Indians in Favor of Demonetizing Rs 500 and Rs 1000 Banknotes

[Bimat]

'People want big banknotes spiked'

TNN | Aug 17, 2012, 02.42AM IST

NEW DELHI: The Central Board of Direct Taxes said in its report on black money that it had received overwhelming public opinion in favour of demonetizing Rs 1,000 and Rs 500 notes, which could be an effective tool to curb generation of black money, something that yoga guru Baba Ramdev has been advocating.

However, the report said the finance ministry was not in favour of this measure as it involved huge economic cost. Currently, 79% of the total currency notes in circulation comprise Rs 500 and Rs 1,000 denomination notes.

"The director general of currency in the finance ministry had... raised the issue of huge economic cost of demonetizing higher denomination bank notes of Rs 500 and Rs 1,000 and stated that it was not a feasible idea," the report said.

The finance ministry had invited opinion from all stakeholders on measures to curb black money generation. Among other suggestions received by the ministry, people favoured using credit, debit cards and electronic transactions besides minimizing paper currency.

They also favoured integrating all land and property registrations, property tax payments, income tax records and banking transactions to minimize avoidance of tax. Public opinion favoured one-time amnesty to bring back black money without any penalty and then implementation of harsh laws to fight graft.

Source: Times of India

[dheer]

In India lot of genuine transactions happen in cash as there is no other safe and trusted and easy mechanism to transfer cash ... hence unless there is such mechanism [mobile transfer has started, but there are still issues ...] plus law to trace check holders and punish in case of erroneous checks would help

[Bimat]

I don't think demonetizing Rs 500 and Rs 1000 banknotes will help in curbing generation of black money. Corrupt people have already started discovering new options like investing their black money in high denomination banknotes like Swiss CHF1000 Banknotes. (There is lot of black money in numismatic market too which is another safe heaven)

So insisting more use of electronic payment systems, credit/debit cards is the only better option.

Aditya

[Coinsforever]

Hawala is safe heaven for those who want to play with their cash .

Almost all big fishes & corporate  houses are doing heavy cash transactions  through these Hawala channels.

Cheers

[srinath]

Demonetizing such big denominations will only increase more trouble...

especially for a big transactions, if its out of the card payment then both the seller and the buyer have to handle a lot of baggage and it is also not safe when handling such huge amount in chunks...

i think that RBI should stop using the same old design and come up with new design added with more security, also RBI should take more initiatives to educate people to differenciate between real and fake notes...

Also i was wondering if RBI comes up with even more higher denominations such as 5000 and 10000 but it seems to be highly unlikely in the near future.

[Figleaf]

A simple step is necessary to decrease demand for high value notes: safe, working ATMs all over the country. It may sound counter-intuitive, but the knowledge that you can get cash anywhere day and night diminishes the need and demand for banknotes. In addition, since you'll need debit cards, smart shopkeepers will start promoting the use of such cards, as they are safer. Moreover, since people will carry less cash, robbery will be less rewarding. Lastly, transactions over large distances are quicker and safer electronically.

Compare Germany, where ATMs are plentiful and the highest note routinely used is €50 and Greece, where even in popular tourist spots an ATM is often absent and €200 bills are considered normal.

Peter

[Mackie]

I don't think demonetizing Rs 500 and Rs 1000 banknotes will help in curbing generation of black money. Corrupt people have already started discovering new options like investing their black money in high denomination banknotes like Swiss CHF1000 Banknotes. (There is lot of black money in numismatic market too which is another safe heaven)

So insisting more use of electronic payment systems, credit/debit cards is the only better option.

Aditya

Black money in numismatic market sounds like a very interesting topic, Aditya. Have we already discussed it somewhere in our previous forums? I would like to know more about it. Any references? Links?

[dheer]

We have discussed it in bits and pieces ... most of the builder and other community have got into Indian Paper money ... say keep a bundle of 1964 boothlingam ... face value Rs 100/- and market value around 30 - 40 lacs ... so if someboday wants to hide black money, he just invests in this exotic high price notes ... if there is a raid by income tax or any other such agency, he will claim that they are his lucky notes and he has got it at face value ... unless the agency proves that he has paid a high price for this ... thus the cycle continues and it becomes a good way to hide money legally ...

[Mackie]

Wowww sounds interesting, Dheer but what if the numismatic market crashes and the value of the notes come down? Its still a risky business isn't it?

[dheer]

Wowww sounds interesting, Dheer but what if the numismatic market crashes and the value of the notes come down? Its still a risky business isn't it?

This would be based on the assumption that a builder buys at high and then there is a crash ... typically builders buys it low, holds it for few years [so the price actually has gone up] ... and then sell's when required ...

Yes there is still some risk, but much cheaper than paying tax on Black Money ... wonder why the price of Indian currencies is down by nearly 15-20% this year? Could it be a co-relation with the slump in real estate with properties not being sold ... builders needing cash? Builders trying to convert the numismatic notes into routine cash?

[Mackie]

I work with a builder too and I know for a fact that he has 0 interest in collecting notes. Are we talking about small builders here? Why only builders? My boss invests in antique & exotic paintings as he believes that gives more and better returns. 

[Figleaf]

Why only builders?

All over the world, building and construction is among most corrupt and criminal sectors of the economy, with road transport running a distant second. That doesn't mean that there are no honest people working in the sector, though.

One reason is market organisation. Building requires local knowledge, so few competitors and it is easy to make deals among suppliers. Often, building requires cozy ties with a handful of officials, so bribes can be very effective. Also, it is hard to separate work for wage from helping out a friend or building something in your spare time. Also, mobsters, mafioso, yakuza, camorro etc are generally stupid or worse and building is generally simple and you can outsource the hard parts (like architecture) easily. Also, building and transporting building materials can fruitfully be combined with activities like prostitution, illegal immigration, gambling and drugs trade, while a building company and a crooked accountant is a fine way of whitewashing money.

Nevertheless, I met good and honest builders.

Peter