It has been 10 days since Prime Minister Narendra Modi announced the demonetization of Rs. 500 and Rs. 1000 notes. Unfortunately, people are also buying into a lot of misinformation that is doing the rounds on social media, Whatsapp etc. Hence, I decided to compile a simple and straight-foraward Q&A. You might have known all of this information already, but just in case.
1.) I’m greatly inconvenienced by demonetization but will bear it for the country, for the greater good. Will it end black money?
No. Won’t even come close to it as cash forms only 6% of the entire black money.
2.) Where is the black money hidden then?
Real estate, gold, foreign exchange – the top 3 preferred mediums to convert black money into white. PM Modi himself had said, when he was Gujarat CM, that over 90% of black money is in foreign/offshore accounts.
3.) But didn’t this move end supply of fake currency?
For the time being yes. But only 0.02% of the total currency was fake in the first place.
4.) Can Pakistan now print fake 500 and 2000 rupee notes to fund terror activities?
Almost impossible in the short run. But a few years down the line, every likelihood that the fake currency circulation will recommence. Also, there’s no nano chip GPS in the new notes.
5.) Will things go back to normal in 50 days as PM Modi promised?
The level of inconvenience will certainly come down. But experts are saying it’ll take at least 6 months for things to even come remotely close to normalcy.
6.) Why will it take 6 months?
The total number of 500 notes in the market = 1570 crore
Total number of 1000 rs notes in the market = 630 crore
Total number of useless notes to be replaced = 2200 crore
The capacity of printing press is 300 crore notes per month. You do the math now.
7.) How much money will it cost the RBI to print all these notes?
In case you didn’t know, there is a cost incurred in printing money too. The Hindu reported that it could cost the RBI at least Rs. 12,000 crore.
8.) Is the govt willing to bring funding of political parties under RTI?
No commitment given.
9.) Is the govt/BJP planning to accept donations only via cheque?
No commitment given.
10.) What measures are the govt taking to ensure the newly-minted 500 Rs notes and 2000 Rs notes will not be used for black money/corruption?
No plan revealed yet.
11.) Will there be a reform in the direct tax structure, which is said to be the root cause of black money?
No indication given.
12.) Then why is the govt projecting it as a war against corruption and black money?
I don’t know. You ask them.
Are there any advantages at all of this move?
1.) More money with the banks
Over Rs. 4 lakh crore has been deposited in banks across the country. By December 30, govt is expecting
close to Rs 10 lakh crore.
2.) Interest rates on loans will drop
Naturally, because banks have more money at their disposal.
However, the dividends / interest that you earned from your deposits such as FDs will reduce.
3.) Crores of people, who didn’t have bank accounts will be forced to open one.
4.) Those who didn’t have any ID proof will realize the value of having one.
5.) Less dependency on cash in the future; plastic money already getting a big boost.
6.) Real estate prices expected to come down sharply.