Author Topic: Impact of Demonetization on Coin Collecting in India  (Read 673 times)

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Offline Bimat

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Impact of Demonetization on Coin Collecting in India
« on: November 18, 2016, 10:16:25 AM »
As many of you might be knowing, (old) ₹500 and ₹1000 banknotes seized to be a legal tender in India from November 09. A new denomination (₹2000) has been added and a redesigned ₹500 banknote is also being introduced.

There have been some discussions on effect of demonetization on Indian coin market. A friend says that a lot of dealer haven't done any business in last 10 days as majority of buyers are facing acute cash shortage. Since most of the dealings in Indian coin market are done by cash, many dealers are now worried about huge sums of money they have in hand, in the form of old banknotes. They can of course deposit the cash in the bank, but they will have to pay tax if the amount is above ₹2,50,000 and they might be asked for source of income too, in case authorities find it suspicious. If the authorities are not satisfied with their response, they will have to pay additional 200% penalty! At the moment, only the registered auctioneers pay tax to the government, which of course is charged extra from the buyer after the particular item is sold.

It is now being said that next one year or so will be difficult for the market. A couple of exhibitions (Delhi, Mumbai) have already been cancelled. Many collectors are now saying that it's high time that dealers start selling their stuff 'legally' (i.e no cash payments, provide bills etc). This will ensure that not only dealer is protected from future troubles by IT department, but the buyer is also protected (complete refund of money paid in case the item sold turns out to be fake etc).

What do other members think?

Aditya
Caution. The low-hanging fruits are still there maybe for a reason.

Offline Figleaf

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Re: Impact of Demonetization on Coin Collecting in India
« Reply #1 on: November 18, 2016, 12:38:59 PM »
In a macro-economic sense, tax avoidance is a form of petty corruption: you repair my water tap, you pay no tax, I get a discount. In an over-regulated economy or a towering tax environment, corruption is a lubricator. I need a license, I get a shorter waiting time if I pay the 'crat a bit to get a move on.

As the economy develops, the side effects of corruption get worse: organised crime profits and prices are distorted by omni-present side payments. It becomes an interest of the 'crats to be as inefficient as possible in order to get a higher bribe. The nasty side effects become more important than the facilitating effects.

A very good model is Italy. Up until the 1990s, the Italian economy was characterised by corruption, inflation, inefficiencies and pervasive organised crime. The mani pulite movement wrung out a lot of what was wrong. The results were spectacular: the currency stabilised, the government deficit reduced. The effects wore off, but the change sanitised the environment and opened a road to growth.

Mere economists cannot tell where the point is that judicial reform will become necessary. It is largely an emotional decision taken by people who have had enough and who can do something about the situation. Surely, a currency manipulation like the one in India will help, but if there are no judicial reforms at the same time, making corruption dangerous for the corrupt, rather than financially risky, its effect will be small and quite temporary. The corrupt will merely increase the bribe to recuperate their losses if they are not deprived of the power to be corrupt.

Peter
« Last Edit: November 18, 2016, 01:07:32 PM by Figleaf »
An unidentified coin is a piece of metal. An identified coin is a piece of history.

Offline Bimat

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Impact of Demonetization on Coin Collecting in India
« Reply #2 on: January 08, 2017, 07:28:00 AM »
Demonetisation hits numismaticians

TNN | Jan 7, 2017, 11.19 PM IST

NASHIK: A three-day annual exhibition and trade fair of coins, bank notes, stamps and rare items organised by The Collectors Society of Numismatic and Rare Items began on Friday at Chopda Lawns on Gangapur road.

Academic Numismatician Girish Sharma from Indore — who was honored with lifetime achievement award during the inauguration — lamented that people who collect coins, currency notes, error notes, and precious metal coins are worst hit by demonetisation. All coin-collectors, traders, and numismatic experts, who came together for this signature exhibition, expressed similar feelings.

"The Central government has made it illegal to carry more than 10 notes of Rs 500 and Rs 1,000 denominations. I personally know at least 100 collectors across the country who have more than 50/100 notes of such denominations. The collectors carry currency notes with specific series of numbers, or error notes with pride. Now onwards, they would be considered as criminals," said Sharma, who boasts of having largest collection of ancient coins including gold coins.

"My collection arguably finds a place in India's top 10 collections of coins and currency notes. When I was invited to Nashik, I was supposed to bring some rare items from my collection. But, we are all afraid these days. Anyone can frisk you at the airport and you can get into trouble if you carry valuable metals or old notes with you," he added.

Sharma also criticised the fact that government is going to keep a check and regularize the amount of gold to be stored by individuals. "Many gold coin collectors have coins weighting more than 5 to 10 kg at their homes. I know five people having rare gold coins over weighing 20 kg kept in bank lockers or at homes. Such collectors either lose their lifetime collections or have to donate the same to museums. In fact, this is like death for a collector who has dedicated his life for the collection," said Sharma, who has already decided to convert his collection into a museum near Indore. Interestingly, the government of Madhya Pradesh is helping him in establishing the museum.

Rajesh Junnare, secretary of The Collectors Society of Numismatic and Rare Items, admitted that Rare Fair exhibition has been hit by demonetisation. "The response has reduced this year. Participation from currency note collectors has suffered badly. Moreover, we are not expecting any auctions like last year due to cash crunch," he said.

Source: Times of India
Caution. The low-hanging fruits are still there maybe for a reason.

Offline Bimat

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Impact of Demonetization on Coin Collecting in India
« Reply #3 on: January 08, 2017, 07:30:23 AM »
Quote
Sharma also criticised the fact that government is going to keep a check and regularize the amount of gold to be stored by individuals. "Many gold coin collectors have coins weighting more than 5 to 10 kg at their homes. I know five people having rare gold coins over weighing 20 kg kept in bank lockers or at homes.

5/10/20 kg gold coins at home/lockers? :o Were all those coins bought using white or... ;)

Aditya

Edit: The word "numismaticians" has been used by ToI and I have retained it, although it's not correct. :D
Caution. The low-hanging fruits are still there maybe for a reason.

Offline EWC

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Re: Impact of Demonetization on Coin Collecting in India
« Reply #4 on: January 08, 2017, 09:40:29 AM »
It is now being said that next one year or so will be difficult for the market. A couple of exhibitions (Delhi, Mumbai) have already been cancelled. Many collectors are now saying that it's high time that dealers start selling their stuff 'legally' (i.e no cash payments, provide bills etc). This will ensure that not only dealer is protected from future troubles by IT department, but the buyer is also protected (complete refund of money paid in case the item sold turns out to be fake etc).

What do other members think?

I judge the coin trade in the UK was decimated around 1973, partly following decimalization, but in good part by the introduction of VAT.  The problem was not so much the size of the tax itself, as the red tape associated with its collection, and the aggressive attitude of the VAT collectors. 

Seems to me the problem reached a peak under Thatcher/Lawson with deliberate attempts by big business to use tax regulations to monopolise trade and put smaller competitors out of commission (a side to Thatcherism that is not much talked about).  The problem was largely resolved by John Major around 1990 by  massively raising the threshold for VAT registration – a huge boost for small business in the UK. 

I recall watching TV after the budget in which it was announced, and no one in the BBC studio paid any attention to it!

Seemed to me the studio was run by civil servants and crammed with academics on PAYE and big business people.

The matter is completely missing from the current Wiki page too.  Makes you think…………

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Its 25 years since I  studied the tax and money reforms of Wang Mang, but my conclusions still seem to me valid.

1) I read every study on the shelves of SOAS at the time: their analysis varied from incompetent to absurd

2) As Ou Pu said to Wang Mang in 12 AD - the problem was not the nature of the reforms - but the speed with which they were implemented

https://www.academia.edu/356703/Wang_Mang

Rob

Offline FosseWay

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Re: Impact of Demonetization on Coin Collecting in India
« Reply #5 on: January 08, 2017, 10:34:28 AM »
I don't understand the link between demonetisation per se and harm to collecting or collectors.

Sure, if you remove all/most of the circulating currency and replace it with new, as happened in 1971 in the UK and all the euro-using countries since 1999, you reduce the possibility of checking your change and getting people interested in collecting through what they see every day. I get that, though it's not really avoidable, and if currency reform is practically needed, then the above sentimentality shouldn't get in its way.

But demonetising coins and notes doesn't suddenly make them inaccessible to collectors. The overwhelming majority of the coins in my collection are not currently in use anywhere in the world.

I also don't understand the Indian government's restriction on ownership of demonetised notes. Either they have been demonetised or they haven't. If they have, then they have no more inherent value than a page from a newspaper. Obviously a legislature can legislate what it likes, but morally I do not see that it is acceptable for the government to tell its citizens what they can and can't hold as property, beyond certain obvious exceptions that have large potential for harming other people.

Offline Figleaf

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Re: Impact of Demonetization on Coin Collecting in India
« Reply #6 on: January 08, 2017, 12:23:27 PM »
The Indian government painted itself into a corner by not forcefully rejecting the thought that a banknote is a promise that must be honoured even when the banknote is demonetised. That puts the burden of proof of tax evasion (the original target of the demonetisation) on the government. It's trying to reverse that burden of proof as much as it can and in a hurry.

In its panic, it doesn't allow proper time to think, creating more bloopers, such as hitting collectors and note hoarders (even with all the insets and signatures and funny numbers it must be difficult to get 100 significant notes of the same type together) when they wanted to hit tax evaders and speculators who were planning to sit out the storm and exchange their notes later.

Peter
An unidentified coin is a piece of metal. An identified coin is a piece of history.

Offline Bimat

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Impact of Demonetization on Coin Collecting in India
« Reply #7 on: January 08, 2017, 12:37:47 PM »
I don't understand the link between demonetisation per se and harm to collecting or collectors.

Sure, if you remove all/most of the circulating currency and replace it with new, as happened in 1971 in the UK and all the euro-using countries since 1999, you reduce the possibility of checking your change and getting people interested in collecting through what they see every day. I get that, though it's not really avoidable, and if currency reform is practically needed, then the above sentimentality shouldn't get in its way.

But demonetising coins and notes doesn't suddenly make them inaccessible to collectors. The overwhelming majority of the coins in my collection are not currently in use anywhere in the world.

The demonetized ₹500 and ₹1000 notes made 86% of the total cash in circulation at the time of the decision, which is huge.

Most (in fact all, unless it's a high value auction payment) of the coin buying in India is in the form of cash. There are restrictions on the withdrawal (₹4500 per day per card for ATM and ₹24,000 per account per week including ATM withdrawal from bank counter) so the liquidity in the market is very less. Also, there restrictions are on paper only and majority of the banks are still refusing to give you ₹24,000 and many of the ATMs are still shut. Since collectors don't have enough cash, they certainly can't afford to spend whatever cash they have on coins/notes. Those who keep investing their black money are also not buying coins these days. It appears that they have indeed turned it white through various means, but it will take time to turn it in cash again...

Aditya
Caution. The low-hanging fruits are still there maybe for a reason.

Offline FosseWay

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Re: Impact of Demonetization on Coin Collecting in India
« Reply #8 on: January 08, 2017, 12:40:51 PM »
Oh, I see... That problem is surely universal, and affects anyone trying to buy or sell anything in cash. I thought there was a specific issue that affected "numismaticians"  ;)

Offline zwiggy

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Re: Impact of Demonetization on Coin Collecting in India
« Reply #9 on: January 09, 2017, 12:54:46 PM »


I also don't understand the Indian government's restriction on ownership of demonetised notes. Either they have been demonetised or they haven't. If they have, then they have no more inherent value than a page from a newspaper. Obviously a legislature can legislate what it likes, but morally I do not see that it is acceptable for the government to tell its citizens what they can and can't hold as property, beyond certain obvious exceptions that have large potential for harming other people.

The government had realized that due to the sheer number of old notes, a parallel economy had sprung up where the old notes are traded at non-face value. This was being used excessively to take advantage of people with limited power to negotiate (like rural construction workers, miners, etc - "You want your pay? Take it in old notes, and here, I'll give you an extra 10% of this worthless stuff just for saying yes"). Unless they banned the ownership of the old notes, this parallel economy will continue. It is kind of like a parallel bitcoin economy.

Do I agree with it? Not really, but it had to be done. The note collectors in the population are collateral damage for the "greater good".

Offline Bimat

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Impact of Demonetization on Coin Collecting in India
« Reply #10 on: January 09, 2017, 03:21:52 PM »
The government had realized that due to the sheer number of old notes, a parallel economy had sprung up where the old notes are traded at non-face value. This was being used excessively to take advantage of people with limited power to negotiate (like rural construction workers, miners, etc - "You want your pay? Take it in old notes, and here, I'll give you an extra 10% of this worthless stuff just for saying yes"). Unless they banned the ownership of the old notes, this parallel economy will continue. It is kind of like a parallel bitcoin economy.

Do I agree with it? Not really, but it had to be done. The note collectors in the population are collateral damage for the "greater good".

You have a very valid point there, but I think government's decision would have made sense had only say only 70 or 80% of the total notes been back in the banking system. Now since over 95% banknotes are back in the system (and remaining 3% will also be back by March 31!), it makes little sense.

Aditya
Caution. The low-hanging fruits are still there maybe for a reason.