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This is the boldest and probably most brilliant move by any Indian politician since liberalization of economy in 1990s. Having said that, another way of unders

This is the boldest and probably most brilliant move by any Indian politician since liberalization of economy in 1990s. Having said that, another way of understanding this is that as of today both old 500 Rs and 1000 Rs notes have been "probabilistically devalued". For anyone in middle class and below the value essentially remains the same (other than a small devaluation due to effort required to get them exchanged), however for anyone holding large number of notes, the value has been significantly lowered by approximately ~10 to 20% consider when the money gets deposited, there would be an income tax due on it. Modi received a lot of flak not doing anything about black money and corruption after getting elected in spite of promises before the election. Bust as this move shows, he has taken the bold step, and can go for an election in 2019 without worrying. To make it even simpler: Assume that people in USA used 100$ notes (hard to hoard 20$ notes) to skip paying income tax (but mostly real estate transaction tax) and dealt in cash, by declaring 100$ notes as illegal tender and forcing them to be exchanged for new 50$ and 200$ notes. The government can ensure that this money is deposited or converted in banks. Ensuring that all "fake" 100$ notes are caught / lose value and people hoarding cash to skip paying income tax are forced to put the money in circulation. Otherwise come December 31st the value of the notes is same as piece of paper they are printed on.

parennoob 10y ago
I agree, this is a good first move to get black money that is stored as cash out and taxed. Some forms that still remain are: * Gold * Money funneled into "agricultural income" (which is tax free) * Large properties in metros that are bought and left empty (which raises rates sky-high for ordinary middle class people trying to buy a house there) However, this move is brilliant in that it removes cash as an intermediary for these transactions, i.e. if a builder is demanding Rs. 50,00,000 for a house "above the table" + Rs. 30,00,000 cash (which he won't declare), then that extra 30,00,000 becomes useless as of 31 Dec.
- mohanmcgeek 10y ago
  The extra becomes useless starting tonight.
  - mapt 10y ago
    No, that's a legal fiction. It becomes useless as soon as there's no way to extract value from a briefcase of Rs.500 and Rs.1000 notes. Tomorrow, someone can trade it in to the Bank of India in exchange for new notes, it's just that this someone needs a plausible reason for holding the money - they have to have paid taxes on enough income that they could theoretically have legal reasons to possess the money. This does not have to be the current owner turning the money in, it can be anyone the current owner pays a premium to in exchange for clean bills. So tomorrow, the money will need to be laundered in order to help the owner. But a few months down the line, the Bank of India stops taking deposits, and the money becomes actually useless.
- murukesh_s 10y ago
  He can still pay tax and get away.
  - parennoob 10y ago
    If he (and by extension thousands more) pay tax, then there's no "get away" involved – the transaction has been done fairly and the Govt. got the requisite amount of tax. The point is, if he has been doing this for 10 years and has a massive stack of cash which he tries to deposit now, that is going to bring him to the attention of the Income Tax authorities.
- sandeshd 10y ago
  If one is buying gold then they need to pay tax for that amount. Because shopkeeper can't hide that money without tax. Shopkeepers knows this money is gonna be useless soon.
- gozur88 10y ago
  For large, low volume transactions foreign currency works just as well if it's a pretty common thing.
csomar 10y ago
Changing $100 notes to $200 notes will open a new black market for converting 2 x $100 notes to $200. I think just removing the $100 note is safer.
- aub3bhat 10y ago
  I think since India only has notes in {5,10,50,100,500,1000} denominations there might not be enough legal tender with just {5,10,50,100} to convert all {500,1000} notes, thus by introducing a new notes (bills) which look completely different than older 500 Rs, and 2000 Rs which are completely new, they can ensure that enough notes/bills are available.
  - sreeramvenkat 10y ago
    there is 20
- sandeshd 10y ago
  2K notes are not just piece of paper, it does have NGC (Nano GPS Chip) by which income tax department can track the location and exact amount have stashed nearby that location. So sending that amount to some other country or keeping that money underground will be the most foolish thing one can do.
  - myth17 10y ago
    Is this Nano GPS Chip for real? How does it work and how much does it cost to make such currency?
  - kshiva 10y ago
    That NGC seems to be a rumour.
  - walls 10y ago
    GPS receivers don't transmit.
  - naveens 10y ago
hash-set 10y ago
Call me up when our government stops doing idiotic things like sending billions in cash to Iran. Then I'll consider being concerned about income taxes.
- mars4rp 10y ago
  which government? US? that was Iranian money frozen 39 years ago plus interest. India? that was owed oil money due to sanctions. I don't understand how you are capitalist until the other side is Iran.
  - totalZero 10y ago
    This is totally unrelated to capitalism as a structure and paradigm for an economy. Let's momentarily set aside the issue of whether the US owed Iran 1.7B dollars. There are arguments on both sides but I want to point something out: The cash payment was made at the same time as the release of four Americans by Iran's regime. The Obama administration has admitted that the cash was used as leverage in negotiating their release. If it looks like a duck, walks like a duck, and quacks like a duck...
    - mars4rp 10y ago
      as you said it was used as a LEVERAGE not a ransom. US had to pay this money anyway, by timing it right they had more LEVERAGE in the negotiations and 4 innocent people got out of prison. What is wrong with that? painting this payments as ransom is wrong.
      - totalZero 10y ago
        Ransom IS leverage. The payer is manipulating the captor's desire for money, in order to get an immediate release of prisoners that would otherwise not happen. Equally true, taking hostages is a way to gain leverage by manipulating the payer's desire to protect the captives. Why do you think bank robbers and hijackers do it? Iran was unable to get that money for almost forty years, but by dangling four Americans in front of the Obama administration, they were able to collect a ten-figure cash payment out of America's coffers. And you think there's nothing wrong with that? The Americans are guilty of caving on their principles and giving tons of (borrowed btw) cash to hostage takers, and the Iranians are guilt of taking hostages in the first place.
Spivak 10y ago
Isn't this a trick that will only work once? Wont the people who are taking advantage of black money start using a different store of value that isn't controlled by the Indian government like foreign currency or high value commodities?
- murukesh_s 10y ago
  Indeed, they can, but it's difficult to get foreign currency without valid ID. But gold is an option, even though govt have even made it mandatory to flash your ID for gold purchases.
- ihaveahadron 10y ago
  If it works once why not do it and then find another thing that works once after that and just keep repeating.
- lmm 10y ago
  Those things are more cumbersome to use than local currency. At some point it becomes cheaper to just pay your taxes.
- st3v3r 10y ago
  Depends on if you can find someone who's willing to take your new store of value. Part of the reason those people were able to get away with it was that those notes were regular legal tender, so I didn't have to worry about accepting them.
- 1024core 10y ago
  It was done once before also, IIRC. Around the late 1970s. Seems to have worked. I guess it'll work given a long enough time interval, since human memory is short.
- sfifs 10y ago
  A currency is useful only if you can buy products and services with it. In India, you buy things in Rupees. Tou can't buy Rupees with dollars without an ID at which point the government knows anyway it's probably just simpler to pay your taxes
dman 10y ago
I think this is more about sending a message that they are serious about enforcement once the amnesty ends.
greglindahl 10y ago
It's worth noting that withdrawing certain banknotes is a classic move. Here's North Korea doing it in 2009: https://en.wikipedia.org/wiki/North_Korean_won#2009_revaluation https://en.wikipedia.org/wiki/North_Korean_won#2009_revaluat... And the US did it in 1969: https://en.wikipedia.org/wiki/Large_denominations_of_United_States_currency https://en.wikipedia.org/wiki/Large_denominations_of_United_... In both cases it appears that the main goal was tax revenue. In NK, against private traders, and in the US, against organized crime.
- pravula 10y ago
  And India doing it in 1978 (http://www.thehindubusinessline.com/money-and-banking/highvalue-notes-demonetisation-its-1978-redux/article9320703.ece http://www.thehindubusinessline.com/money-and-banking/highva...)
  - aub3bhat 10y ago
    The difference is in the sheer volume of currency being taken out of / replaced from circulation almost 80% of the value. https://twitter.com/d_jaishankar/status/796012168873320448 https://twitter.com/d_jaishankar/status/796012168873320448
    - deleted 10y ago
      [deleted]
    - chaatman 10y ago
      >replaced from circulation almost 80% of the value. Not only replacing 80% of the value, but also added 220 Million bank accounts in a span of 15 months. 2/3 of the US population. https://www.reddit.com/r/worldnews/comments/5btovy/indian_rupee_500_and_1000_abolished_from_midnight/d9rc3y6/ https://www.reddit.com/r/worldnews/comments/5btovy/indian_ru...
- jfoutz 10y ago
  The US is kind of funny, we've (as far as i know) never withdrawn backing for a bill. If you have a silver certificate, you can spend it on a pack of gum. If you have a $1000 bill, you can deposit it in the bank. You might have some hassle getting the bank to believe you, of course, those bills are probably in pretty poor shape. But you should be able to exchange them for new currency. Although, it might be worth more to sell to a collector. there aren't that many around.
fa17 10y ago
Reading about it, looks like this has been done before in India in '54 and '78. Has black money decreased since then?
- shripadk 10y ago
  You can't compare '54 and '78 with 2016. Removing 500 and 1000 rupee notes as legal tender in 2016 accounts to more than 80% of total cash circulation. This is huge.
denzil_correa 10y ago
> This is the boldest and probably most brilliant move by any Indian politician since liberalization of economy in 1990s. This is not the first time this has happened. It happened in March 2014. https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=30458 https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=...
- pavanky 10y ago
  This is slightly different. All 500 and 1000 rupee notes in circulation right now are being demonetized. In previous cases demonetization was done for older currency over a longer period of time.
kranner 10y ago
> the value has been significantly lowered by approximately ~10 to 20% consider when the money gets deposited, there would be an income tax due on it. How do you figure it's 10%-20%? AFAIK it's a 300% penalty now after the voluntary disclosure scheme has ended (for income that was gained before Sep 30). People are better off burning the money if they can't launder it somehow.

parennoob 10y ago

I agree, this is a good first move to get black money that is stored as cash out and taxed. Some forms that still remain are: * Gold * Money funneled into "agricultural income" (which is tax free) * Large properties in metros that are bought and left empty (which raises rates sky-high for ordinary middle class people trying to buy a house there) However, this move is brilliant in that it removes cash as an intermediary for these transactions, i.e. if a builder is demanding Rs. 50,00,000 for a house "above the table" + Rs. 30,00,000 cash (which he won't declare), then that extra 30,00,000 becomes useless as of 31 Dec.

mohanmcgeek 10y ago
The extra becomes useless starting tonight.
- mapt 10y ago
  No, that's a legal fiction. It becomes useless as soon as there's no way to extract value from a briefcase of Rs.500 and Rs.1000 notes. Tomorrow, someone can trade it in to the Bank of India in exchange for new notes, it's just that this someone needs a plausible reason for holding the money - they have to have paid taxes on enough income that they could theoretically have legal reasons to possess the money. This does not have to be the current owner turning the money in, it can be anyone the current owner pays a premium to in exchange for clean bills. So tomorrow, the money will need to be laundered in order to help the owner. But a few months down the line, the Bank of India stops taking deposits, and the money becomes actually useless.
murukesh_s 10y ago
He can still pay tax and get away.
- parennoob 10y ago
  If he (and by extension thousands more) pay tax, then there's no "get away" involved – the transaction has been done fairly and the Govt. got the requisite amount of tax. The point is, if he has been doing this for 10 years and has a massive stack of cash which he tries to deposit now, that is going to bring him to the attention of the Income Tax authorities.
sandeshd 10y ago
If one is buying gold then they need to pay tax for that amount. Because shopkeeper can't hide that money without tax. Shopkeepers knows this money is gonna be useless soon.
gozur88 10y ago
For large, low volume transactions foreign currency works just as well if it's a pretty common thing.

csomar 10y ago

Changing $100 notes to $200 notes will open a new black market for converting 2 x $100 notes to $200. I think just removing the $100 note is safer.

aub3bhat 10y ago
I think since India only has notes in {5,10,50,100,500,1000} denominations there might not be enough legal tender with just {5,10,50,100} to convert all {500,1000} notes, thus by introducing a new notes (bills) which look completely different than older 500 Rs, and 2000 Rs which are completely new, they can ensure that enough notes/bills are available.
- sreeramvenkat 10y ago
  there is 20
sandeshd 10y ago
2K notes are not just piece of paper, it does have NGC (Nano GPS Chip) by which income tax department can track the location and exact amount have stashed nearby that location. So sending that amount to some other country or keeping that money underground will be the most foolish thing one can do.
- myth17 10y ago
  Is this Nano GPS Chip for real? How does it work and how much does it cost to make such currency?
- kshiva 10y ago
  That NGC seems to be a rumour.
- walls 10y ago
  GPS receivers don't transmit.
- naveens 10y ago

hash-set 10y ago

Call me up when our government stops doing idiotic things like sending billions in cash to Iran. Then I'll consider being concerned about income taxes.

mars4rp 10y ago
which government? US? that was Iranian money frozen 39 years ago plus interest. India? that was owed oil money due to sanctions. I don't understand how you are capitalist until the other side is Iran.
- totalZero 10y ago
  This is totally unrelated to capitalism as a structure and paradigm for an economy. Let's momentarily set aside the issue of whether the US owed Iran 1.7B dollars. There are arguments on both sides but I want to point something out: The cash payment was made at the same time as the release of four Americans by Iran's regime. The Obama administration has admitted that the cash was used as leverage in negotiating their release. If it looks like a duck, walks like a duck, and quacks like a duck...
  - mars4rp 10y ago
    as you said it was used as a LEVERAGE not a ransom. US had to pay this money anyway, by timing it right they had more LEVERAGE in the negotiations and 4 innocent people got out of prison. What is wrong with that? painting this payments as ransom is wrong.
    - totalZero 10y ago
      Ransom IS leverage. The payer is manipulating the captor's desire for money, in order to get an immediate release of prisoners that would otherwise not happen. Equally true, taking hostages is a way to gain leverage by manipulating the payer's desire to protect the captives. Why do you think bank robbers and hijackers do it? Iran was unable to get that money for almost forty years, but by dangling four Americans in front of the Obama administration, they were able to collect a ten-figure cash payment out of America's coffers. And you think there's nothing wrong with that? The Americans are guilty of caving on their principles and giving tons of (borrowed btw) cash to hostage takers, and the Iranians are guilt of taking hostages in the first place.

Spivak 10y ago

Isn't this a trick that will only work once? Wont the people who are taking advantage of black money start using a different store of value that isn't controlled by the Indian government like foreign currency or high value commodities?

murukesh_s 10y ago
Indeed, they can, but it's difficult to get foreign currency without valid ID. But gold is an option, even though govt have even made it mandatory to flash your ID for gold purchases.
ihaveahadron 10y ago
If it works once why not do it and then find another thing that works once after that and just keep repeating.
lmm 10y ago
Those things are more cumbersome to use than local currency. At some point it becomes cheaper to just pay your taxes.
st3v3r 10y ago
Depends on if you can find someone who's willing to take your new store of value. Part of the reason those people were able to get away with it was that those notes were regular legal tender, so I didn't have to worry about accepting them.
1024core 10y ago
It was done once before also, IIRC. Around the late 1970s. Seems to have worked. I guess it'll work given a long enough time interval, since human memory is short.
sfifs 10y ago
A currency is useful only if you can buy products and services with it. In India, you buy things in Rupees. Tou can't buy Rupees with dollars without an ID at which point the government knows anyway it's probably just simpler to pay your taxes

dman 10y ago

I think this is more about sending a message that they are serious about enforcement once the amnesty ends.

greglindahl 10y ago

It's worth noting that withdrawing certain banknotes is a classic move. Here's North Korea doing it in 2009: https://en.wikipedia.org/wiki/North_Korean_won#2009_revaluation https://en.wikipedia.org/wiki/North_Korean_won#2009_revaluat... And the US did it in 1969: https://en.wikipedia.org/wiki/Large_denominations_of_United_States_currency https://en.wikipedia.org/wiki/Large_denominations_of_United_... In both cases it appears that the main goal was tax revenue. In NK, against private traders, and in the US, against organized crime.

pravula 10y ago
And India doing it in 1978 (http://www.thehindubusinessline.com/money-and-banking/highvalue-notes-demonetisation-its-1978-redux/article9320703.ece http://www.thehindubusinessline.com/money-and-banking/highva...)
- aub3bhat 10y ago
  The difference is in the sheer volume of currency being taken out of / replaced from circulation almost 80% of the value. https://twitter.com/d_jaishankar/status/796012168873320448 https://twitter.com/d_jaishankar/status/796012168873320448
  - deleted 10y ago
    [deleted]
  - chaatman 10y ago
    >replaced from circulation almost 80% of the value. Not only replacing 80% of the value, but also added 220 Million bank accounts in a span of 15 months. 2/3 of the US population. https://www.reddit.com/r/worldnews/comments/5btovy/indian_rupee_500_and_1000_abolished_from_midnight/d9rc3y6/ https://www.reddit.com/r/worldnews/comments/5btovy/indian_ru...
jfoutz 10y ago
The US is kind of funny, we've (as far as i know) never withdrawn backing for a bill. If you have a silver certificate, you can spend it on a pack of gum. If you have a $1000 bill, you can deposit it in the bank. You might have some hassle getting the bank to believe you, of course, those bills are probably in pretty poor shape. But you should be able to exchange them for new currency. Although, it might be worth more to sell to a collector. there aren't that many around.

fa17 10y ago

Reading about it, looks like this has been done before in India in '54 and '78. Has black money decreased since then?

shripadk 10y ago
You can't compare '54 and '78 with 2016. Removing 500 and 1000 rupee notes as legal tender in 2016 accounts to more than 80% of total cash circulation. This is huge.

denzil_correa 10y ago

> This is the boldest and probably most brilliant move by any Indian politician since liberalization of economy in 1990s. This is not the first time this has happened. It happened in March 2014. https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=30458 https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=...

pavanky 10y ago
This is slightly different. All 500 and 1000 rupee notes in circulation right now are being demonetized. In previous cases demonetization was done for older currency over a longer period of time.

kranner 10y ago

> the value has been significantly lowered by approximately ~10 to 20% consider when the money gets deposited, there would be an income tax due on it. How do you figure it's 10%-20%? AFAIK it's a 300% penalty now after the voluntary disclosure scheme has ended (for income that was gained before Sep 30). People are better off burning the money if they can't launder it somehow.