India's demonetisation of Rs. 500 and Rs. 1000 notes | Hacker News Reader

India's demonetisation of Rs. 500 and Rs. 1000 notes

newsite.thehindu.com

461 pointsgshakir311 comments

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.

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_revaluat...

And the US did it in 1969:

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.

The US is kind of funny, we've (as far as i know) never withdrawn backing for a bill.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.

I think a private enterprises in the U.S. can refuse money, so your bank can refuse that 1000$ bill at their discretion (and pissing you off as a customer in the process).

However, the government probably is required to take that money to pay nay taxes, although I do not know how you can pay any taxes to the federal U.S. by cash. Maybe a customs duty at a border crossing?

And India doing it in 1978 (http://www.thehindubusinessline.com/money-and-banking/highva...)

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

>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_ru...

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?

Technically, yes. You can even just start using 100 rupee bills instead.

But what this does is adds cost to doing business secretly in cash. Also it increases the threat of government taking another bold move in the future to flush out more stores of black money. Basically, it increases the risk of operating outside official accounting, making that option more scary and less appealing.

Watch for real estate crash in New Delhi. On paper there wont be a crash but sharp growth, because the declared transaction value is about 40% of the real transactions, the remaining being in cash. With this move, declared values will move up, while actual values will move down.

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

There is Bitcoin though

Boils back to the same point - can you buy necessities of life in India today with Bitcoin in the short to medium term? No. So if you're accumulating black money (say you are a property developer) it will be difficult for people who buy houses to pay you.

Also remember that Bitcoin isn't really anonymous and it's fully traceable. So the police merely has to do some rubber hose type de-anonymization of which Bitcoin address was the payment made to you in and from there on, all your transactions can be back-traced.

I remember reading about the Indian government passing regulations for the tight control of Bitcoin<->₹ transactions in the country.

Those things are more cumbersome to use than local currency. At some point it becomes cheaper to just pay your taxes.

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.

Note that starting tomorrow, people will become progressively reluctant to accept those notes in retail transactions. It will become difficult for anyone with a hoard to exchange these notes for any other commodity.

EDIT: fixed typo "tomorrows"

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.

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.

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.

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.

For large, low volume transactions foreign currency works just as well if it's a pretty common thing.

The extra becomes useless starting tonight.

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.

He can still pay tax and get away.

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.

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.

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.

there is 20

Wouldn't it be 4x $100 notes? Why would you take the two $100 notes if you knew they were being devalued?

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.

Surprised to see this garbage rumour parroted in Hacker News of all places. Haven't people heard of Faraday cages?

GPS receivers don't transmit.

Not possible and also useless. Govt has not made any statement about it either.

Is this Nano GPS Chip for real? How does it work and how much does it cost to make such currency?

That NGC seems to be a rumour.

Do not believe in WhatsApp forwards.

Could it really be GPS? Or does it function more like an RFID chip that can be read at an extended range or distance?

Not sure how true is that story. But it's circulating around various news channels and whatsapp groups too.

> 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.

> 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=...

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.

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

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.

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

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.

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.

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...

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.

For international readers: Rs 500 and Rs 1000 are the highest denominations notes in India. Other available denominations are Rs 100, 50, 20, 10. This is such a major move to curb black money in the history of Indian Politics and Economy

1 USD is ~Rs 66. That is a staggering difference in purchasing power! I would guess that the only note in the US with a similar reputation which is still issued would be the $100. Notes larger than this ($500, $1000, $5000, and $10 000) have been discontinued since 1946 and actively destroyed by the Federal Reserve since 1969.

Isn't there a concern that those who were using these high denomination notes just switching to other currencies? Bhutan has a currency that is pegged 1:1 with the Indian Rupee and will (presumably) still issue Rs 500 and Rs 1000 notes. Sri Lanka is another possible candidate; and of course there are the standard global reserve currencies - the US dollar and the Euro - whose notes worth over Rs 1000 are relatively common place.

> 1 USD is ~Rs 66. That is a staggering difference in purchasing power!

How on earth do you derive purchasing power from comparison of arbitrary units? ~Rs 1 does not have the purchasing power of 1 USD,. 1 Zimbabwean dollar does not have the purcahsing power of 1 GBP.

To add some data to this discussion: the Purchasing Power Parity (PPP) was ~17 rupees to 1 dollar as of 2015, as per "The Organisation for Economic Co-operation and Development (OECD)".

The PPP is, in simple terms, the amount of money in each currency that can buy similar amounts of goods; so taking this PPP at face value, what 1 dollar can buy in the US, 17 rupees can buy in India. This is of course not entirely true, because it's an averaged value, and there's other complications, but it's at least a better starting point than assuming Rs 66 per dollar.

[1] https://stats.oecd.org/Index.aspx?DataSetCode=SNA_TABLE4

The grandparent comment wasn't comparing arbitrary units, they were comparing the units of each country's currency denominations. The largest active legal tender in the US is worth $100 while the largest in India was worth $15 (now will be $30). I think it is a fair assumption that those numbers aren't arbitrary and that some thought went into choosing those denominations. That gives you insight into the economies of each country.

Largest banknote in UK is £50, largest in EU is €500. That does not imply a staggering difference in purchasing power between £ and €.

I don't see how that makes the argument of the grandgrandparent post. If some thought had been put into the denominations then what you'd assume to be normalized is purchasing power (since the smallest denominations should correspond to "a fraction of the cheapest thing I could buy" [if we include change] and the biggest should correspond to "more money than is reasonable to carry around for buying stuff"). Following that logic and combining it with yours the conclusion is "100$ in the US has similar purchase power to 15$ in India" or "things are cheaper in India", which really doesn't say much to me.

Since the current Rs 500 and Rs 1000 notes themselves are no longer considered valid legal tender, they'd have to be exchanged for legal tender before they can be exchanged for foreign currency, even the Bhutan ngultrum (it's pegged to the Indian rupee, but that's irrelevant if the Rs 500 and Rs 1000 notes aren't legal tender representing rupees anymore). This exchange process from no-longer-legal-tender to legal tender is what provides the government visibility (and taxability) into any currently hoarded cash pile. You're correct that future hoarding can be done in a foreign currency where the same maneuver can't be pulled off again, but that doesn't provide an escape from disclosing currently-hoarded cash piles. It's also not nearly as easy to hoard large amounts of foreign currency undetected, since large transactions would be visible via the regulated institution that does the exchange (either when converting local -> foreign or foreign -> local)

"Purchasing power" does not mean "value of banknotes per kilogram", nor does it mean "value per unit of currency"

They are introducing new Rs 500 and Rs 2000 notes and they are going to control the circulation of these new notes

The circulation of new notes will have to be controlled because there will be a limited notes in circulation for some time. The distribution problem has to be solved to ensure everybody have enough notes for daily activities. It would be interesting to see how the notes make it to all the bank branches and ATMs in the next two days and beyond. ATMs are unavailable for 2 days, bank branches for 1 day.

A better comparison would be on the basis of PPP instead of nominal value. Given that India's nominal and PPP GDP are $2B and $8B respectively, $1 ~ Rs.15 PPP.

The consumption market is India. The terrorism target and hawala money laundering targets are India. You destroy the market...the support structure will fall in line.

Just to add to your comment, the highest denomination note in India is worth just $1.5USD.

According to the Global Findex by the World Bank [1] 47% of the Indian population doesn't have a bank account. And only 22% of the population have debit cards.

I don't know, this seems too extreme to me. Certainly 500 euro notes or 100 dollar bills are very useful in dark markets, but the Rs 1000 note was just worth $15USD. This may end up being just a temporary recall and they will reissue 500/1000 notes in a couple of years.

[1] http://datatopics.worldbank.org/financialinclusion/country/i...

The highest denomination note of INR 1,000 is worth about USD 15.

And they'll be introducing a new Rs. 2000 note, worth about $30

> "but the Rs 1000 note was just worth $15USD"

So, I think he agrees with you and is just pointing out without the 500 or 1000 note's the 100 is only worth $1.5USD.

Maybe I'm misunderstanding, but there is no "without". The new Rs 500 and Rs 2000 notes will cover the difference.

So I spoke to economists friends asap - and while I share your views, the point added was that wealth is not stored as cash by most people, but as jewelry, assets, cattle and so on.

(I'm watching the news live in New Delhi right now). The move is being pitched as an attack against 'black money' and terrorist/criminal activities and counterfeit .

The idea is if you have very large sums of money stashed away in cash, you're now forced to deposit it into a bank and reveal it. If you're not comfortable doing that, you're basically going to lose your money.

There is always some rationale that involves bad actors. Then you peel back the layers of the onion and find out the government just wants to screw regular people out of whatever.

I don't disagree with your premise, but in this case, how can this screw regular people? If someone has chosen to store a lot of their money as cash instead of in a bank and doesn't know about this, I can see that. Am I missing something else?

I am not an expert. But may be, it is only the small time tax evaders that store black money in local currency...So if someone has stashed away his lives savings in a stack of 1000 Rupee notes, this move will force them to pay taxes.

Nothing is still being done to deal with really big fishes. The ones who can really make a difference.

So as usual, it is the middle class and lower that are being forced to pay, while the upper and elite classes still given a pass and the government earns good name in the process..

Rich and powerful still wins. It is business as usual..

Being forced to pay taxes is not a bad thing. Middle class are not "losing" anything.

Regular people will have to exchange/deposit the notes, which will cause some inconvenience.

But I think it's well worth the benefits to society as a whole.

Not sure if they will do this during the exchange, but technically you can attach your Aadhaar ID to the exchanged sums. That means in one swoop they know who has how much money...

It is hardly going to fix the black money problem. Rich people have so many employees to do the bank run for them. Within the next month, you will see a huge spike in real estate market. People with black money will dump it in the real estate market. (If you are not an Indian, this is how it works. You buy an apartment/home/building for the amount X. But you declare it to the government that you bought it for X/10. The guy who sold it now has the black money which he can reinvest or based on his income level, can deposit in the bank. If he is a farmer, he can pretty much claim it as agricultural income and pay no taxes). So, basically, black money will trickle down rapidly in the next month or so.

The government has become pretty smart - their standard rates have increased quite a bit (since they lose tax revenue) Secondly, I don't think people are going to touch the old notes - just too much risk involved.

Infact, I would speculate that since a lot of black money is now worthless, we might see rates go down, especially for new constructions

I second this comment. Real estate in tier-1 India cities is fueled by black money. Now with people not having black money to invest in the market, I'm expecting to see the trend go downwards.

"Dumping in real estate" will require the seller to "convert" that money which isn't trivial, keep in mind the seller himself would be trying his best to get it converted. Will it completely solve the black money, probably not, but at least it is the biggest step towards any kind of a solution in future.

That's why I said, "Trickle down".

On the contrary, real estate market will stop for next couple of months. Cash is a big component of the price for the seller. And the current cash is useless as it has to be deposited in banks and declared, thus removing the whole rationale for taking cash. The seller is already paying tax on the non-cash portion.

Actually dumping into real estate, gold etc. is not bad because your govt will get taxes out of the transaction at the least. Problem with black money is not that some body hoarded it. Problem is some body hoarded it with out paying taxes.

> Actually dumping into real estate, gold etc. is not bad because your govt will get taxes out of the transaction at the least.

No. Most likely money on paper << money changed hands.

Not really. Conversion to cash is limited to Rs.4000. Rest goes into your account. If you convert more than 2 Lakhs, that is notified to the IT authorities. You can't withdraw more than Rs.20000 per week or some such limit. Trickling down will take a long time, and even then most of it will be watched. If someone is withdrawing more cash than they ever did before, the govt., will probably question them beyond certain limits.

Real estate? No. What builder/seller would want to stock up 500/1000 notes?

Same for gold. How much can one goldsmith/jeweller's revenue increase in a year? Same for agricultural income. Can you suddenly declare 500% increase? (Oh well, agriculture income could have been declared earlier too anyway).

I am not sure how that will work out if the denomination itself has been declared illegitimate. Why would anyone accept 'black money' of any kind if he can't spend it elsewhere?

If you are in the low income bracket or a farmer, you can accept the money and deposit in the bank without any ramifications. All this will happen before the deadline.

hmm so the blank money hoarders would buy flats from low income bracket and framers?

Insightful. This should be higher up.

I grew up in a tier-2 city in India, and the amount of black money rich people hoard around here is of ginormous proportions. Easily > 50% of the income for most rich folks.

Can't wait to see how this unfolds.

How do they hoard this money? As cash?

Cash, money-laundering, sketchy real estate transactions (Benami- transactions under fake names), informal banking (hawala), the same as in most places in the world. Think early mafiosi in the US. The most significant legislative actions for curbing these are: Benami and Hawala legislations, computerization of land records in the late 90s and early 2000s, PAN numbers in the 90s and Aadhar in the last few years (a bit like SSN in the US), and the OP.

While this sounds great on face value, I doubt this'll solve the root of the problem. Why did we have so much black money in India? Coz people didn't want to pay taxes. Why didn't people want to pay taxes? Because they got nothing in return. Governments (esp Indian) have been historically self serving and power hungry. Tax money is usually either lost by PSUs loaning to the Mallyas of the world or other corrupt bullshit (overpaying for public infra, raw materials - contracts going to the highest briber etc.)

So unless that changes (more difficult than logistically declaring pieces of paper illegal), maybe people will start hoarding other stores of value in the future and figure out other ways to evade taxes. Am I being too cynical?

That's a catch-22, and most often just an excuse used by people to self-justify.

> lost by PSUs loaning to the Mallyas of the world

That's at least loads better than the money never reaching the government as tax and thus never becoming a matter of public record. Such publicly recorded "corrupt bullshit" are significantly easier to fight than the silent menace of black money.

> Governments (esp Indian) have been historically self serving and power hungry.

Projecting past governments' performance onto the current one and keeping your money hoarded, means that this govt doesn't have enough money to do significant good, which in turn helps such people justify to themselves that "the government doesn't do anything with it anyway". Thus the catch-22.

While the Modi government is nowhere near some "Ram Rajya" (said phrase being part of the problem), it's at least taking several steps in the right direction, and placing a little trust in it to spend the tax money reasonably well seems like a gamble with pretty good odds at this point.

> Why did we have so much black money in India? Coz people didn't want to pay taxes. Why didn't people want to pay taxes? Because they got nothing in return.

Sorry, I don't buy this argument. People in every country, regardless of how good their government is, want to personally pay as little taxes as possible. If people in XYZ-Amazing-Country knew that they could reduce their personal tax bill by 30% in a way that's guaranteed to be safe, a huge portion of the population would take advantage of it too. It's a class Economics tragedy-of-the-commons problem.

So ? Are you saying we should pay taxes even if governement is wasting most of it ?

You know what would motivate me to pay taxes ? Crystal clear development plans with additional gurantees that It would not be used to support bloated bureaucracy and subsidies.

Also who said governements are the only one who has to develop infrastructres ?

No, you should pay taxes and make government accountable to it.

Which can be classified under "fix your government" but had we done that, we would not even be here.

Up until now governments have been in the background in exploiting its people. But today this has changed. I hope/expect this would pave way for small-limited-government movement in India.

This is the darkness before new morning.

It's a card you can play once and will only work against small businesses like restaurants and other stores that deal in cash. The big fish will get away as they most likely already have their money laundered and converted to other assets. They wouldn't be holding all their cash in a garage somewhere like Walter White :)

I think the one of the big reasons (if not the only one) of doing this is to be able to introduce notes of higher denominations as an anti-corruption measure without having to answer the critics about the sorry state of the economy.

Nonetheless, a good one time move against the small time tax evader. This is not going to work long term obviously.

What the government needs to do is to give incentives to tax payers and considerably lower the taxes. Only then people will start paying them. I know it is a bit of a chicken and egg problem but it's the government that has to initiate the process.

I think Indians are among one of the highest taxed citizens in the world if you count direct+indirect taxes vs social welfare offered by the state.

> They wouldn't be holding all their cash in a garage somewhere like Walter White :)

True but someone will get money in return. He will be the sucker.

> I think Indians are among one of the highest taxed citizens in the world if you count direct+indirect taxes vs social welfare offered by the state.

True only for salaried class. Business men and self employed virtually walk away paying negligible taxes. I have friends who pay negligible taxes as compared to I, yet they maintain a lifestyle well beyond what I can dream to afford and I am payed decently even by UK standards.

"...converted to other assets"

These is mainly real estate assets. A lot of this black money is laundered to the builders who in turn do not declare a large part of it. Thus my hypothesis that it is the builders that will be hit the most. I'm expecting a real estate market crash.

That would be nice. Finally people might be able to afford housing :D /s

Hey it's you! there's quite a bit that has been achieved by successive Indian govts on shoe string budgets.

We've had the green and white revolutions, the IITs and other edu programs, large medical programs, ISRO (and the sensing tech that comes with it).

This is from a once impoverished country which later had to deal with the fallout of weaker institutions, brain drain and corruption/dacoity/booth capturing and a whole host of problems that include terrorism and war.

Post 1991, once the economy improved there's been significant improvement in out fortunes/tax kitty allowing for many other improvements (not to mention economic freedom).

This argument comes up very often, even in other countries and its spurious on the facts (Indian facts above), and on the logic - taxation is not a choice.

Don't forget it's a chicken and egg issue as well - without funding you don't get services, which makes you blame the govt and not want to give them more funding.

> Don't forget it's a chicken and egg issue as well - without funding you don't get services, which makes you blame the govt and not want to give them more funding.

Tell me how the taxes government already has, doing ?

> We've had the green and white revolutions, the IITs and other edu programs, large medical programs, ISRO (and the sensing tech that comes with it).

Correct me If I am wrong, this does not even account for 1% of tax spending.

> This is from a once impoverished country which later had to deal with the fallout of weaker institutions, brain drain and corruption/dacoity/booth capturing and a whole host of problems that include terrorism and war.

No this is from 60 years governments who still havnt stop exploiting its people.

> taxation is not a choice.

The issue is not taxation. Its where its being spent. If I had more say, I will gladly pay more. But I hope you understand why I would avoid paying (as much as I can, and ofc legally) taxes if its not even being spent on me.

Indian governments (current & previous) has failed its people and its most undeserving of taxes.

> this does not even account for 1% of tax spending.

Yes, but there are a few other areas that take a major portion of the take spending which we forget to acknowledge in such discussions because it does not affect us muddle-class / affluent people directly - Defense, subsidy of urea and other rural benefits programs (yes, agriculture is in a mess and a lot more can be done but with the introduction of Aadhaar and Jan Dhan, things are looking up)

> Indian governments (current & previous) has failed its people and its most undeserving of taxes.

Yes the previous government had really fucked up (I tend to think UPA did a decent job in it's first term, it's the second term that they really got greedy and hence their state now), but we should give credit to the Modi government for a lot of the economic reforms of the past couple years.

Please note, I'm pretty neutral on politics and do not stick to one or the other camp. This govt. has messed up on a lot of the social issues (Beef bans and communal tensions, JNU student protest situation, Kashmir violence and many more).

However, on the economic front, India is really moving in the right direction - Focusing on Startups and business friendly policy changes, making brand India attractive to the world (FDI), passing the GST (massive task and looking to be implemented pretty quickly come April), introduction of UPI [1] (this will definitely move the country forward to a more cashless economy), integration of all the digital services (Aadhaar, Digital Locker, etc), black money declaration schemes and prosecutions (The situation on the ground is actually changing, people are much more scared of hoarding black money now) - These are just some of the things off the top of my head (Credit to both the Govt and the RBI).

Don't also forget the aggressive change in stance on how to deal with issues coming from across the border.

Again, there's always going to be a million other things that can be done better. But you have to admit this government is doing a much better job than a lot of previous ones

[1] https://www.quora.com/How-will-the-UPI-interface-of-NPCI-cha...

> However, on the economic front, India is really moving in the right direction - Focusing on Startups and business friendly policy changes, making brand India attractive to the world (FDI),

The red tapes that should not have exist in first place but yes step in right direction.

> passing the GST (massive task and looking to be implemented pretty quickly come April),

Its reduction in tax burden (allegedly).

> introduction of UPI [1] (this will definitely move the country forward to a more cashless economy), integration of all the digital services (Aadhaar, Digital Locker, etc),

More surveillance ? That will only be used for good, right ?

> black money declaration schemes and prosecutions (The situation on the ground is actually changing, people are much more scared of hoarding black money now)

Depends on who is hoarding. If its your local shop, government has no right to interfere unless what they get from the government is more than what they pay in taxes.

You misunderstand my previous comment. I am saying government is like a mob that extort money in return for not f__king your shit up (and that is puttign it lightly). And Indian Governments (from 1950-today) are the biggest the world has ever seen, actively exploiting billion people.

I dont think government has inherent right/duty to tax its people or to assume the duty of developing infrastructure etc. In my opinion government has only two task 1. Defend its people. 2. Maximizing profit for its natural resources. Everything else should be left at competing private companies.

Hmm as much as I'd like to agree with you, don't think its necessarily spurious on the facts.

https://en.wikipedia.org/wiki/Corruption_in_India

From another perspective, the Rs 1000 note was demonetized in 1978 as well to curb unaccounted money. More than 30 years later, we've had to do it again because the underlying problem wasn't solved.

https://en.wikipedia.org/wiki/Indian_1000-rupee_note

Maybe this time it'll work. Time will tell.

You can't compare 1978 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. 1000 Rupee note was a very small percentage of cash circulation in 1978.

It will work for the current undeclared income. Soon people will begin hoarding the new currency notes. Or become wise and not stash money in currency.

Under the recent tax amnesty scheme if somebody had declared rental income, or business income, they will have to continue declaring it for years to come.

I personally believe that the bigger players in undeclared income are not keeping it in cash, they have assets bought in the names of trusted people, be it cars or properties.

And that is the difference here. Corruption is big players. Undeclared income was for avoiding taxes by mostly regular people.

Corruption had already found a work-around. And even if not, it was free money when they got it; they might not miss it. Regular people were trying to save 30 paise to a rupee that they earned, they will now have to pay it.

The current method is a way to fight black money. For corruption there are other ways, and maybe some will be taken.

> Why didn't people want to pay taxes? Because they got nothing in return.

No, they didn't pay taxes because there was no repercussions in evading them. Humans work as Nash equilibirium, and anyone would skip taxes if they could.

Let me be more direct. Do you think

  For small business & middle class,
  
  the government-provided benefits in terms of money[1] - the tax paid > 0 ?

[1] Dont believe/spread the lie that what government provides are invaluable.

After 60 odd years of corrupt rule by various Governments anyone would be cynical. So no there is nothing wrong with being cynical.

However, India has formally asked Britain, through an official letter, to extradite 60 fugitives (including Mallya/Lalit Modi) during the bilateral talk held between Mr. Modi and Mrs. May yesterday: http://www.financialexpress.com/india-news/narendra-modi-the...

A formal extradition request wasn't even sent (for the 60 fugitives) during the UPA rule. So I definitely feel that things are now changing for the better.

Some programmer humour - https://twitter.com/manojlds/status/796012773373161472

I get the impression that naming things is also going well ;-)

Ok, clever... but I think it's effectively more like "Reclaiming leaked cash" than plain "cash invalidation".

Ha! Took me a minute to get that.

good one :D

500 and 1000 Ruppee note cease to be legal tender as of today midnight. Everyone who has them can get it exchanged for 100 ruppee notes in banks,post offices etc until Dec 31. You need to provide a valid id to do an exchange, which means that the transaction will be traceable and Income Tax department (Indian version of IRS) will be matching them to declared income. ATM and banks are closed for the next couple of days.

Essentially people hoarding black money in 500 and 1000 ruppee denomination will be stuck with this money as they can't exchange them. (money obtained via undeclared/not-taxed transactions. One common method is show a lower amount in the legal documents. For example show that land/house is being purchased for 100K$ on documents while paying say 300K $ thereby evading tax on 200K $, but with the side effect making 200K$ black money). This is also slow down spread of fake currency in the country. (Only temporarily until fake of the new notes are created).

Having lived in India for most of my life makes me take a slightly pessimistic view of this measure

+ Small scale hoarders of black money will be affected by this move. + Once you cross a certain wealth, hoarding cash is impractical, so you start investing in land,gold etc. Those people will not be affected by this measure.

+ Average citizen will be inconvenienced. I can see the long lines forming at the banks for the new few days as people scramble to get the notes changed. Not to mention people who are travelling etc, who might be having no money except for the discontinued notes and no way to get more money for the next two days.

+ There will be attempts to circumvent this. I guess there will offers of "exchange x amount and get y % of it" given to middle to low income people in the coming days. But it is hard to scale this, so it wont affect the efficacy of the measure. + I have a hard time believing that the people close to the current Prime Minister / Government didn't know this was going to happen. (If this measure wasn't carefully planned not to affect "friends" of the current administration(look up Adani Group), I would be greatly surprised and will change my opinion about the current Prime Minister)

edit: added one bullet point

> (If this measure wasn't carefully planned not to affect "friends" of the current administration(look up Adani Group), I would be greatly surprised and will change my opinion about the current Prime Minister) - I agree with you , but nobody knows the truth.

I would imagine that most of the wealthy Indian tax evaders have their money in Swiss bank accounts rather than large stacks of rupee banknotes hidden in their basement.

Most wealthy tax evaders have long since brought their money back and laundered it already.

Tax Windows have been open for a long while, people seem to forget that there's been multiple amnesty Windows, the oldest being in the 90s iirc (could be late 80s).

There was a amnesty window open a few months back. I recall seeing an ad for a no questions asked amnesty with 50% and so tax rate.

Yes. This is going to affect tax evaders on a lower spectrum of wealth. Those who aren't wealthy enough to have offshore accounts.

Even that is a step forward.

How do you invest in land/gold without paying taxes? And, one is required to have the PAN (Permanent Account Number) to transact in gold/land, no?

There is an official transaction, but only for a fraction of the real transaction. The other fraction is done in cash.

I hope this move is successful, it is one of the few ways in which a government can force cash out from under the mattress[1] and back into the system. It is also why the US government gets really twitchy around systems of currency that it can't easily monitor, whether it is bitcoin or detergent[2].

It is a temporary fix of course, the question of why the market forces allow the black market trade to exist are the real questions that need to be answered.

[1] "Under the mattress" being the euphemism for holding on to your cash instead of putting it into a bank.

[2] http://www.theatlantic.com/business/archive/2012/03/why-are-...

I am originally from India, living in NYC for last 10 years.

Black money is a major problem in India, it's directly fueling This is an ingenious way to handle the problem at its root. I don't know how Government is going to handle this transition in a country as big and diverse as India. Personally, I prefer the rip-off-the-band-aid approach. The only thing I disagree with is the ATM daily/weekly withdrawal limit (10,000Rs/20,000Rs). I think this withdrawal limit is too low and would inconvenience lot of folks. I am not even sure what these low withdrawal limits are supposed to achieve.

> I think this withdrawal limit is too low and would inconvenience lot of folks

Yup. If someone needs to pay for medical emergencies, they will suddenly have to ask for help from lot of people.

Or use a credit card. When I had my back surgery a few years back, I just swiped for 1.2 lac. Of course, most people don't have a CC with that high a limit...

> Of course, most people don't have a CC with that high a limit

In India, no body has a CC, even debit card is only 22%

In India, it is mostly the poor who don't have CC. Every upper class person has multiple CCs and most of the middle class, specially those in the age of 20-40 have atleast one CC. People may keep just one debit card but they do keep multiple CCs. And now even the poor have bank accounts and many have debit cards.

Hospitals and pharmacies are accepting the older bills for a longer window.

Nobody has that kind of cash at home, if some emergency comes tomorrow they will have to go to the ATM which will won't work, or banks which will be closed. Tomorrow and day after will be a bad day for people having emergencies unless hospitals are free of cost.

Who says black money is a major problem in India ?

I keep hearing this, and then I see no proof. Right now I see people conflating the unorganized sector with black money - and these are two separate things.

Any ideas where I could find supporting data from a major economic body ?

How about the fact that only 1% Indians pay Income tax? https://www.thequint.com/hot-wire/2016/05/01/only-1-per-cent...

The official number of millionnaires in India are ridiculously low. This is not due to tax exemptions, but due to income not being declared in the first place.

That's absurd though - if 1% pay income tax, the issue isn't black money, but the fact that the unorganized sector is far larger than the organized sector. And this again a known aspect of the Indian economy.

India has historically been an agrarian society, then a bureaucratically driven planned economy and only post 1990, has it been free market.

That means there's not been enough time for the economy to ensure a good distribution and generation of wealth. Is it unsurprising that wealth distribution is skewed ?

You always have the option of cheques, plastic cards and electronic transfers. Anybody who wants larger amount of cash I am sure they have a bank account and can accept payments via that mode as well for the time being.

If they can't, then well boy, they were already defaulters.

Tonight, Americans counting Votes. Indian counting Notes.

Burma (Myanmar) has done this several times for the same declared reason, but with a batshit insane dictator with a predilection for numerology, so their demonetisations went like this:

1985: 50 and 100 kyat notes demonetized, replaced by 15, 35 and 75 kyat notes.

1987: 25, 35 and 75 kyat noted demonetized, replaced by 45 and 90 kyat notes.

https://en.wikipedia.org/wiki/Burmese_kyat#1972-1988

Strange part about this is that they are going to issue new 500 and 2000 notes as per > 8:32 pm: A new series of Rs. 500 currency notes and Rs. 2000 currency notes will be brought into circulation.

Pulling current notes I can understand, but the problem is that the denomination allows people to move lots of money in a minimal amount of space, so replacing them isn't really solving the problem.

It is. To get new notes, you will have to submit the old notes to the bank. In that case, you will have to declare the money to the Income Tax department. And if the sum is huge, a criminal enquiry will be started by IT department.

Also this will at once curb all the fake note issues.

Isn't this exactly the issue addressed by money laundering? Would this not simply force a large number of people into dealing with organisations or individuals who can convert their existing stockpile of (no longer valuable) cash into a smaller pile of cash that still has buying power? A naive approach would be to 'hire' a large number of people to cash in amounts of notes that would be just under the level considered suspect by promising them a cut of the exchanged money. I'm sure there are existing criminal networks that could achieve such schemes (or better thought out ones) within the window of Nov 10 to Dec 30.

No one will be willing to do that work. And its difficult to scale such operations. They may convert some small amount (probably upto 50k), but anytihng more than that, it'll be getting tougher

I wonder how long till the new format is duplicated?

The duplication is a minor concern the major concern is lost income tax revenue due to an underground cash economy. By restricting numbet of 500 and 2000 notes and forcing owner declare assets it put massive pressure on the black money.

500 rupees = $7.52, 1000 rupees = $15.05

These are not large denomination bills.

28 of the latter make up an average Indian's monthly income. It's more significant than $100 is for Americans.

Meanwhile you only need three 500€ bills to make up for the average European income. (And 500€ is 36651 rupees.) Those 500 and 1000 rupees are the largest denomination bills in India, but you need almost 10 times more of them to make up for the respective average income.

correction ... 2.8 of the latter (Rs. 2800/-) . Thats what you mean right?

In India they are. How is conversion to $ relevant?

PS: Denomination is face value and 500 and 1000 are the largest in Indian currency, so you are also wrong from use of the word.

Currency conversions are largely irrelevant to most people's daily life. What matters more is how much you get paid, the cost of house, food, and transportation.

Always think in terms of local currency or you will do much worse than getting down-voted. As my wife says about Chinese currency: "You have to respect the RMB!"

They are, however, the largest denomination bills.

This is quite big. An expert says that 87 percent of all of India's cash reserve is in 500 and 1000 Rupee notes. It might reduce black money. In any case, the next few weeks are going to be interesting. Almost an emergency atmosphere right now in front of ATMs at 11 pm in the night.

source?

https://twitter.com/sgurumurthy/status/796011217709998080

All the black money is in gold, dollars & euro ! or at the swiss banks. This is not going to smoke out the big players in this game.

you are thoroughly underestimating how many notes are stashed in homes, under the beds, in the walls, in the water tanks and attics.

Your comment reminds me of this: https://media.giphy.com/media/3o7ZeC2C6WBLzdwAQE/giphy.gif

To throw the startup scene into the mix: FinTech companies are celebrating this right now:

>Keep the money digital. Superb step by our dear PM @narendramodi From a bit inconvenience to incredible bold step ! #win # - Vijay Shekhar, founder paytm.

Being seen as a strong move towards cashless India.

Master stroke by the government by introducing 2000 Rupee note without even talking about the inflation and an economy that is in ruins. Good one time move against a subset of corruption and counterfeiting while getting away with not having to answer any questions about bad economic conditions.

I for one hope this leads more people paying taxes even if in the short term so the Government can consider lowering taxes for the middle class.

What about people not in India with a few 1000 rupee notes lying around, those are valueless for good? I have 2 notes.

Wont the funds be effectively destroyed and removed from circulation, for those who don't put their cash in the bank by the end of next month. Wont this have deflationary consequences?

2,000 rupees is 30 USD at today's exchange rate.

I don't see why you wouldn't be able to exchange them at a money changer wherever you happen to be now, but for that amount it may well not be worth it.

The rupee is a closed currency, the OP was never permitted to take the notes of the country in the first place, so there is no way to change them.

You are allowed to carry up to Rs 25000[1] out of India.

[1] http://www.livemint.com/Money/xlZJZ0JJQ1xcx7792Vrt2O/DYK-You...

Only for Indians.

You effectively removed the money from circulation as soon as you took them out of India anyway. It won't make a lot of difference.

Doh! I was in India earlier this year and forgot to change currencies on the way out. Any ideas for a US national holding 9 of the Rs500 notes?

No can do. You're officially not allowed to remove rupees from India as far as I know: http://timesofindia.indiatimes.com/business/india-business/N...

That article is from 2013. They changed the law in 2014 - you're allowed to carry up to Rs 25000 out of the country.

Same problem! I always hold some rupee notes so I have some cash on hand until I get to my hotel. My plan is to find a co-worker travelling there over the holidays and give them a good exchange rate to cash them in.

It'd not be unusual even for a resident to be out of the country for a few months. They now need to figure whether it makes more sense to let the cash lying turn worthless or make a trip to "exchange" it!

Find a large currency exchange in the US and trade them for USD?

If you can make a visit by Dec 31, you can get them exchanged at a bank or post office. You may need an account. Details of exchange are not clear.

You can also get them exchanged at RBI offices by March 31st, 2017 [1]

http://economictimes.indiatimes.com/news/politics-and-nation...

You can exchange your old notes anytime after Dec 30, from a RB branch nearest to you. You just have to give a self declaration for it.

You should be able to exchange it at currency exchange places like travelex.

May be they will arrange something at an embassy.

500 and 1000 rupees case is very welcome and in this most of them will get caught particularly 1)corruption 2)cricket players & bookies 3)celebrities & politicians 4)Black money & Fake moneys & 7) jewelry shop Not only this in every government office they should stick the phone number of vigilance ,if any one is asks for the bribe immediate action should be taken. Only then in next couple of years we can proudly say that India is a developed country. Finally I appreciate that Prime Minister of India Narendra Modi for the great job and brilliant move.(Jai Hind)

I feel this just taxes the common man, who maybe through a sale of land or house does hold some money that hasn't been taxed. The Ambanis and Birlas and Adanis have front companies that definitely will be used to launder money. And they hold shares as well, which aids to money launder using their foreign companies...anyways..the Govt didn't bring a Paisa back from the big fish holding lacs of crores in Swiss accounts..now this!!! Property prices and all asset values will now how down like crazy!!!

What a nice trick! This news shall get dominated at several countries over the US election news.

This is a great move. Though I only hope that depositing whatever money you have is easy because all I can imagine now is kilometer long lines at every bank

I am not sure if it takes care of corruption completely to be true. Most of ministers and big business people, they have Swiss bank accounts. Though with UP elections coming, it may affect the heat. But again, the ministers are most corrupt and not sure how things will play there. At common man level, I am wondering how much will it help with inflation. Already in last year, the taxes are raised to such a high level that the investments there are already looking waste. With this move, when property prices will be high on paper, but lower in actual, it will also effect the property prices that were paid in full and I am including most of properties purchased by service class people or NRIs, with no black money. Not sure, but just going with words I am trying to draw a full picture here. My investments in India were devalued in last year because of taxes, properties prices are also highly affected. At least as one of one year, this will affect the property prices further. Will it even help common people to a large extent or is it uprooting old Indians while making foundation for lower classes.

I'm not sure why people are not focusing as much on the other major issue this step was taken for - Terrorism funding and economic destabilization attempts from across the border.

It is known that massive amounts of fake currency is circulating in the economy that have been brought in from Pakistan (kind of like a silent proxy war). Even though the current currency had measures to be distinguished from the fake ones, it was difficult to do so by the common person on the street. The RBI chief has mentioned that the new notes would make it much more difficult to replicate and should be easier to distinguish by a layman.

The above, along with the other massive benefits of addressing the black money issue, this move is definitely a winner. The introduction of UPI (Unified Payments Interface) [1] earlier this year and the heavier black money scrutiny will definitely help India move to a relatively more cashless economy.

[1] https://www.quora.com/How-will-the-UPI-interface-of-NPCI-cha...

India has faced menace of fake money and black money hoarders. Good move. I will bear the inconvenience for better governance.

Strange, in Pakistan it's the opposite Govt issued Rs. 5000 note which is equal to INR 3171 because otherwise people were using USD 100 bills .... and only making USD stronger locally.. I still don't get how they are going to keep big guys from keeping USD $100 ... I would keep an eye on USD vs INR in coming weeks

Hoarding large amount of foreign currency is illegal in India as per foreign exchange management act.

In India USD is worthless. I don't know why people would use other country's money unless their own economy is under heavy stress like Zimbabwe or Colombia.

This isn't true at all. You can't buy an auto ride, but USD and Euro are used as reserve currencies. If nothing else, inflation is significantly lower than for rs.

A surprising number of people have asked me if they could change their black money with me for dollars at favorable rates.

Can you use USD as currency in India? I haven't seen a single place that would accept that.

You can't buy regular items (e.g. a dosa) with USD except maybe at the airport. From what I'm told, USD is sometimes on the table as currency in black money transactions. I don't know the specific mechanics of it - I'm a firang with no black money.

Black money and such a large parallel economy had become a big problem. And like it or not, we were being forced to stay a part of it while trying to get out of it.

This sudden demonetisation has not curbed the problem, but it has hit a RESET switch on the parallel economy (black money). That is great news. First, people will not want to lose their money and this will result in huge tax-inflows. Second, some people will get prosecuted for tax evasion - sending a strong signal. High tax rates will still drive a small percentage of people to evade taxes. But upgraded technology will delay recurrence of large scale black money problem, probably for decades to come.

Long queues at ATMs and petrol(gas)-stations. I thought it could turn into an anarchy kind of situation. But most people feel happy about this inconvenient but necessary decision.

I am personally not sure about the impact of this. I am hoping it will bring some positive change, Indians do have a habit of hoarding huge amounts of cash. It's not something specific to "black money hoarders".

Anyway I pity the bank employees for the coming few weeks!

Interesting no mention about gold, land or other valuables. This hits hard on the middle class who were holding money. Then there are ultra rich, for whom may be they are holding anywhere between 0%~30% of their black money in cash, others in other investments. For them, this is not a big issue.

Some American economists have proposed doing something similar for large dollar bills:

http://www.wsj.com/articles/the-sinister-side-of-cash-147213...

As luck would have it, I've recently started work on https://tillbill.in - kept thinking it would be great to have an easy way for individuals and small businesses to run the work cashless.

I think Znews misunderstood the GPS thing.

I think the notes have some sort of unique digital ID.unique ID's are not new(we had serial numbers before),but they were difficult to keep track of(bankers can't keep noting serial number of every big note they take or give).but the bank counting machines can now track these numbers in real time,and catch if they find a unique ID is not unique anymore(duplicate). This will mainly help with the counterfeit notes problem.

The black money problem will be helped because they will have to declare or lose their black money during the exchange.

2 birds with 1 stone.. well played modi

500 and 1000 rupees case is very welcome and in this most of them will get caught particularly 1)corruption 2)cricket players & bookies 3)celebrities & politicians 4)Black money & Fake moneys not only this in every office they should stick the phone number of vigilance if any one is asks for the bribe immediate action should be taken only then in next couple of years we can proudly say that India is a developed country. Finally I appreciate that Prime Minister of India Narendra Modi for a great job.

This is interesting that is coming off following a tax evasion amnesty.

I never thought any politician can make such decision. Modi just made something really big announcement for making India much better than we guys can imagine. I love this move.

I just love Modi Ji's deadlines. Always do it NOW mode. :)

Can somebody help me here? I am outside India with some cash in 500 and 1000 notes which I keep for immediate use when I arrive in India. What should I do in this case?

Unless you can reach a bank, or postoffice in India, it would be difficult to exchange your cash at full value. If you have a debit card with you, you can simply withdraw from ATM upon your arrival in India. In this case you can forget your cash for now, you can exchange it once you are in India. You can do so after Dec 31st too. If you do not have a debit card with you, I guess you could call a friend to pick you up at Airport. You could also try your luck with a local Currency Exchanger where ever you are, and ask for a change into 100 rupee notes. It will be costly, but it might work.

The timing is also appears to be aimed at significantly reducing cash availability for elections in the big states of Uttar Pradesh and Punjab which should come in Jan-Feb.

During elections, there is massive voter etc bribery with currency that tends to happen and political party workers tend to intimidate merchants into funding them. Undoubtedly the key political parties have already stashed cash for the elections and all of a sudden, the cash is useless.

Fighting illegal black economy is fine, but withdrawal of notes is not for that. There are other hidden agenda to this. RBI cannot go back from its promise of providing the value of the currency. This is psychological experimentation. Today Rs. 500 is withdrawn, tomorrow all currency could be withdrawn. This trying to deploy state power but without bearing any fair cost

There are 16.5 billion notes of Rs. 500 denomination & 6.7 billion notes of Rs. 1000. This is going to be a humongous recall exercise.

The fun has began. Suddenly there are more vehicles roaming around late night than usual. Big Bazars are open even past 11:00 PM which used to close at 9:00 PM daily. Tried withdrawing Rs 100 Notes from all the ATMs in the neighborhood but other people got there first. Now ATMs are left with only Rs 500 and Rs 1000 denominations. :D

reminded about demonetization in 1991 of the 2 top bank notes of USSR - 50 and 100 rubles notes. Similar purpose - supposedly only dishonest corrupted officials, thieves and black market people had significant amount of money stored using those notes. Also USSR government claimed that a lot of those banknotes were brought into the country from outside(!) - supposedly as economic operation against USSR (sounded back then like propaganda crap, so i never even tried to research into it). USSR was already on its way out and that shock (in particular causing significant ruble inflation acceleration) to the already dying economy, was basically the last - half year later USSR de-facto disappeared :) (hi! to everybody who remembers those "exchange money" guys hanging near subway stations back then)

http://www.nytimes.com/2016/05/05/business/international/ecb...

You have to deposit all these notes in your bank account, from which you can get new notes. Anyone hoarding huge amount of black money in cash can't go to bank with it, and his money will turn worthless. Diluting such money will easily erode 20-40% value. So definitely a bold move.

They'll probably buy houses above market value. The seller can declare the money and pay taxes on it. The houses can be sold again one by one over the next years and the money legalized. Basically an easy way of laundering it. Still good for the state as the money is taxed.

He can still go to the bank with it, assuming it is legally obtained, would have to pay income tax, however.

if it is accrued over years, they'll have to pay some percentage as penalty over the regular tax rate.

Maybe not the right forum to ask, but given the expertise on India here it's worth a shot. I exchanged euro to INR (cash to cash) about 50K INR. I did not keep the receipt. What would be the easiest way to get the money exchanged or transferred to my (Irish) bank account?

Though it sounds like a bold move, it will not be a Richs to Rags story, most of undeclared wealth is already invested in Gold and Property (in proxy names).

A lot of people having undeclared wealth are going to lose 1% to 5% their wealth (which had held as cash for liquidity), no big deal.

I presume this will not be the right forum to ask. But I'm a foreigner and I exchanged euros to INR for about 50K INR (cash to cash). I didn't keep the receipt for this. How could I get my money exchanged or transferred back to my (Irish) bank account.

No, to whoever thinks that one will be able to buy gold or property with their black money because the seller will have declare where the money came from even if he pays taxes and will lead to the guy with the stash who won't be able to explain it.

This has nothing to do with paying taxes. I paid all my taxes and I bought Indian Rupee to take a trip to India and now my trip is a waste. I cannot go because my Rupee is no good and I cannot exchange it at Chase Bank where I bought the currency.

Regardless of how this might help with "black money" (which seems to be a bit of an overhyped political bogeyman), any attempt to decrease the value or purview of cash is bad news for human rights. When all legal money is in government-controlled banks, you open up the door to all sorts of nastiness including political account freezes, government theft of funds, forced negative interest rates, etc. I personally have had my account frozen and had money taken by lien due to a paperwork mistake at the state comptroller's office. It took a few days for them to fix, and Wells Fargo charged me "legal fees" I never got back, so I have a dim view of any government action that makes the use of cash less convenient, less liquid, or less legal. 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.

> 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.

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.

>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.

Do you have a scientific study backing this up? You just restated the claim that it is a problem.

cash has always been a hot potato, particularly in india, due to high inflation.

the elephant in the room remains real property registration / valuation / tax reform.

only a matter of time. This is one of the silver lining's of the modern surveillance state.

Eh? What does this have to do with surveillance?

Seriously? Tracking every transaction gives a complete illumination of every individual's life to any government.

This is not tracking any transactions, though? What the cash does once it's out in the wild is not known to the govt.

Yes, but now government is calling back all the cash in the wild. I think they are planning to write down who has how much when they bring it in, I believe in a ledger called a bank account.

What if people just keep accepting it, just not through formal banks? Paper money is worth what people think it's worth. If some money/object moves outside the banks anyway, perhaps it won't be completely worthless.

That's a reasonable question. It's possible the 500 and 1000 notes will be relegated to large, all-cash transactions where the goal is to avoid taxes. But I imagine that some amount of osmosis will _have_ to take place. You can't buy food or pay for gas with a 500 note after all; probably any businesses found accepting them would face charges.

And if you can't use them for anything except real-estate purchases and the like then their value is going to decrease over time. The number of 500/1000 notes will asymptotically approach zero over time as they get converted through official or unofficial channels.

The deadline to exchange the current currency is through March 2017. I am sure there will be folks who would accept the old currencies at discount if they think they can get it exchanged at the bank without getting Government scrutiny. However, this will only work if you have small amount of black money. There are rich folks in India who have millions of Rupees in black currency and there is no way they will be able convert all that cash without declaring it and paying tax on it.

Well, people won't be stupid enough to keep accepting it. They need to pay tax at the end of the day. They need to move along with the economy. Unless you can mobilize 1.2 billion people to not accept this, which probably breaks down the whole economy itself.

Ummm, no, you can't buy gold or property either with the money now because even if the seller pays taxes he had to declare where the money came from and how would that get explained

India is a country where property transactions are rare without a significant portion in hard cash.

If this move has to be any good as advertised, then property prices should take a hard hit.

This is a strategy copied from China. They did same in 1970-80's. Funny part is this is trying to get money from within Indian economy and wasting on govt and pet projects. The promise to re-patriate black money stashed outside India nowhere in sight. China bring in fugitives and money back even from official who took US citizenship. Modi can just dream of it and take money from hardworking Indians living in India.

Populist measure to increase vote bank and divert attention from original promise to bring back black money from abroad to India.

> This is a strategy copied from China. They did same in 1970-80's.

Citation needed.

USSR did that quite a few times. They'll invalidate existing bills and you would only be able to exchange a few of those.

Do this enough times and people will rightfully call the local currency "wooden", and switch to USD for any large transactions.

https://en.wikipedia.org/wiki/Monetary_reform_in_the_Soviet_...

Rouble also became worthless in the following years, Venezuela-style. Accompanied by Venezuela-like poverty.

India did this once already . 1978 - all denominations gt than 100 INR were demonetised

https://indiankanoon.org/doc/1547/

That does not sound like a secret plan sprung on the people with surprise.

Note for every Indian: never accept Rs 500/1000 even from known people anymore (there will be too much fake notes circulating these days).

Has somebody better idea than this to curb black money and counterfeit? If not, shut up and watch next.

India gave no warning on Rs. 500 and Rs. 1000 notes. How are we suppose to cash in the ones we have?

Go to a nearby bank with your ID

How many days other countries given their people for exchanging currency??

I guess Indian Economy is going to grow and will be controlled well...

Good. Now get rid of the crore and lakh "decimal" craziness.

This has downstream implications on:

1) Voting and democracy. No one can easily buy off votes for Rs.500 or Rs.1000. 2) Real estate transactions. 3) Gold transactions. Now I bet you cannot sell off gold that easily as you would not be given cash in return.

For reference (assuming 1 US Dollar = 66.205 Indian Rupee):

Rs. 1000 = $15.10

Rs. 500 = $7.55

All black money and hoarders will cry to sleep today.

Or quickly buy real estate/gold/farm land above market value. The seller declares the money and pays the tax, the buyer successfully legalized it.

A lot of that will probably be subject to corporation tax. Government still gets a nice boost.

Definitely! I don't doubt that and like the move. But I don't think anyone will be charged with corruption or tax evasion because of it.

But I'm not from India, so pure speculation.

Nope. When the seller deposits the money, they'll have to declare sources, including the PAN number of the buyer.

Not so easy. If I buy something for $1 million, I'm going to have to account for the source of that money.

One of the most idiotic decisions ever - just wait and watch the anger on the streets in the coming days. India is not ready to be a cashless economy - it is eons away with its illiterate masses.

It's not about going cashless at all. New notes for 500 Rs and 2000 Rs are coming soon.

Read: http://capitalmind.in/2016/11/black-money-is-dead-long-live-...

Who said India will become cashless? Illiterate and poor masses don't have to worry about how to transact in electronic money. They can happily have cash, whatever little amount they have and enjoy just like they are doing today. Its just the elite goons that will have trouble.

You clearly don't understand the implication - wait and watch

Indian Economy is going to be Increased well

I don't think There will be any positive change but the businessmen will suffer as think how will they run thier shop as some shops are costly ones

Aww man, I just lost $15 USD worth!

All those trees. Sniff.

Could someone fix the title, please? The notes aren't being made illegal, they are just ceasing to be legal tender. There's a big difference! Right now, the title is clickbait.

But they are illegal to use for any monetary transaction. I read it like that.

No.

Using an arbitrary piece of paper for a transaction isn't illegal, is it? If two individuals in India agree to an exchange of goods, but with USD instead of INR, that isn't illegal, is it? It's just that whoever received that amount in USD can't deposit it in an Indian bank; not without converting it into INR in the first place, at which point they're effectively depositing INR.

Replace USD above with any paper currency, or non-currency paper for that matter. If you have someone willing to take a piece of paper from you in return for something, there, you have a transaction. It's just that, the other person would be unwise to accept a piece of paper they can't put to use.

A ₹1000 note being "not legal tender" simply means that no Indian bank will accept it being worth one thousand INR. If someone wants to accept such notes in return for anything, they can; they just can't deposit it in an Indian bank (after December 30).

A ₹1000 note being "illegal" would mean that it would be a crime to possess, offer, exchange, display, disperse, aerosolize, or apply some other action or combination of actions to it that isn't otherwise illegal already.

And that, is not the case.

I thought the same too. But in layman's terms, both are same.

No. You're not going to go to jail or be fined for possession of these notes. They're just going to be valueless.

HN seems to push this link down the first page.

The link above[0] this was posted 5 (2hours for this) hours back, and have 146 (197 for this) points and 60 (108 for this) comments. How can that be?

How does HN actually work?

[0] https://news.ycombinator.com/item?id=12894192

80% India's economy is running on black money; Without black money people will kill each other; Futile attempt; http://www.dailymail.co.uk/indiahome/indianews/article-39179...

Why not just adopt US dollar?

America will promote FDI for you;

America will print currency for you;

America will prevent hawala for you;

America will fight terrorism for you;

America will prevent inflation for you;

America will prevent black money for you;

America will prevent fake currency for you;

http://qz.com/260980/meet-the-countries-that-dont-use-their-...

Let me throw some Zerohedge-like news into the mix.

i) Indian Banks are being setup for a collapse.

ii) India is being setup as a prototype cashless big-brother-esque society (what with UIDAI and all).

Paranoia, yes, but well-worth it to keep in the back of the head.

I am not at all comfortable with the elimination of paper currency no matter what the rationale proffered by politicians and government hacks. Control of people from the top down is an ever present risk and cash money has a strong offsetting influence to the nefarious plans of would-be dictators.

Put another way: Government is not benevolent and never can be. We should all be very careful.

> I am not at all comfortable with the elimination of paper currency

Then it's a good thing that paper currency is not being eliminated. Cash continues to be legal. Some banknotes are eliminated, and new ones are introduced.

I came back to rub it in your face--they are in fact eliminating the higher denomination bank notes. It is a global ploy to support an agenda that has not yet been revealed.

Who's eliminating paper currency?

Oh, I don't know, in the past 12 months I have read numerous articles floated as trial balloons for the Euro, the USD, and others.

India is creating a specie exchange in order to gain a tax foothold.

not sure about economics , but is NGC proposed ( Nano GPS Chips) a privacy concern?

> NGC proposed ( Nano GPS Chips)

Such a thing is neither possible nor wise, and thus, doesn't exist. Where did you get something like this from? Check your sources.

ah thanks - turns out to be a hoax - http://trak.in/tags/business/2016/11/08/rupees-2000-currency...

shouldve thought abt that first :)

Reply on news.ycombinator.com