Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

India's demonetisation of Rs. 500 and Rs. 1000 notes

newsite.thehindu.com

Post reply on HN
Print view View original

31–40 of 336 posts

Re: India's demonetisation of Rs. 500 and Rs. 1000 notes

#31

Post by hypothesist »

billy8988 wrote: post #28

It is hardly going to fix the black money problem. Rich people have so many employees to do the bank run for them. Within the next month, you will see a huge spike in real estate market. People with black money will dump it in the real estate market. (If you are not an Indian, this is how it works. You buy an apartment/home/building for the amount X. But you declare it to the government that you bought it for X/10. T…

Yes, but unless you are finishing the deal tonight, all those note will become useless.

Nobody is going to accept the notes in a transaction except the bank - and if you go there with your undisclosed income, the income tax department will be right on your tails.

Re: India's demonetisation of Rs. 500 and Rs. 1000 notes

#32

Post by aub3bhat »

This is the boldest and probably most brilliant move by any Indian politician since liberalization of economy in 1990s.

Having said that, another way of understanding this is that as of today both old 500 Rs and 1000 Rs notes have been "probabilistically devalued". For anyone in middle class and below the value essentially remains the same (other than a small devaluation due to effort required to get them exchanged), however for anyone holding large number of notes, the value has been significantly lowered by approximately ~10 to 20% consider when the money gets deposited, there would be an income tax due on it.

Modi received a lot of flak not doing anything about black money and corruption after getting elected in spite of promises before the election. Bust as this move shows, he has taken the bold step, and can go for an election in 2019 without worrying.

To make it even simpler:

Assume that people in USA used 100$ notes (hard to hoard 20$ notes) to skip paying income tax (but mostly real estate transaction tax) and dealt in cash, by declaring 100$ notes as illegal tender and forcing them to be exchanged for new 50$ and 200$ notes. The government can ensure that this money is deposited or converted in banks. Ensuring that all "fake" 100$ notes are caught / lose value and people hoarding cash to skip paying income tax are forced to put the money in circulation. Otherwise come December 31st the value of the notes is same as piece of paper they are printed on.

Re: India's demonetisation of Rs. 500 and Rs. 1000 notes

#33

Post by billy8988 »

shubhamjain wrote: post #30
billy8988 wrote: post #28

It is hardly going to fix the black money problem. Rich people have so many employees to do the bank run for them. Within the next month, you will see a huge spike in real estate market. People with black money will dump it in the real estate market. (If you are not an Indian, this is how it works. You buy an apartment/home/building for the amount X. But you declare it to the government that you bought it for X/10. T…

I am not sure how that will work out if the denomination itself has been declared illegitimate. Why would anyone accept 'black money' of any kind if he can't spend it elsewhere?

If you are in the low income bracket or a farmer, you can accept the money and deposit in the bank without any ramifications. All this will happen before the deadline.

Re: India's demonetisation of Rs. 500 and Rs. 1000 notes

#34

Post by aub3bhat »

billy8988 wrote: post #28

It is hardly going to fix the black money problem. Rich people have so many employees to do the bank run for them. Within the next month, you will see a huge spike in real estate market. People with black money will dump it in the real estate market. (If you are not an Indian, this is how it works. You buy an apartment/home/building for the amount X. But you declare it to the government that you bought it for X/10. T…

"Dumping in real estate" will require the seller to "convert" that money which isn't trivial, keep in mind the seller himself would be trying his best to get it converted. Will it completely solve the black money, probably not, but at least it is the biggest step towards any kind of a solution in future.

Re: India's demonetisation of Rs. 500 and Rs. 1000 notes

#35

Post by uiri »

h43k3r wrote: post #6

For international readers: Rs 500 and Rs 1000 are the highest denominations notes in India. Other available denominations are Rs 100, 50, 20, 10. This is such a major move to curb black money in the history of Indian Politics and Economy

1 USD is ~Rs 66. That is a staggering difference in purchasing power! I would guess that the only note in the US with a similar reputation which is still issued would be the $100. Notes larger than this ($500, $1000, $5000, and $10 000) have been discontinued since 1946 and actively destroyed by the Federal Reserve since 1969.

Isn't there a concern that those who were using these high denomination notes just switching to other currencies? Bhutan has a currency that is pegged 1:1 with the Indian Rupee and will (presumably) still issue Rs 500 and Rs 1000 notes. Sri Lanka is another possible candidate; and of course there are the standard global reserve currencies - the US dollar and the Euro - whose notes worth over Rs 1000 are relatively common place.

Re: India's demonetisation of Rs. 500 and Rs. 1000 notes

#36

Post by vmarsy »

nish1500 wrote: post #23
blevinstein wrote: post #20

Earlier quoted context omitted.

500 rupees = $7.52, 1000 rupees = $15.05 These are not large denomination bills.

28 of the latter make up an average Indian's monthly income. It's more significant than $100 is for Americans.

Meanwhile you only need three 500€ bills to make up for the average European income. (And 500€ is 36651 rupees.) Those 500 and 1000 rupees are the largest denomination bills in India, but you need almost 10 times more of them to make up for the respective average income.

Re: India's demonetisation of Rs. 500 and Rs. 1000 notes

#37

Post by NikhilVerma »

I am personally not sure about the impact of this. I am hoping it will bring some positive change, Indians do have a habit of hoarding huge amounts of cash. It's not something specific to "black money hoarders".

Anyway I pity the bank employees for the coming few weeks!

Re: India's demonetisation of Rs. 500 and Rs. 1000 notes

#38

Post by billy8988 »

aub3bhat wrote: post #34
billy8988 wrote: post #28

It is hardly going to fix the black money problem. Rich people have so many employees to do the bank run for them. Within the next month, you will see a huge spike in real estate market. People with black money will dump it in the real estate market. (If you are not an Indian, this is how it works. You buy an apartment/home/building for the amount X. But you declare it to the government that you bought it for X/10. T…

"Dumping in real estate" will require the seller to "convert" that money which isn't trivial, keep in mind the seller himself would be trying his best to get it converted. Will it completely solve the black money, probably not, but at least it is the biggest step towards any kind of a solution in future.

That's why I said, "Trickle down".

Re: India's demonetisation of Rs. 500 and Rs. 1000 notes

#40

Post by CydeWeys »

neximo64 wrote: post #7

What about people not in India with a few 1000 rupee notes lying around, those are valueless for good? I have 2 notes. Wont the funds be effectively destroyed and removed from circulation, for those who don't put their cash in the bank by the end of next month. Wont this have deflationary consequences?

2,000 rupees is 30 USD at today's exchange rate.

I don't see why you wouldn't be able to exchange them at a money changer wherever you happen to be now, but for that amount it may well not be worth it.

Post reply on HN