Tuesday, 8 November 2016

India bans existing ₹500 and ₹1000 notes

The official reason for this ban is to curb black money and eliminate fake notes from the system. These reasons are fake

  • Indian government since Independence is trying to eliminate black money. So why is there a need to ban notes now? The reason is clearly fake.
  • Fake notes could have been eliminated by announcing a future date (6 months in advance) before actually banning the notes. So even this reason is fake.

The government says it will bring new ₹500 and ₹2000 notes. But these will take many months (maybe years) to come into main stream circulation.
The real reason for banning these notes is that the government wants to squeeze more taxes from people. It becomes more difficult to hide transactions when people are forced to use electronic payments.

So the Indian government will deliberately delay mass scale printing of new ₹500 and ₹2000 notes. Indians should

  • Start using mobile payment apps (like Paytm), instead of cash.
  • Hoard food items as in short run shortages may develop.
  • Withdraw as much cash as possible from banks.
  • Load multiple currency transaction apps (Paytm, FreeCharge, MobiKwik, Airtel Money, Vodafone M-pesa and Oxigen Wallet) on your mobile and distribute transactions among them.
  • Protest against government's decision to ban cash by voting for opposition parties in coming state elections.

Removal of a currency from the market is deflationary. There will be job losses in private sector. The stock market will fall. Real estate prices will fall.
To combat this deflation, the government will reduce interest rates (and reserve ratios for banks) by a huge percentage. Expect your EMI to get lesser, but this may not be of net benefit for most people because inflation will rise.

If you have a lot of black money in cash, then

  1. Buy physical gold/silver at your local jeweler.
  2. Gold is about ₹31,500 for 10gms, but you will have to shell out a much higher amount e.g. ₹50,000 while paying cash.
  3. The jeweler will likely bribe some officials to convert the black money to white. Hence this huge margin over official gold/silver price.
  4. You can sell gold/silver for cash a few months later, when enough new cash has entered the system.
You will likely lose a huge percentage of your black money, thanks to Modi.

1 comment:

  1. yes people will lose only small percentage of money.