This is quite big. An expert says that 87 percent of all of India's cash reserve is in 500 and 1000 Rupee notes. It might reduce black money. In any case, the next few weeks are going to be interesting. Almost an emergency atmosphere right now in front of ATMs at 11 pm in the night.
source?
India's demonetisation of Rs. 500 and Rs. 1000 notes
141–150 of 336 posts
Re: India's demonetisation of Rs. 500 and Rs. 1000 notes
#142Regardless of how this might help with "black money" (which seems to be a bit of an overhyped political bogeyman), any attempt to decrease the value or purview of cash is bad news for human rights. When all legal money is in government-controlled banks, you open up the door to all sorts of nastiness including political account freezes, government theft of funds, forced negative interest rates, etc. I personally have…
> Regardless of how this might help with "black money" (which seems to be a bit of an overhyped political bogeyman) Why is it a bogeyman? Have you researched the situation in India? It's very different from the U.S. > I have a dim view of any government action that makes the use of cash less convenient, less liquid, or less legal. The government will introduce new 500 and 2000 Rs notes. > forced negative interest rat…
Yes, I've done some (admittedly shallow) research on the prevalence and effect of black money, and the impression I got was that it's like "money laundering" in America; actually not that significant or deleterious, but a convenient political talking point.
> The government will introduce new 500 and 2000 Rs notes.
Arbitrarily downgrading existing notes makes the currency both less convenient and less liquid (and, I forgot, less fungible).
> How is it forced? You can still keep cash under your matress.
For now, yes. I was referring to the war on cash in general.
> What? This is way too far fetched.
We now have reason to believe they might pull this trick again in the future with the new notes. A rational person would therefore assign a lower value to the new notes than their nominal "face value" before the government devalued the old notes.
Re: India's demonetisation of Rs. 500 and Rs. 1000 notes
#143My sense is that this is mostly a gimmick as far as curbing the illegal economy is concerned. (1) Illegal cash is a fraction of illegal income which is a fraction of illegal wealth. Destroying a further fraction of that cash will not be a huge setback to the illegal economy. (2) Some (and perhaps a lot) of the illegal cash will get laundered through family and friends and deposits by businesses which operate in cash and do not have to keep detailed accounts (3) This is a game that you can play only once. Once people know that such currency 'reforms' are possible, illegal transactions will move to alternatives to domestic currency. Dollarisation of the Indian illegal economy is one possibility.
Re: India's demonetisation of Rs. 500 and Rs. 1000 notes
#144For 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 switchin…
Since the current Rs 500 and Rs 1000 notes themselves are no longer considered valid legal tender, they'd have to be exchanged for legal tender before they can be exchanged for foreign currency, even the Bhutan ngultrum (it's pegged to the Indian rupee, but that's irrelevant if the Rs 500 and Rs 1000 notes aren't legal tender representing rupees anymore). This exchange process from no-longer-legal-tender to legal tender is what provides the government visibility (and taxability) into any currently hoarded cash pile. You're correct that future hoarding can be done in a foreign currency where the same maneuver can't be pulled off again, but that doesn't provide an escape from disclosing currently-hoarded cash piles. It's also not nearly as easy to hoard large amounts of foreign currency undetected, since large transactions would be visible via the regulated institution that does the exchange (either when converting local -> foreign or foreign -> local)
Re: India's demonetisation of Rs. 500 and Rs. 1000 notes
#145Earlier quoted context omitted.
There is always some rationale that involves bad actors. Then you peel back the layers of the onion and find out the government just wants to screw regular people out of whatever.
I don't disagree with your premise, but in this case, how can this screw regular people? If someone has chosen to store a lot of their money as cash instead of in a bank and doesn't know about this, I can see that. Am I missing something else?
I am not an expert. But may be, it is only the small time tax evaders that store black money in local currency...So if someone has stashed away his lives savings in a stack of 1000 Rupee notes, this move will force them to pay taxes.
Nothing is still being done to deal with really big fishes. The ones who can really make a difference.
So as usual, it is the middle class and lower that are being forced to pay, while the upper and elite classes still given a pass and the government earns good name in the process..
Rich and powerful still wins. It is business as usual..
Re: India's demonetisation of Rs. 500 and Rs. 1000 notes
#146This 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),…
Isn't this a trick that will only work once? Wont the people who are taking advantage of black money start using a different store of value that isn't controlled by the Indian government like foreign currency or high value commodities?
It was done once before also, IIRC. Around the late 1970s. Seems to have worked. I guess it'll work given a long enough time interval, since human memory is short.
Re: India's demonetisation of Rs. 500 and Rs. 1000 notes
#147Earlier quoted context omitted.
I don't disagree with your premise, but in this case, how can this screw regular people? If someone has chosen to store a lot of their money as cash instead of in a bank and doesn't know about this, I can see that. Am I missing something else?
Regular people will have to exchange/deposit the notes, which will cause some inconvenience. But I think it's well worth the benefits to society as a whole.
Not sure if they will do this during the exchange, but technically you can attach your Aadhaar ID to the exchanged sums. That means in one swoop they know who has how much money...
Re: India's demonetisation of Rs. 500 and Rs. 1000 notes
#148This 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),…
Isn't this a trick that will only work once? Wont the people who are taking advantage of black money start using a different store of value that isn't controlled by the Indian government like foreign currency or high value commodities?
A currency is useful only if you can buy products and services with it. In India, you buy things in Rupees. Tou can't buy Rupees with dollars without an ID at which point the government knows anyway it's probably just simpler to pay your taxes
Re: India's demonetisation of Rs. 500 and Rs. 1000 notes
#149I hope this move is successful, it is one of the few ways in which a government can force cash out from under the mattress[1] and back into the system. It is also why the US government gets really twitchy around systems of currency that it can't easily monitor, whether it is bitcoin or detergent[2].
It is a temporary fix of course, the question of why the market forces allow the black market trade to exist are the real questions that need to be answered.
[1] "Under the mattress" being the euphemism for holding on to your cash instead of putting it into a bank.
[2] http://www.theatlantic.com/business/archive/2012/03/why-are-...
Re: India's demonetisation of Rs. 500 and Rs. 1000 notes
#150Strange, in Pakistan it's the opposite Govt issued Rs. 5000 note which is equal to INR 3171 because otherwise people were using USD 100 bills .... and only making USD stronger locally.. I still don't get how they are going to keep big guys from keeping USD $100 ... I would keep an eye on USD vs INR in coming weeks
In India USD is worthless. I don't know why people would use other country's money unless their own economy is under heavy stress like Zimbabwe or Colombia.