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Old 9th November 2016, 08:57   #106
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by Sawyer View Post
The only real difference was about the belief in their validity.
If enough people believe that they are a valid substitute for bartering goods and services, there can be a parallel economy in theory with these notes, money is a strange thing of a metaphysical nature that way.
Nothing to do with belief. Paper currencies are fiat currencies, with no intrinsic value. The government or central bank underwrites or guarantees the value. So it has value. Yesterday they took away that guarantee for 500/1000 bills and asked the people to return it back to the government for their face value.

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Please note, there are simple minded people out there who thought they lost everything. The PM's message was NOT conveyed properly. WHY did they need to show pics of people filling currency notes with Kurkure snacks!
PM was quite clear. But the real damage was caused by the jokes that are passed around in social media. When I tried to correct somebody who was making yet another currency joke, I was told I don't have sense of humor. I was actually worried about some people taking it literally and go into real panic. People could die.

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Black money, I guess in SO SO many cases, is NOT "ill gotten" or "free" money.
If you receive cash income and then not report it as income for tax purposes, it becomes black money. It does not matter whether it was earned honestly or via bribes.
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Old 9th November 2016, 09:00   #107
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Default re: Government scraps Rs 500 and Rs 1000 notes!

The elite class certainly has most of their cash in Swiss banks, business & assets; so does the rich class with most of their black economy turned into movable & immovable assets.

So the left over are wealthy class, medium & small sized business persons & salaried class.

Questions
1. Let's say the above communities have 10-20% of their undeclared income in form of cash, then, basic question arises...does it make sense to lose the 20% of the cash & save the 80% assets or save the 20% & later questioned by IT & CBI for the 80%?

2. Sensibly speaking, let them decide to scrap their 20% of their cash, so what happens next? Forget nabbing the culprits, Govt certainly hasn't recovered the black money unless there's a mechanism through RBI to measure the number of Rs 500 & 1000 denomination that has to be in circulation versus the amount of denominations received. And then what happens?

I'm not denying this is the first step towards eradicating black money & bring down corruption, but just trying to understand from the concept of money.

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I was actually worried about some people taking it literally and go into real panic. People could die.
That's going to be the next level of drama sir; if they can stage it for OROP, they can stage it for this also just trying to capitalize from an incident

Last edited by aargee : 9th November 2016 at 09:03.
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Old 9th November 2016, 09:10   #108
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Gotta be the most hilarious thing I heard since morning. Even better than the whatsapp jokes

Unaccounted income - Illegal. Period.
How do you define something illegal? It's not Bhagvat Gita that has made laws of our nation. These are man made rules. So these are just views of some people who are in power. I agree with the point that not all black money is easy money. If say a service person, like a salloon owner has not declared some of his income that doesn't mean that he has earned it in a easy way. He has worked for it and thus earned it.
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Old 9th November 2016, 09:11   #109
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Default re: Government scraps Rs 500 and Rs 1000 notes!

This is one the significant moves and a very brave and bold one too.

We have been talking about putting a stop to black money and fake currency for years but no one dared to make a move or failed miserably. Some one has to bite the bullet and kudos to government and Modi for planning this in super secrecy and executing it.

It's obvious every major decision has it's consequences but it's assured that "our money will be ours". Common man is upset because he was not given time to prepare. After all, this is a surgical strike. It has to be secret, quick and hit where it hurts. If you are against black money and corruption, why bother about few notes you have at home. Just follow the plan.

For a few days, think of it as a painful therapy. Hurts but you will recover for sure and there's nothing to lose.

And above all, do not criticise. In our terms, it's a "test drive". If it's good, cool! If not, try other options. Unless you make a move, you are never going to reach anywhere.
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Old 9th November 2016, 09:15   #110
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Nothing to do with belief. Paper currencies are fiat currencies, with no intrinsic value. The government or central bank underwrites or guarantees the value. So it has value.
Umm...not since the gold standard for paper currency was dropped globally a long time ago. The fact that a rupee is worthless today compared to the same rupee thirty ago, is testimony to the inherent hollowness of that guarantee of value. In the days of the gold standard, there was a guarantee that the same amount of gold would be given to you in exchange for the note, regardless of time passed since the issue of the note.
The only thing that the government guarantees now is that if damaged and genuine, the note will be exchanged for a new one. When the government abuses the belief in the money by printing currency to service burgeoning debt as Germany did a long time ago, hyperinflation happens, people stop using the money and revert to barter. Because they stop believing in its alleged value.
The magic of money is that just on this basis, it still serves its purpose as a medium of exchange of goods and services. Although in the paperless West, that purpose has drastically shrunk to be replaced by digital money, and we are heading the same way, a good thing.
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Old 9th November 2016, 09:22   #111
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Default re: Government scraps Rs 500 and Rs 1000 notes!

Will we see a lot of poor people getting lot of cash in their hands now. Through people with black money trying to launder their stash by giving a small share as commission to such people.
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Old 9th November 2016, 09:29   #112
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Default re: Government scraps Rs 500 and Rs 1000 notes!

Agreed that counterfeiters and terror financiers will take a hit, but I am confused about 1 thing - if they are planning on introducing new 500 and 2000 notes soon, how does the "black money eradicated forever" thing work?

Folks who are in the business of black money now, will definitely find ways and means to do it eventually with the new high denomination notes - if not in a year, then maybe 2-3 years down the line onward - right? Or am I missing something?

Cheers,
Vikram

Last edited by comfortablynumb : 9th November 2016 at 09:33.
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Old 9th November 2016, 09:33   #113
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Default re: Government scraps Rs 500 and Rs 1000 notes!

One thing that is not clear is how can they prevent small businesses from accepting 500 and 1000 rupee notes even now as the window to exchange them to new notes is still available till December 31. Or what if they say this was from business prior to 8-November?
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Old 9th November 2016, 09:34   #114
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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If the tax was already paid in the foreign country, then you won't have to pay again. India has double taxation avoidance agreement[/url] with most countries. So you have nothing to worry.
Sir, to explain to the government that you are an actual tax payer in another country is not a simple task. The usual W-9 form used to declare tax in the US would not be good enough for our government. They want a separate statement from the taxation authorities and i have noticed this usually takes around 10 days at the earliest or upto 45 days for some states. And this has to be given for every financial year.

For me to avoid Double taxation while making payment to my vendors and agents in the US, i have seen quite a many cases in the past 3-4 years. I might be misguided on my perception from what i hear from my vendors and agents. But thought i would share this experience as well.

And i am sorry for the slight OT.

Last edited by rohitoasis : 9th November 2016 at 09:35. Reason: Disclaimer added a bit late.
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Old 9th November 2016, 09:34   #115
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by samaspire View Post
Will we see a lot of poor people getting lot of cash in their hands now. Through people with black money trying to launder their stash by giving a small share as commission to such people.
That is certainly a possibility. And the commission may not be small, even 50% won't surprise me.
But the logistics of managing this before the end of 2016, given the sheer volume of these notes, and lining up enough poor people that have the ability to recover their value, will be almost impossible on a significant scale. So I can't see this a a big thing, though it would be a good thing if it happens as much as possible!
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Old 9th November 2016, 09:40   #116
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by kvish View Post
One thing that is not clear is how can they prevent small businesses from accepting 500 and 1000 rupee notes even now as the window to exchange them to new notes is still available till December 31. Or what if they say this was from business prior to 8-November?
500/1000 is no longer legal tender, so anybody accepting them does so at his own risk. You are right that it can still happen and perhaps would at a smaller scale especially where no receipts are involved in such transactions. For bigger transactions, the person accepting it would be at risk as and when he presents it to the bank for exchange/deposit
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Old 9th November 2016, 09:42   #117
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by Sawyer View Post
In the days of the gold standard, there was a guarantee that the same amount of gold would be given to you in exchange for the note, regardless of time passed since the issue of the note.
Gold standard had to be dropped because that concept became obsolete due to new forms of wealth generation. Have discussed this before.

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Originally Posted by Sawyer View Post
The fact that a rupee is worthless today compared to the same rupee thirty ago, is testimony to the inherent hollowness of that guarantee of value.
This is a moot point because fiat currencies are an instrument of financial transaction, not storage. You are not supposed to hoard it as if they have intrinsic value. This is something lot of people miss about currencies. For storage, you have to keep them in something that has intrinsic value. If a rupee could buy a liter of petrol 40 years ago, if you put that rupee in fixed deposit for 40 years, the current amount can still buy a liter of petrol. FD is a storage instrument, the paper bill is not.

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Originally Posted by Sawyer View Post
When the government abuses the belief in the money by printing currency to service burgeoning debt as Germany did a long time ago, hyperinflation happens, people stop using the money and revert to barter. Because they stop believing in its alleged value.
That was an extreme case where the military government didn't understand or care about the effects of monetary policy of excess money supply. In stable countries, central bank carefully fine tunes monetary policy.
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Old 9th November 2016, 09:44   #118
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Default re: Government scraps Rs 500 and Rs 1000 notes!

It is a bold decision from a government which has done basically nothing better than the last government ever since they have come into power. The political cynic in me started to dig but i could find much apart from the fact that we will have even bigger Rs 2000 notes now! Curiously, the same government also receives more than 90% of its election donations from unknown sources. I remain sceptical of the move.
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Old 9th November 2016, 09:46   #119
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Default re: Government scraps Rs 500 and Rs 1000 notes!

Brilliant move. Kudos to the government for atelast trying such a bold move inspite of knowing very well that the repercussions in terms of backlash(political, general, votes) would be pretty huge. Success or failure is secondary but atleast someone had the guts and that's commendable

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Originally Posted by prasadee View Post
I consider the Rs1000 notes I have with me as a donation to the cause of black money eradication . I called SBI California, they do not accept/exchange INR. I do not have any planned travel to India till next summer. Planning a trip earlier to exchange couple hundred $s makes no sense.
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I do not generally carry much cash with me, and almost always use plastic money where available. However, I had some money saved up in cash for emergency use for taxis, etc when i visit India. Thanks for making that hard-earned tax-paid money worthless.
I am in the same boat as you. Usually keep a few grands handy for taxi and other initial emergencies when we land. Guess it will be worthless now but honestly that's too little a loss compared to what we may end up loosing in the long run if black money laundering is not checked. Am looking at it more like a necessary sacrifice for a greater good.

However, thinking practically, if you have some friends headed to India for the holiday season they can get your cash deposited at the banks & get legal(new) currency notes. Ofcourse this would work only if the cash we are talking about is in few thousands.

Last edited by SoumenD : 9th November 2016 at 09:48.
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Old 9th November 2016, 09:47   #120
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by comfortablynumb View Post
Agreed that counterfeiters and terror financiers will take a hit, but I am confused about 1 thing - if they are planning on introducing new 500 and 2000 notes soon, how does the "black money eradicated forever" thing work?

Folks who are in the business of black money now, will definitely find ways and means to do it eventually - if not in a year, then maybe 2-3 years down the line onward. Right? Or am I missing something?

Cheers,
Vikram
Let me put it in simple terms.

Black money will mostly be undeclared, in cash form. People cannot deposit it into banks without justification.
If they deposit inappropriate amounts that don't match their income, they'll be in trouble.
Most of this black money will be in 500 and 1000 denominations (100 rupees will be too much volume to store) and in the current design. Now these design notes has been demonetised and will be rendered almost useless after December 30 (totally useless after march 31 2017)

So this will have to be burnt after March 31st or just kept as a collectable. it cannot be used for anything.
The new notes will be introduced in February 2017. Generating black money now will be tough with so many processes and restrictions in place and also because these notes will be printed in limited numbers. People will be forced to go cashless.
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