I happened to be watching news when PM appeared and made the demonetization announcement. I thought this was going to be the precursor to implementing the much debated Banking Transaction Tax. I was thrilled. Then came the announcement that new series of notes of Rs.500 and Rs.2000 were to be introduced instead. The thrill was gone.
The dual steps only introduce an asymmetry. Those who had stashed currency up to the demonetization date were struck a blow while retaining the opportunity for new aspiring corrupts or those who held their assets in other forms or abroad. This is exactly what the then RBI Governor had accused the then PM, Morarji Desai, of doing when he had demonetized high value currency notes in 1978. Read this article.
All the trouble that the public is going through would still have been worth it, had the re-monetization not been done and the public encouraged to use electronic payments for most payments.
Again, things have changed since the demonetization done by Morarji Desai. Now it is only petty and middling black money holders who keep their ill-gotten wealth in cash. The more sophisticated ones build protfolios comprising of benami accounts, real estate, gold, diamond and what have you. These petty and meddling people are the ones who will bear the brunt of this exercise and they don't deserve any sympathy just for being small. The real big players have much better tools these days. We now live in an era where powerful, even though misguided, financial engineering could shake the world economy in the 2008 meltdown. The same engineering tools enable huge sums of money to be stashed abroad. Then it is made to visit India as FII for growing itself and then goes back. While visiting India it is also, at times, converted into cash for funding elections or other political activities. Though, I must confess, I still don't fully understand how all this is done. Well, this is why investment bankers are paid so well unlike ordinary bankers like me.
There is a suspicion that this exercise has been so timed as to kill this visiting black money that had already been converted into cash for funding the impending state elections. Simultaneously it also leads to a suspicion that those who were not in too much of a hurry will benefit from the fact that the highest available denomination has now been doubled.
It makes me happy if some of the parties have lost sizeable election funds and I do hope that they will get even with the current ruling party if and when their turn comes.
As regards putting a brake on fake notes, it will only be for such period as it will take the fraudsters to learn to forge the new series. Further, I doubt if the current action will be able to purge the existing fake notes in circulation. This would have been possible if all cash counters were equipped with sophisticated currency checking and counting machines, which they are not. The sudden jump in work pressure too will come in the way of detection of forged notes. Thus a good amount of forged currency is very likely to get coverted into genuine currency. Discontinuation of all denominations beyond INR 50 is the only way to save the economy from the forgers who are said to have the backing of a hostile nation.
Before I close, I wish to express my solidarity with those housewives who have been setting aside a part of household expense money and are now forced to disclose it. In some cases it is beyond the INR 2.5 lakh limit for deposit into account, and the husbands are truly furious. Bank employees who will be toiling like mules for quite a few days have my fullest sympathy. The re-issue of high denomination notes makes me unsure of any noble motives behind the current strike. Correct me if I am wrong.
The dual steps only introduce an asymmetry. Those who had stashed currency up to the demonetization date were struck a blow while retaining the opportunity for new aspiring corrupts or those who held their assets in other forms or abroad. This is exactly what the then RBI Governor had accused the then PM, Morarji Desai, of doing when he had demonetized high value currency notes in 1978. Read this article.
All the trouble that the public is going through would still have been worth it, had the re-monetization not been done and the public encouraged to use electronic payments for most payments.
Again, things have changed since the demonetization done by Morarji Desai. Now it is only petty and middling black money holders who keep their ill-gotten wealth in cash. The more sophisticated ones build protfolios comprising of benami accounts, real estate, gold, diamond and what have you. These petty and meddling people are the ones who will bear the brunt of this exercise and they don't deserve any sympathy just for being small. The real big players have much better tools these days. We now live in an era where powerful, even though misguided, financial engineering could shake the world economy in the 2008 meltdown. The same engineering tools enable huge sums of money to be stashed abroad. Then it is made to visit India as FII for growing itself and then goes back. While visiting India it is also, at times, converted into cash for funding elections or other political activities. Though, I must confess, I still don't fully understand how all this is done. Well, this is why investment bankers are paid so well unlike ordinary bankers like me.
There is a suspicion that this exercise has been so timed as to kill this visiting black money that had already been converted into cash for funding the impending state elections. Simultaneously it also leads to a suspicion that those who were not in too much of a hurry will benefit from the fact that the highest available denomination has now been doubled.
It makes me happy if some of the parties have lost sizeable election funds and I do hope that they will get even with the current ruling party if and when their turn comes.
As regards putting a brake on fake notes, it will only be for such period as it will take the fraudsters to learn to forge the new series. Further, I doubt if the current action will be able to purge the existing fake notes in circulation. This would have been possible if all cash counters were equipped with sophisticated currency checking and counting machines, which they are not. The sudden jump in work pressure too will come in the way of detection of forged notes. Thus a good amount of forged currency is very likely to get coverted into genuine currency. Discontinuation of all denominations beyond INR 50 is the only way to save the economy from the forgers who are said to have the backing of a hostile nation.
Before I close, I wish to express my solidarity with those housewives who have been setting aside a part of household expense money and are now forced to disclose it. In some cases it is beyond the INR 2.5 lakh limit for deposit into account, and the husbands are truly furious. Bank employees who will be toiling like mules for quite a few days have my fullest sympathy. The re-issue of high denomination notes makes me unsure of any noble motives behind the current strike. Correct me if I am wrong.
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