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Comment by h43k3r | Hacker News Reader

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

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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.

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.

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.

> 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.

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 guess what the OP meant was that the difference in what the highest note can buy is staggering.

Which is meaningless

It's just an observation that someone finds mildly interesting. Attaching "meaning" to it, on the other hand, is meaningless.

I wasn't particurarly supporting the argument that it is a foolproof way to measure buying power. Just that the decisions central banks make about their currency denominations aren't arbitrary and they do lend insight into the economies that they manage. The €500 probably isn't about buying power but it does tell something about the motivations for easing a transition to the Euro. In fact, now that the transition has been completed, the bill is being phased out. I wouldn't be surprised if that was the plan from the beginning.

Things in the UK are a little more complicated with their multiple central banks, but the £100 note is still being printed and while uncommon, it is in circulation throughout the UK.

Some £100 notes are circulated by some Scottish and Northern Irish banks (which are allowed to print their own currency), but given how rare the £50 note is, I'd expect the £100s be very rare even locally, and almost non-existent anywhere in England.

They almost certainly wouldn't be accepted anywhere except banks (many shops are suspicious of even low value non-standard notes), so I don't know if you can really call that "in circulation throughout the UK".

In the UK there are £100 notes, except they're only issued by a couple of banks. Here is an example:

http://www.worldbanknotescoins.com/2012/02/the-royal-bank-of...

I still remember the first time I got paid with cash, and received a couple of £100 notes. Most money I'd physically held in my hands up until then.

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.

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

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"

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.

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.

The new bills have yet to hit the streets, and the old bills don't count as long term stores of value. So, for a little while India is arguably 'without' Rs 500 and Rs 2000 notes.

Basically, they are no longer bills but checks with expiration dates.

The new bills will start circulating in 2 days.

Yep, but even tomorrow is not today.

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.

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