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India Trashes the Cash

In a surprise announcement by the Prime Minister of India, at the stroke of midnight of November 8-9, 2016, the existing large denomination notes of Rs.500 and Rs. 1000 were demonetized in India. As per Reserve Bank of India data, the notes of Rs.500 and Rs.1,000 account for more than 85 per cent by value of all rupee bills in circulation and for Rs.14 lakh crore of the Rs.16 lakh crore-plus in circulation. This is by all means one of the boldest and biggest step taken in eradication of black money from the country. The secrecy with which the operation was conducted has left the country reeling in its after-effects.

 

The basic reasoning behind this step is that large currency notes are used more to conceal than to purchase. Cash plays a big role in drug trafficking and money-laundering schemes. While given its sudden implementation, the demonetization move will be very inconvenient to the common citizens but the government seeks to compensate this by significant benefits in the long term for all law-abiding citizens. Some deflationary effect will be observed in sectors where cash is a major component like real estate. But like the objective, greater proportion of the economy should shift from black to white. It is not going to be easy to convert black money in form of cash to white via real estate or gold. These high value notes of Rs.500 and Rs. 1000 will be worthless pieces of paper after December 30, 2016.

 

Cash notes of Rs.500 and Rs. 1000 are new trash and India is expected rise to new heights in its wake.

 

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