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.
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
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.
I think the Indian government might be overestimating its ability to determine what "money" is. The Iraqi Swiss dinar is a great example of how a currency in circulation can maintain (even increase) its value despite being no longer officially endorsed.
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.
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 ?
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.
> 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.
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?
In this discussion, you can replace black money with "local untaxed money". Most of the money transcations are actually money changing hands and thus been very difficult to tax. Now the people cannot change too much notes without alerting Income Tax Department.
"white money" = Money that has been received via legitimate means after paying appropriate taxes. Usually this stays in the bank. Only the necessary amount is carried in cash.
"black money" = Money that has been tax evaded or received via illegal means. This is mostly kept in cash (in boxes, mattresses, hidden rooms) or converted to gold or bitcoins or foreign currency(via currency gray/black market)
Example1:
You earned 100 and were supposed to pay 20% tax. So the post-tax amount is 80.
If you paid the tax, 80 is white money and 20 was paid to govt.
If you did not pay the tax, you save 20 but entire 100 is your black money.
Example 2: Black money - could be money received by accepting a bribe.
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)
This strikes me as really only possible once. The main group of people that this is aimed at, holders of large amounts of cash, are unlikely to start accruing their future funds in 500 and 2000R notes and leave themselves open to this sort of action in the future. It would make sense to diversify it into Euro's, Dollars(USD or AUD), GBP or even gold or bitcoin to prevent a reocurrence. Im not saying that they should evade taxes just that if they are going to they can protect themselves against this happening again.
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.
Forget about technical feasibility for a moment, people who are falling for this do not understand the basic concept of currency. The manufacturing cost of a note cannot be higher than the face value of the note. Else the currency press would be in a loss for every note printed and eventually would need to be shut down (this has happened before).
This is the reason why low value notes eventually end up as coins which are cheaper to manufacture.
Embedding an electronic tracker into a Rs. 500 or even a Rs. 2000 note would cost more than those amounts unless the Indian Government decides to outsource the currency printing to some place like China!
But old black money will come to the notice of authorities.
Unless corruption allows it, this can be a reset the slate change, and tax much of the underground economy for once.
Of course it will start again, hopefully we push for a cashless economy before that becomes a problem;
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"
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.
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.
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.
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.
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.
Looks like you've been frd propaganda by people who have black money.
I talked to a number of lower income small tradesmen, maids, drivers, security guards etc. today as I went to work today and everyone was uniformly very supportive of the move and willing to make adjustments required.
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.
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.
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?
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.
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.
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.
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!!
53 comments
[ 3.8 ms ] story [ 112 ms ] threadThe big issue is the implementation. Are they going to be able to fully carry out the plan?
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
So the question is, what will the exchange rate be?
[1] https://en.wikipedia.org/wiki/Iraqi_Swiss_dinar
This post should be edited to the overall question because theres better answers at the top of the quora thread.
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... [2] https://www.sovereignman.com/trends/it-finally-happened-500-...
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.
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.
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?
"black money" = Money that has been tax evaded or received via illegal means. This is mostly kept in cash (in boxes, mattresses, hidden rooms) or converted to gold or bitcoins or foreign currency(via currency gray/black market)
Example1: You earned 100 and were supposed to pay 20% tax. So the post-tax amount is 80.
If you paid the tax, 80 is white money and 20 was paid to govt.
If you did not pay the tax, you save 20 but entire 100 is your black money.
Example 2: Black money - could be money received by accepting a bribe.
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)
Maybe even bait (no note between 500 and 2000) for new black money, that you can cut again some time later.
I find Modi giving terrorism as one of excuses, very disingenuous.
They might put RFID in them, but it won't be the "tracking chip" people imagine.
This is the reason why low value notes eventually end up as coins which are cheaper to manufacture.
Embedding an electronic tracker into a Rs. 500 or even a Rs. 2000 note would cost more than those amounts unless the Indian Government decides to outsource the currency printing to some place like China!
Of course it will start again, hopefully we push for a cashless economy before that becomes a problem;
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.
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
I talked to a number of lower income small tradesmen, maids, drivers, security guards etc. today as I went to work today and everyone was uniformly very supportive of the move and willing to make adjustments required.
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.
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.
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.
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.