Wednesday, November 9, 2016

Modi's War on Cash

Last night in a surprising and an unexpected move PM Narendra Modi appeared on the national television and started announcing that his government overnight is going to ban the use of old 500 and 1000 rupee notes. In his own words, those notes will no longer be the legal tender; they will be just pieces of paper.The communique from the department of economic affairs stated the goals of this move:
With a view to curbing financing of terrorism through the proceeds of Fake Indian Currency Notes (FICN) and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contrabands into India, and for eliminating Black Money which casts a long shadow of parallel economy on our real economy, it has been decided to cancel the legal tender character of the High Denomination bank notes of Rs.500 and Rs.1000 denominations issued by RBI till now. This will take effect from the expiry of the 8th November, 2016.
So the Modi government wants to tackle terrorism and black money corruption by implementing this ban. The immediate effect of this ban on the Indians is pure hardship. Already the old notes are being turned into pieces of paper as the below photographs show. This very clearly exposes the present monetary system of fiat paper currency. Fiat rupee is not money. It is just a piece of paper which is useless.



Notwithstanding the reasons given by the government, what is the real reason behind banning cash like this? What will be the consequences of this ban on the Indian economy in future? Will it achieve those stated goals? In my latest economic analysis I answer all these questions below:

 

2 comments:

  1. That was an excellent video as usual. But isn't it a travesty that the middle class who is looted by the Government, is its biggest supporter? And which country could one look into for immigrating to, now that Trump has captured USA?

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    Replies
    1. Well, whether they are now biggest supporter or not we will only come to know next year in UP and Gujarat election. People can say anything on camera and in public to avoid troubles, but they will vote their hearts inside the ballot box during elections. And if they are supporting it is because they trust Modi to do something and ready to give him some time or they don't understand economics of this move.

      For immigration I am not an expert but one can look at New Zealand, Australia, Malaysia, Singapore, Hong-Kong, few Latin American countries or may be East Europe like Estonia, Lithuania etc. It depends on the reasons for which you want to immigrate. I feel UK is good too after Brexit. And if Trump follow right policies then USA can be good again although I see little chances of that happening.

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