Putting it the way the OP puts it, doing it for THOSE reasons and in THAT fashion, that is dumb, and not right.
HOWEVER, I am all for the idea of no grades. I think instead there should be a progressive charting of each student's growth in their education. Start early and start young by guaging and assessing their strengths, weaknesses, likes and interests, any possible innate talents or skills they might have as they develop, etc. And go from there. Our school system focuses FAR too much on a homogenized idea of "well rounded general education", that is fine but only to a point. Yes, every student needs to know how to properly read and write (something that, looking at the internet, more and more Americans seem to slip through without actually accomplishing). Yes, everyone needs to know and understand basic math skills. Yes every needs to know an UNBIASED, factual report on history, art, science, etc. But from there, I think it would be a lot better (though certainly "harder") to have a system that actually focusing on building each child up based on not only their needs and shortcomings, but also their strengths and talents and interests. When someone is interested in something, they are far more likely to work hard at it and truly learn about it. I think "general ed" should be done by the end of 6th grade, and that from the start of "Junior High" level onward, it should be all about helping each kid become who they want to be, encouraging them to do whatever they're best at or most interested in. Encourage learning about anything and everything they want to, but forcing certain things like higher maths or sciences is an enormous waste on many people, because not everyone is INTERESTED in those subjects, and even fewer will ever actually wind up using them in their daily lives.
The concept of going to college and wasting time and money to take "General Ed" classes that, quite frankly, are nothing but "High School 2.0"....it's absurd. I just think that a gradual progress report could ultimately be far more beneficial than "grades" can be. Positive reinforcement and ENCOURAGING kids to learn, instead of negative reinforcement and forcing it or expecting them to want to. Schools in America at least, certainly don't seem like very welcoming or hospitable learning environments, CERTAINLY not at the Jr. High or High School levels. That was my experience at least, and I know it has been the experience of many others. School should be a place that kids WANT to be at, WANTING to learn and WANTING to grow, instead of something that most kids regard as "Man I can't WAIT to get out of here". When kids have that kind of attitude (and most I've encountered do), because let's face it, at a certain point school does really start to suck, they are far less apt to learn anywhere near as much as they could if they were actually interested in what they were doing and actually wanted to be there.
If people paid far more attention to child psychology and child development, and far less attention to quotas and meaningless statistics......our world would be, I think, I MUCH better place. Food for thought at least.