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> Regardless of how this might help with "black money" (which seems to be a bit of an overhyped political bogeyman) Why is it a bogeyman? Have you researched t

> Regardless of how this might help with "black money" (which seems to be a bit of an overhyped political bogeyman) Why is it a bogeyman? Have you researched the situation in India? It's very different from the U.S. > I have a dim view of any government action that makes the use of cash less convenient, less liquid, or less legal. The government will introduce new 500 and 2000 Rs notes. > forced negative interest rates How is it forced? You can still keep cash under your matress. > In light of this news, I imagine many Indians will stop trusting Rupees as much and might just start preferring to transact in USD or something. What? This is way too far fetched.

wyager 10y ago
Yes, I've done some (admittedly shallow) research on the prevalence and effect of black money, and the impression I got was that it's like "money laundering" in America; actually not that significant or deleterious, but a convenient political talking point. > The government will introduce new 500 and 2000 Rs notes. Arbitrarily downgrading existing notes makes the currency both less convenient and less liquid (and, I forgot, less fungible). > How is it forced? You can still keep cash under your matress. For now, yes. I was referring to the war on cash in general. > What? This is way too far fetched. We now have reason to believe they might pull this trick again in the future with the new notes. A rational person would therefore assign a lower value to the new notes than their nominal "face value" before the government devalued the old notes.
- bharath28 10y ago
  >actually not that significant or deleterious, but a convenient political talking point. This is not true. This is a problem that significantly impacts the economy and visibly changes the equation for the middle class. Real estate, cars, and other things you'd consider somewhat essential to an average household are artificially priced because of the purchasing power of people with "Black money". It is more than a political talking point.
  - wyager 10y ago
    Do you have a scientific study backing this up? You just restated the claim that it is a problem.
    - bharath28 10y ago
      > a scientific study backing this up? As opposed to the "impression" you got that this was a convenient political talking point? I've bought real estate in India and visibly saw the effects in the last decade - inflation without commensurate change in infrastructure. As to your question of studies, here are some starting points (some dating as far back as 1995). The problem is serious enough for the government to have set up 10+ independent commissions to investigate the issue (which are cited in the paper by the Ministry of Finance) - the net cost of the black economy is estimated to be ~12-20% of the GDP, which in my books counts as a serious issue http://finmin.nic.in/reports/WhitePaper_BackMoney2012.pdf http://finmin.nic.in/reports/WhitePaper_BackMoney2012.pdf https://rbidocs.rbi.org.in/rdocs/publications/pdfs/73533.pdf https://rbidocs.rbi.org.in/rdocs/publications/pdfs/73533.pdf https://rbidocs.rbi.org.in/rdocs/publications/pdfs/73533.pdf https://rbidocs.rbi.org.in/rdocs/publications/pdfs/73533.pdf http://www.idosi.org/mejsr/mejsr23(3)15/17.pdf http://www.idosi.org/mejsr/mejsr23(3)15/17.pdf http://www.jnu.ac.in/SIS/CITD/DiscussionPapers/Financial_Repression.pdf http://www.jnu.ac.in/SIS/CITD/DiscussionPapers/Financial_Rep... http://www.nipfp.org.in/media/medialibrary/2014/10/BLACK_MONEY__IN_THE_REAL_ESTATE_SECTOR_A_STUDY.pdf http://www.nipfp.org.in/media/medialibrary/2014/10/BLACK_MON... [Edit: Typo]
      - wyager 10y ago
        > inflation without commensurate change in infrastructure. Inflation isn't tied to infrastructure growth, so not sure why you would expect this In fact, if the government pulls this kind of stuff, one should expect to see inflation without any benefit attached. As I said, messing with money's fungibility makes it less valuable. > The problem is serious enough for the government Yes, for the government; it hurts their tax revenue. That doesn't mean it's bad for the economy. I'll read those links when I get home. >the net cost of the black economy is estimated to be ~12-20% of the GDP, Black markets almost always increase production. People use them because they're more efficient than government-controlled markets. When they say "costs" they probably mean "the government loses access to".

wyager 10y ago

Yes, I've done some (admittedly shallow) research on the prevalence and effect of black money, and the impression I got was that it's like "money laundering" in America; actually not that significant or deleterious, but a convenient political talking point. > The government will introduce new 500 and 2000 Rs notes. Arbitrarily downgrading existing notes makes the currency both less convenient and less liquid (and, I forgot, less fungible). > How is it forced? You can still keep cash under your matress. For now, yes. I was referring to the war on cash in general. > What? This is way too far fetched. We now have reason to believe they might pull this trick again in the future with the new notes. A rational person would therefore assign a lower value to the new notes than their nominal "face value" before the government devalued the old notes.

bharath28 10y ago
>actually not that significant or deleterious, but a convenient political talking point. This is not true. This is a problem that significantly impacts the economy and visibly changes the equation for the middle class. Real estate, cars, and other things you'd consider somewhat essential to an average household are artificially priced because of the purchasing power of people with "Black money". It is more than a political talking point.
- wyager 10y ago
  Do you have a scientific study backing this up? You just restated the claim that it is a problem.
  - bharath28 10y ago
    > a scientific study backing this up? As opposed to the "impression" you got that this was a convenient political talking point? I've bought real estate in India and visibly saw the effects in the last decade - inflation without commensurate change in infrastructure. As to your question of studies, here are some starting points (some dating as far back as 1995). The problem is serious enough for the government to have set up 10+ independent commissions to investigate the issue (which are cited in the paper by the Ministry of Finance) - the net cost of the black economy is estimated to be ~12-20% of the GDP, which in my books counts as a serious issue http://finmin.nic.in/reports/WhitePaper_BackMoney2012.pdf http://finmin.nic.in/reports/WhitePaper_BackMoney2012.pdf https://rbidocs.rbi.org.in/rdocs/publications/pdfs/73533.pdf https://rbidocs.rbi.org.in/rdocs/publications/pdfs/73533.pdf https://rbidocs.rbi.org.in/rdocs/publications/pdfs/73533.pdf https://rbidocs.rbi.org.in/rdocs/publications/pdfs/73533.pdf http://www.idosi.org/mejsr/mejsr23(3)15/17.pdf http://www.idosi.org/mejsr/mejsr23(3)15/17.pdf http://www.jnu.ac.in/SIS/CITD/DiscussionPapers/Financial_Repression.pdf http://www.jnu.ac.in/SIS/CITD/DiscussionPapers/Financial_Rep... http://www.nipfp.org.in/media/medialibrary/2014/10/BLACK_MONEY__IN_THE_REAL_ESTATE_SECTOR_A_STUDY.pdf http://www.nipfp.org.in/media/medialibrary/2014/10/BLACK_MON... [Edit: Typo]
    - wyager 10y ago
      > inflation without commensurate change in infrastructure. Inflation isn't tied to infrastructure growth, so not sure why you would expect this In fact, if the government pulls this kind of stuff, one should expect to see inflation without any benefit attached. As I said, messing with money's fungibility makes it less valuable. > The problem is serious enough for the government Yes, for the government; it hurts their tax revenue. That doesn't mean it's bad for the economy. I'll read those links when I get home. >the net cost of the black economy is estimated to be ~12-20% of the GDP, Black markets almost always increase production. People use them because they're more efficient than government-controlled markets. When they say "costs" they probably mean "the government loses access to".