi rebellions had caused the disturbances to spill over into Bhutanese lands. Bands of rebels periodically emerged from Bhutanese zones and harassed the British. Slavery existed in Bhutan and raids by slavers into Company territories angered the British. The Bhutanese frontier officials were apparently complicit in these actions. Moreover, the unending instability close to their new and profitable possessions made the Company very uncomfortable. The refugee Nazir promised to bankroll the “liberation” and also give half the tax revenues in return for help in reclaiming the throne. The Company obliged and attacked the Bhutanese, their vassals and Sanyasi bands. The war lasted two years but the British prevailed. A palace coup in the midst of war also hastened the Bhutanese capitulation. A peace treaty was signed and the deposed king reclaimed the Cooch Behar throne in 1774. Bhutan’s prestige fell and the British carried away tribute, treasure, and captured Sanyasi leaders.

Bhutan’s power in its west declined following Nepal’s ascent, the Nepal-Tibet War and subsequent Chinese intervention. Internal conflicts between rival nobles and monastic orders also greatly weakened Bhutan. However, they refused to let the British dictate terms regarding trade and foreign policy. The spectacular rise of Company made Bhutan very wary of letting the British into their homelands – even for trade. Also, cross-border slaver raids persisted. The British responded by slowly occupying more and more Bhutanese holdings over the years. In the aftermath of the First Anglo-Burmese War in 1826 the British conquered most of Assam, increasing the threat to Bhutan. Opportunity presented itself in 1864 when a civil war erupted in Bhutan. The Empire intervened and annexed the remaining lands Bhutan held in Bengal and Assam. Subsequent treaties ensured that Bhutan remained subservient to the Raj.


PS: This is my article in Daily News & Analysis (DNA), published on October 1, 2017. Here is the link to the piece.

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