Will removal of higher
denomination currency notes like 1000 and 500 rupee from circulation reduce
corruption in India? Will it impact the black economy?
Will the answer be different if we think more from the point of view of actual corruption in the field (bribes, election expenses) which would be difficult to transact in smaller denomination notes?
This is a very
simplistic solution, which lacks intellectual rigor and i can not see any
substantial reason how removal of higher denominations are going to be helpful
in containing black money.
Baba Ramdev enthusiastically supported this idea and like his herbal remedy it became popular but like the efficacy of his medicines its utility is suspect!
If bulk of the black money is abroad, removing higher denominations will not have any impact on that cache. If bulk of the black money inside the country is buried in real-estates and gold then those people also will not be affected.
Even if there is a plan to remove these denominations, there would be a time limit within which people- Aam admi- can exchange. Any politician or businessman worth his name will have enough accomplices to get his booty converted, if at all they need to exchange.
Baba Ramdev enthusiastically supported this idea and like his herbal remedy it became popular but like the efficacy of his medicines its utility is suspect!
If bulk of the black money is abroad, removing higher denominations will not have any impact on that cache. If bulk of the black money inside the country is buried in real-estates and gold then those people also will not be affected.
Even if there is a plan to remove these denominations, there would be a time limit within which people- Aam admi- can exchange. Any politician or businessman worth his name will have enough accomplices to get his booty converted, if at all they need to exchange.
Good Point
Will the answer be different if we think more from the point of view of actual corruption in the field (bribes, election expenses) which would be difficult to transact in smaller denomination notes?
No.
There is an entire industry which thrives on trafficking illegal money across the globe, which is known as Hawala. If higher denominations are removed the corruption in bribe etc will not be reduced; only thing that would happen is now these professional money launderers' services will be more in demand.
How does this racket operate:
Now, when a seth in TN has to bribe a Babu in Delhi they use this channel. Where, they have much matured practices. The contact in TN would receive the Money (Say 10 crore + Hawala commission) in TN and then would tear a currency note in halve. Now both the parts will have the number of that currency. One part will be handed over to the client. Now the client will send this halve to his manager or partner in Delhi who will receive 10 crore there when this half is matched with the other halve, which would have been sent by the racketeer to Delhi. Then that would be delivered to the Babu's agent in Delhi.
If the party wishes they can also deliver the cash at agreed locations, of course for a price.
But removal of higher denomination will trouble all kind of businessmen and for a contractor who makes weekly payments, they will also have to spend higher sums on security as it would become more conspicuous when they carry even 10 lacs. same thing for depositing money for a trader, they will have to carry the currencies in bags and will have to arrange extra security, which otherwise would not have been required.
So, whatever little benefit can accrue through the removal will be negated by the difficulties to genuine business men.
Now also think, this Rs 100 currencies are there for more than 6 decades. But a hundred rupee note in 1950 would be worth more than Rs 1,000/- today, on a PPP basis; so, is it not illogical that we advocate something which would be retrograde!
There is an entire industry which thrives on trafficking illegal money across the globe, which is known as Hawala. If higher denominations are removed the corruption in bribe etc will not be reduced; only thing that would happen is now these professional money launderers' services will be more in demand.
How does this racket operate:
Now, when a seth in TN has to bribe a Babu in Delhi they use this channel. Where, they have much matured practices. The contact in TN would receive the Money (Say 10 crore + Hawala commission) in TN and then would tear a currency note in halve. Now both the parts will have the number of that currency. One part will be handed over to the client. Now the client will send this halve to his manager or partner in Delhi who will receive 10 crore there when this half is matched with the other halve, which would have been sent by the racketeer to Delhi. Then that would be delivered to the Babu's agent in Delhi.
If the party wishes they can also deliver the cash at agreed locations, of course for a price.
But removal of higher denomination will trouble all kind of businessmen and for a contractor who makes weekly payments, they will also have to spend higher sums on security as it would become more conspicuous when they carry even 10 lacs. same thing for depositing money for a trader, they will have to carry the currencies in bags and will have to arrange extra security, which otherwise would not have been required.
So, whatever little benefit can accrue through the removal will be negated by the difficulties to genuine business men.
Now also think, this Rs 100 currencies are there for more than 6 decades. But a hundred rupee note in 1950 would be worth more than Rs 1,000/- today, on a PPP basis; so, is it not illogical that we advocate something which would be retrograde!
(Word count = 530)
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