
What do you think of Indian Government's decision to demonetize 500, 1000 notes? - pallavkaushish
https://www.quora.com/What-do-you-think-of-the-decision-by-the-Indian-Government-to-demonetize-%E2%82%B9500-and-%E2%82%B91000-notes/answer/Pallav-Kaushish?srid=hKgI&share=c09f8eb0
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SchizoDuckie
I think it's brilliant.

Re-register your money _NOW_ (or within 50 days) or it's worthless.

It's probably one of the most ballsy brilliant plans in any modern economy
pulled off.

The short turnover term makes sure that you can't really transform that money
into gold or bitcoin or whatever, because who the hell is going to take the
fall

~~~
skybrian
There will be an exchange rate. People who can safely deposit old money into
their bank account have a new way to make a profit.

So the question is, what will the exchange rate be?

~~~
celticninja
depends how close you get to the cut off, I imagine it would be something like
bitcoinbuilder where people traded their mtgoxBTC for real BTC at an ever
reducing rate until it was obvious that there was no BTC left in MtGox.

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anupshinde
Good things happening to India.

They just pushed a reset switch on the parallel economy. But its not something
that won't grow up again. This step was necessary. After this, they will have
to bring down taxes for effectively preventing a parallel economy. And
sometime in the future, something like a max-100Rs note will push users to use
digital payments everywhere.

I think this is a safe experiment towards removing high-value currency notes.
Won't be surprised if 2000 notes are recalled after some time and those might
have been introduced just for convenience.

Its also a veiled attack on political parties, including his own (and they
can't even complain)

~~~
hawski
> Won't be surprised if 2000 notes are recalled after some time and those
> might have been introduced just for convenience.

Maybe even bait (no note between 500 and 2000) for new black money, that you
can cut again some time later.

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0xmohit
Even government establishments in India like bus/train transport love cash.
They do NOT accept any other form of payment (including credit card) when
you're booking a ticket over the counter. So many people who were traveling
were caught by surprise when they were told that the money that they have
cannot be accepted.

This move is going to hurt the labor class the most. A significant percentage
of those don't have bank accounts, and I'm not sure how convenient would it be
for them to exchange the _illegal_ currency.

A majority of the those having tons of black money already stash it in safe
havens abroad. A lot _invest_ it in real estate.

The suggested reason for the move is not at all convincing and the method
isn't well-thought out either.

~~~
eklavya
I have many Chartered Accountant friends and the sheer number of their clients
(with black money) who have their asses on fire right now suggests a very
different picture then the one you have.

As for the labor class, I just bought vegetables from poor vendors/farmers and
they were all praising this step, even the illiterate understand how this is
good for them in the long run.

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korginator
I do business in India and travel there every month. The people I deal with
are uniformly panning this as an anti-people move, specially for the hundreds
of millions (yes, there are that many) unbanked citizens. Most people use cash
for daily transactions. Banks and ATMs are closed today, and possibly
tomorrow. This move was managed disastrously according to every single Indian
I spoke with today.

~~~
murukesh_s
I live in India. Talked to lot of friends and every single one lauded the
move. Of course it is a bit inconvenient, but everyone are ready to sacrifice
it in long term. But I live in a city. It would be a bit more inconvenient in
villages. But I am sure they will adjust as everyone are used to giving and
taking credits in smaller villages.

But the mood might not be very bright in business communities(And there is
chance you talked to them).

Remember in India only 3% of the population pay taxes (Yea 3%, really
shocking. Many small and medium businesses don't file tax. This move will
ultimately make them move cash into the bank and could later bring them into
tax bracket.

Edit: reference for % population paying taxes
[http://bit.ly/2fDR7by](http://bit.ly/2fDR7by)

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oxymoron
Can someone explain the terms "black money" and "white money" in this context?

~~~
anewhnaccount
Black money is money that has been obtained illegally but not yet laundered.
If you're caught with a lot of money and don't have a good reason why you have
it, well the authorities are presumably going to start looking for a bad
reason why you have it.

~~~
candiodari
This statement is far too strong. Obtained illegally - sure. But keep in mind
that 99.99% of such money would be money paid for goods or services fair and
square - just not taxed.

It is quite customary in Europe, and frankly everywhere on the planet, for
tradesmen, shopkeepers, ... to not register 100% of their receipts as income.
That way they can increase their income by not paying tax on a decent part of
it. Keep in mind that these people would have highly variable incomes, would
have unpaid invoices, ... all sorts of things that can't really be checked.

It's not like we're talking bribery and drugs money here. Of course that's
exactly what the government would like you to think. In practice the purpose
of this is to give the government greater and more direct control over the
economy.

Europe has done the same [1], for ostensibly the same reason, but fact of the
matter is that it's being done to prevent people from avoiding the extra tax
the ECB wants to create : negative interest rates [2]. Right now Europeans can
keep money outside of the banking system in large quantities if they so
desire. Killing the large notes takes this right away, not by law, but in
practice.

The problems are twofold. Firstly are practical problems. Eliminating cash,
either totally or simply for larger transactions introduces costs (for small
time merchants, 3-5% would be typical in Europe), clearing risks (just because
a bank transfer happens or is confirmed does not mean the bank can't take the
money back, most merchants would treat this as an extra 2-20% cost depending
on the business they're in), extraneous risks (bank accounts can be blocked by
various means, the banks themselves, the IRS, or simple stupidity ... without
regard to how it affects their owners. You can lose access to any bank account
and you have little immediate recourse). And of course, governments don't want
to help anyone out with these problems, they're merely interested in imposing
themselves as having total control over all money, not just their own.

Secondly the moral issue, or the slippery slope if you wish. Do we want to
give governments this power ? Do you want governments to be able to prove, for
instance, that you gamble online (can it be used in divorce cases to prove you
can't be trusted with money, for instance ?), or that you watch porn, or have
weird hotel bookings, or ... Do we want the IRS to simply have the power to do
a big data search for anyone having transactions of 3x their monthly income or
more and block them ? Because that's the power that's being handed to them by
these sorts of measures. They will use this power, even if probably not right
now.

There's related issues. Does the central bank have the power to do this ? In
practice it does, but why isn't this being discussed in parliament and
publicly debated ?

[1]
[http://www.nytimes.com/2016/05/05/business/international/ecb...](http://www.nytimes.com/2016/05/05/business/international/ecb-
to-remove-500-bill-the-bin-laden-bank-note-criminals.html) [2]
[https://www.sovereignman.com/trends/it-finally-
happened-500-...](https://www.sovereignman.com/trends/it-finally-
happened-500-euro-notes-will-no-longer-be-produced-19199/)

~~~
tormeh
>It is quite customary in Europe

Except northern Europe (although not Belgium). But yeah, it's pretty common.

>fact of the matter is that it's being done to prevent people from avoiding
the extra tax the ECB wants to create : negative interest rates [2].

You can avoid that tax by keeping your money in anything but money - which is
what the ECB wants. Just buy an index fund. That's what you should do anyway.

~~~
candiodari
> You can avoid that tax by keeping your money in anything but money - which
> is what the ECB wants. Just buy an index fund. That's what you should do
> anyway.

Whichever way you do that, it involves extra risk. Central banks/governments
forcing people to take more risk ... well let's put it this way ... we all
know what comes next.

2 reasons. Firstly there's a reason they're doing this, so there's already a
problem. By definition that would be a problem that puts asset prices at risk.
So it means that risks on most assets are higher than generally believed
(because the government is pushing the measure of that risk - interest rates -
forcibly down, you are bound to underestimate risk as a result). What if the
reason behind some of those risks surfaces ?

One of the things the government is doing here is forcing the banks/funds/...
to take comparatively massive risks with your pension. The results are already
surfacing, but they're getting worse - fast. And the government will have to
bail these out, as not doing that will kill the livelihood of tens of millions
of people, which will not come without huge consequences.

Second reason is, that even if there's not already a disastrous problem, this
takes the capital preservation + profit motive away from markets and
(partially) replaces it with pleasing the government/central banks. Central
control has always failed, and this next attempt will be no different. The
nail factory in Soviet Russia story seems apt here, and is obviously a massive
oversimplification, but the basic problem is there.

~~~
pjc50
Not all risk is equal, and there can be no implied right to risk-free
preservation of capital.

What the banks would like people to do is invest in productive capacity and
consumer goods; this feeds the "virtuous circle" of employment and economic
growth. Investing in businesses would have a normal, uncorrelated risk
profile.

What I think people are struggling with is the prospect of big, correlated,
exogenous risks like global warming and the collapse of global trade into
protectionism. If that kind of thing happens the total amount of value in the
economy goes down - so who bears that risk? Do we try to distribute it
equally, or put it all on governments which may not be able to bear that kind
of systemic collapse? Or do we let the capital-holding class protect
themselves while real wages collapse and the risk falls on those least able to
bear it?

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ss192
I'm a bit worried about the small-time merchants and dealers. They don't have
enough money to pay the worker force or buy new stock of goods. I have a lot
of friends who do manual labor in construction field, they usually receive a
500 rupee note at the end of the day, most of their bosses have ran out of
'cash in hand', they have bank balance, but they cannot withdraw it. Lets hope
that won't deeply effect the economy...... "You Should (Almost) Never Rewrite
Your Software"

~~~
pallavkaushish
This would not affect the small merchants and dealers because they usually
don't have excess money lying around. These are people who are making a small
profit from their small business.

Under the rule, anyone who is paying their taxes and have done things legally,
have nothing to worry about. They can submit all the 500, 1000 rupee bills
directly in their account (no limit), if they've paid taxes on it. If they
haven't paid taxes on it, they will be taxed in the current financial year but
then government will also have the liberty to ask the source of your income
which can land you in trouble if you're unable to show a legit source.

~~~
ss192
This would not affect the small merchants and dealers => I slightly disagree
with you, I believe this is going to affect retail market, small time
merchants, food and construction industry, at least for the next few weeks.

~~~
pallavkaushish
It will affect only because there wouldn't be enough new bills in the hands of
people to spend. Once the sufficient amount of new bills are circulated in the
market, it will all be back to normal. But there won't be any long term
affect.

------
the_duke
The Euro zone is also thinking about abolishing the 500 Euro bills to make
dealing with "black money" a bit harder.

I just don't really see that it would have such big impact. Sure, 500 E in 100
euro bills takes up 5 times more space (thickness is the same), which makes it
harder to transport and easier to find. But still.

Just for the sake of curiosity, the height of 1 Million Euros:

100 Euro notes = 1 meter

500 Euro notes = 20 cm

(Dimensions are 147 * 82 * 1 vs 160 * 82 * 1 mm, so not that much difference)

I'm just not sure if that would actually have a meaningful impact.

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dasmoth
Can definitely imagine some other governments watching very closely.

~~~
slake
Aren't most of Colombian druglords' money stored as $100 bills?

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jon_richards
It has been fairly problematic. Cash withdrawals are extremely limited (and
will continue to be for a few weeks), making paying people who don't have bank
accounts difficult.

There have been quite a few exceptions that have come in a little late, such
as making all tolls free (toll gates started refusing to give change) and
allowing the usage of the old bills on public transportation, at hospitals, at
fuel stations, etc.

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Salamodi
All it did is fuck up the ordinary people's life. Don't you think those that
has serious amount of money, keeps dollars, euro and gold ?? Hello Also this
was very much like a dictatorship like move!!

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chiph
Black money aside, there's going to be a lot of legitimately-held larger bills
that will need to be swapped for the smaller ones. Do those 100 Rs bills even
physically exist?

~~~
spikengineer
Banks will only exchange a max of 4000 rupees in physical bills. Anything more
will be credited to your bank account. ATM's also have withdrawl limits for
the next few months. Any large sized transactions have to be done
electronically.

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simosx
It is a smart move to shake up the hoarding of cash and pump it into the
economy.

The big issue is the implementation. Are they going to be able to fully carry
out the plan?

~~~
SchizoDuckie
Remember. This is india. They can produce 200.000 hot lunches and daily
deliver them to the doorsteps of the workers by train and bicycle in rush
hour.

~~~
legolas2412
And in government projects we are able to embezzle more than 50% of the funds.
Never underestimate the ingenuity of the corrupt.

------
LeicaLatte
Good thoughtful move. Indian Govt should follow it up by legalising betting
next. It is the right time to do it.

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linker3000
I am not opinionized.

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wav-part
Too much chaos for nothing. New Rs 500 and Rs 2000 will be introduced. Off the
book transcations will resume as usual.

I find Modi giving terrorism as one of excuses, very disingenuous.

~~~
statictype
The new notes have tracking chips in them, do they not?

~~~
legolas2412
Na, that's a dumb whatsapp hoax. Makes no sense to have an entire computing
device with battery in a bank note.

~~~
Dayshine
RFID tags don't need a battery.

~~~
detaro
If you want to do any serious "tracking" with them (the rumours I've read
talked about them having GPS and being widely traceable), then yes they do.
Passive RFID that fits in a bank note might be readable for a tens of meters
at the very most, and is trivially shielded by putting it in a metal box.

They might put RFID in them, but it won't be the "tracking chip" people
imagine.

