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Old 9th November 2016, 09:56   #121
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by hemanth.anand View Post
Let me put it in simple terms..
Thanks, I was aware of how this would curb black money composed of current 500 and 1000 notes.

The processes and restrictions have been in place for a while now, not just for a few months, and still we see a huge chunk of black money flowing in the economy. That's why I was wondering about the efficacy of this move if they are again going to introduce high denomination notes. Never underestimate the loophole finding capability of an Indian; the only thing that might help is their being printed in limited numbers.

Anyway, time will tell.

Cheers,
Vikram
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Old 9th November 2016, 09:57   #122
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by CA Dhruv View Post
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.
If he has earned it, he has to pay a tax on it. What is so difficult to understand in this.
And this policy is only trying to make almost all money (black, untaxed, undisclosed, etc) get infused into the system.
The barber can even take all his life savings cash (which maybe even be in crores!) and simply deposit in the bank (no questions asked). Its a different thing that Income Tax later comes for auditing, and ultimately he ends up paying relevant tax
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Old 9th November 2016, 09:57   #123
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Default re: Government scraps Rs 500 and Rs 1000 notes!

The way forward is electronic money transfers, cashless transactions, widespread usage of mobile wallets and similar convenience aids on one's portable personal devices.

Its the rise of paperless/cashless/ electronic transactions which are completely audible, that will precipitate the fall of the black money fuelled cash economy...
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Old 9th November 2016, 10:03   #124
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Default re: Government scraps Rs 500 and Rs 1000 notes!

This move achieves two things:

1) Eradicate all the fake currencies in circulation. Pakistan will be a big loser here.
2) Force all liquid currency to be declared or lost.

It does not eliminate black money because most of it is stored in gold and real estate. I am still awaiting more details on how they are going to address it. They must have thought about it, we just don't know what the plans are.

The new currencies will obviously have tracking feature. Not the GPS nonsense that is going around. But it may contain digital signatures encrypted using very strong private key owned by the RBI. It is impossible for Pakistan to mimic this, unless they steal the private key. And the currency counting machines all over the country could read it using the public key. Fake currency will be very hard to spread because of this.

Next they may also use the signature to track the movement of money. Just feed the daily transactions of cash from currency readers all over the country to a giant computing center that can analyse the movement of cash. Data analytics can do the rest. The government can easily track how the currency is moving around the country. Once they understand the movement of cash, they can choke the nerve centers of this black money movement.

These are conjectures, but easily implementable using current technology.

Last edited by Samurai : 9th November 2016 at 10:05.
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Old 9th November 2016, 10:14   #125
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Originally Posted by racer_m View Post
If he has earned it, he has to pay a tax on it. What is so difficult to understand in this.
And this policy is only trying to make almost all money (black, untaxed, undisclosed, etc) get infused into the system.
The barber can even take all his life savings cash (which maybe even be in crores!) and simply deposit in the bank (no questions asked). Its a different thing that Income Tax later comes for auditing, and ultimately he ends up paying relevant tax
The taxes you pay go into the hands of politicians who through one way or other transfer that out of the govt. treasury.
Since we are an automotive forum a bigger question, how is one supposed to pay toll taxes in case he doesn't have RFID tags? Also how would large trucks carrying essential items move? How are they going to pay taxes?
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Old 9th November 2016, 10:25   #126
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by hemanth.anand View Post
The new notes will be introduced in February 2017.
The new notes will be put into circulation from November 10th.
The same reason why banks and ATM's are shut so they can stock up the new notes.

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Originally Posted by comfortablynumb View Post
That's why I was wondering about the efficacy of this move if they are again going to introduce high denomination notes.

Cheers
Vikram
Quoting Samurai few posts above;

The new currencies will obviously have tracking feature. Not the GPS nonsense that is going around. But it may contain digital signatures encrypted using very strong private key owned by the RBI. It is impossible for Pakistan to mimic this, unless they steal the private key. And the currency counting machines all over the country could read it using the public key. Fake currency will be very hard to spread because of this.
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Old 9th November 2016, 10:30   #127
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Absolutely brilliant move by the Prime Minister. Very strategically planned, and well executed. While there are sure to be some teething problems in the initial few days, this is bound to have positive impact upon the economy.
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Old 9th November 2016, 10:34   #128
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by Samurai View Post
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.
No, the civilian Weimar government did this, and created the environment that got Hitler elected, which led to the military government.

That digression apart, the reason why the central bank fine tunes monetary policy is to sustain the belief in it - which was the point I was originally making, that modern money depends on people's belief in its utility for all the things people look at it, including as a store of value which includes a belief in its depreciation rate - and that the government has guaranteed it isn't the primary reason for this belief. In fact, in many places the reason why monetary policy that supplies the foundations for this belief is left in the hands of a hopefully independent central bank is because governments cannot be trusted to keep their side of the deal, that keeps the belief system afloat. And I would turn the statement quoted around to say that countries are economically stable because an independent central bank is in charge of monetary policy, not the other way around.

None of the above is germane to the current situation of course, which, to use automobile language, is simply changing one model of currency note to another with no fundamental economic impact on monetary policy or the quality/nature of the government guarantee . The reason for doing this of course is that the model change can only be carried out at specified dealerships - banks - which will force the obsolete models to either become visible to the taxman or become useless. But if offered for exchange, obtaining the new model is guaranteed to anyone that has the old model, regardless of how it was obtained.

And to the point someone made - will this address the root cause of black money? No, just as a heart bypass won't solve all your issues if you don't also do all the other necessary things that need doing at the same time. India did this once in 1978 too, and it did not solve the problem. But this is good chance to do all that was promised on the subject of black money/corruption, IF followed through.

Last edited by Sawyer : 9th November 2016 at 10:38.
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Old 9th November 2016, 10:40   #129
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by tharian View Post
The new currencies will obviously have tracking feature. Not the GPS nonsense that is going around. But it may contain digital signatures encrypted using very strong private key owned by the RBI. It is impossible for Pakistan to mimic this, unless they steal the private key. And the currency counting machines all over the country could read it using the public key. Fake currency will be very hard to spread because of this.
I have already said in my 1st post that this move is a masterstroke as far as counterfeiters and terror financiers are concerned, the reason for which Samurai's post explains in detail. My doubts were w.r.t how it would curtail black money when high denomination notes are not being stopped altogether forever. The only thing that might help is them being printed in relatively smaller numbers than before.

Cheers,
Vikram
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Old 9th November 2016, 10:51   #130
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Originally Posted by comfortablynumb View Post
The only thing that might help is them being printed in relatively smaller numbers than before.
Nope, there will just be an expanded market for more/bigger suitcases! And many of us will be inconvenienced because inflation has made the use of even the Rs 100 note to be a pain in the wallet.

Black money is a complex subject, needing complex answers, not just magic bullets. A part of it is like corruption - it takes two to bribe. Developers collect black money for flats because we are happy to pay them cash instead of a check for a higher purchase price - just one example. It is important to address both root causes and symptoms and a one time bullet is only one part of the solution.
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Old 9th November 2016, 10:53   #131
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by hemanth.anand View Post
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.
Would like to understand how generating black money is difficult with newer notes. I agree that hoarders have to fresh and can't they still accumulate black money?
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Originally Posted by 400notout View Post
This move would have been great, but reintroducing 2k notes kind of beats the purpose. some people will lose the money. Poor people will be taken for a ride for a while.
Yes, they must have gone all out and stopped currency notes greater than 100. They must offer 0% charge on cards, online transactions to encourage non-cash transactions.
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Originally Posted by Eddy View Post
Which is not fair who declared the money under the amnesty scheme. They paid 45%, while someone who deposits now will pay a max of 30%.
Unless of course, there is an investigation into how he got this money which the 45% guys escaped.
Post amnesty scheme, they have pay around 70% including the fine, lose the anonymity factor and hence can be questioned for the source of wealth.
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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?
If a business generates a lot of cash, they can accept 500, 1000 at their own risk and deposit to a bank before 30th Dec.
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Originally Posted by aargee View Post
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.
I agree, this won't affect the people who have already converted their black money into white.
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Originally Posted by Sree73 View Post
Hats off to the Govt machinery to keep this information a top secret. Welcome move from the government.
Considering that this was planned almost for 10 months, great effort to keep the secrecy.
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Originally Posted by TorqueyTechie View Post
Pardon me for my ignorance, but how does scrapping these would help? Most importantly can somebody help me understand why this is being done?
85% of cash is in 500s & 1000s notes and considered to be worth 16 lakh crores. This amount is coming back into the banking system, will be accounted, taxed and put to productive use. As a consequence, fake currency in these denominations will be eliminated.
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Old 9th November 2016, 10:54   #132
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by comfortablynumb View Post
I have already said in my 1st post that this move is a masterstroke as far as counterfeiters and terror financiers are concerned, the reason for which Samurai's post explains in detail. My doubts were w.r.t how it would curtail black money when high denomination notes are not being stopped altogether forever. The only thing that might help is them being printed in relatively smaller numbers than before.

Cheers,
Vikram
The way I understand is one has to first of all go through legal channels to make his black money(which is mostly in 500, 1000 rupee notes) to white money. So the new higher denomination notes circulating in the market are all white now.
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Old 9th November 2016, 11:00   #133
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Originally Posted by shankar.balan View Post
.............
More importantly, all the evil politicos must be tearing their ugly hair! Because all the unaccounted moneys lying in their dirty party slush funds and under their scummy mattresses will have become worthless over night!

May they continue to feel pain forever and may their net worth be rendered null and void forever too!

...............
Fire is the greatest purifier.

Fantastic!.
I share the hate you have for such politicos, but can hardly put them into words as you have.

For folks who are saying " Not all Black money is ill-gotten or not earned" - I agree, not all of it is ill-gotten, only 30% of it is.

This is probably the best decision made by any government since liberalization by PV Narasimha Rao in early 1990s.

cheers
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Old 9th November 2016, 11:03   #134
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Default re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by comfortablynumb View Post
My doubts were w.r.t how it would curtail black money when high denomination notes are not being stopped altogether forever. The only thing that might help is them being printed in relatively smaller numbers than before.
That, plus I imagine there will be compliance requirements on banks as to who they issue the Rs. 2000 notes and how much, with the customer stating the purpose for which they need these notes. There might be very stringent conditions for approval, since I am hard-pressed to think of valid reasons to claim that electronic means wouldn't work for my purpose.

I think it is extremely unlikely that Rs. 2000 notes will be filled in ATMs - with daily & weekly withdrawal limits, the amount of hard cash you can take out of these machines is going to be quite limited (I now have a debit card with daily cash limit of 50K; going forward it will be 10K with a 20K weekly limit apparently).
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Old 9th November 2016, 11:07   #135
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Superb move and what better way to cleanse the system. Good days ahead for the country for sure. All transactions going forward will be based on legitimate bills and invoices only and people will declare all their income. Once that happens tax is generated and Govt. coffers will overflow. Hope this allows the Government to reduce tax rates. Real win for those who played the game by the rules.

Last edited by Santoshbhat : 9th November 2016 at 11:11.
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