As written for goldseek.com
On November 8 2016 at 8.00 pm Prime Minister Mr. Modi announced his decision to demonetize or scrap the Rs. 500 and Rs. 1000 notes. I am seeing some unjustified criticism and fear about this decision as well as unjustified praise and bonhomie (people praising this decision without understanding the full ramifications). So I decided to write this article to educate:
Facts:
I believe, that this is a huge huge move with far reaching consequences. Only time will tell if it is good or bad. But With this one master stroke, PM Modi has levelled the playing field for corrupt persons and honest people.
Due to scrapping of 500 and 1000 rs. notes, now there will be an increase in the circulation of Rs. 100 notes. I sincerely believe (and hope), that the decision to introduce the Rs. 2000 note is just a stop gap arrangement. Circulation of this note should be and will be stopped as soon as possible.
Rs. 1,00,000/- in 100 rs. notes fits in a small briefcase (10 bundles of 100 X 100), whereas in 1000 rs. denomination, it used to be a single bundle, which could easily fit into the pocket. Even huge economies such as the USA and EU have a highest denomination of 100 dollars or euros. All higher transactions in such economies are carried out using either direct bank transfers or cheques or debit / credit cards. So, all transactions of a certain higher quantum tend to leave a paper trail. The direct result of all this is the reduction in the volume of the shadow economy (untraceable money or black money in the economy).
Pros:
1) Corruption: This decision is a very direct assault on the endemic corruption in the Indian system. Firstly, you can only exchange a limited amount of cash under the table. You can’t carry 5 or 10 briefcases of 100 rs. notes to home every single evening without attracting attention. Also, the person paying the bribe cannot withdraw 5 or 10 lac rupees from the bank without attracting attention, if he keeps on doing so regularly. This will directly affect the ability to pay a bribe and to receive a bribe.
This post was published at GoldSeek on 20 November 2016.
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