Demonitisation of high denomination currencies of India, 08112016
PART 1
Initially like other creatures humans also were only using what Nature made for them. In contrast to other creatures humans advanced step by step to (I)storing(?), (II)producing/cultivating & (III)exchanging (bartering). Then would have come the concept of money (for ease of transaction/handling) made of valuables like metal, then Leather currency following material value of metal money exceeding its logical/monetary value, followed by Paper currency, Cheque/Draft and now virtual money like Bit-coin.
Theft must have been there right from the beginning. Counterfeit currency (produced by unauthorised/illegal sources) must have come as an advanced/sophisticated version of theft; Black money must be the aftereffect of taxation (to evade it)!
PART 2 DEMONITISATION
Counterfeit currency as well as Black money are headache & threat to Governments/rulers. Demonisation is a measure against those. It is analogous to sweeping a floor, washing a dress or taking a bath to cleanse the dirt. Hence it follows that it must be repeated periodically.
PART 3 THE PROCESS
It is invalidating one or more denominations of currencies in legal circulation/use, by a proclamation of the competent authority. From the time of the demonitisation taking effect, those currencies lose their monetary value & become simple pieces of leather/paper/plastic/cloth. Advantage is that the counterfeit currencies & black money in those denominations also turn invalid & useless, where bye getting removed from the legal structure of finance.
PART 4 SOME HISTORY
Demonitisation was resorted to, several times at different parts of the world. It was done in India during 1978, earlier. Then currencies of value Indian Rupees 1000, 5000 & 10000 were invalidated.
PART 5 IMPACT
Factors involved in impact of Demonitisation are:
1. Populatio size
2. % of population affected
3. Size of commerce by way of products (dress, footware, ornaments, watch/clock, ...), services, shopping, entertainment, hoteleering, tourism, healthcare, education, travel, transport/vehicles, fuels, housing so on & so forth.
During 1978 a small portion of the currencies only were of high denomination and a similar protion of it alone were in circulation with people; lion's share was with banks & at RBI Cash Chests. Moreover a neglegabily small portion of the population alone had access to the high denomination notes.
PART 6 WHAT WOULD HAVE HAPPENED PRIOR TO DEMONITISATION
Justification for demonitisation is sound, just & good. (The strategy or steps of implementation only goofed.) Having finalised the wise decision to demonitise high denomination (500 & 1000) notes, one of the 'modus operandis' suggested might have been something like: "Sir, by this 'I+J' number of notes will become useless. This vacuum is to be filled by next bank working day, sir. But for printing that many (I+J) pieces we need 'P' days with the four currency presses operating three shifts daily, sir. Ruling out information leaking in this long duration may be doubtful, 'am afraid sir. Instead if we print Rs 2000 notes, it would need less than half the time only to print that much money, sir. Distribution too will be faster & easier, sir. ", it is felt.
PART 7 THE MISSED THORNY SIDE OF THE SCENARIO
☆Advisors would have presented only the rosy side of the picture. There is a thorny side, left out!
☆Till 08112016 the gap between the highest denomination currency & the second highest one was just two (1000÷500=2) and the gap between second & third highest was five (500÷100=5).
☆Whereas, after 08112016 the gap between the highest denomination currency & the second highest one is 10 times larger, namely twenty (2000÷100=20) and the value of the third highest is only one-fifth of the earlier (Rs20 instead of Rs100).
☆The number of people making day-to-day transactions in multiples of 2000 is so less that the demand for smaller denominations skyrocketed these days & people (me too) stopped spending those freely. This could have been avoided by different strategies.
PART 8 PROBABLE SOLUTIONS
☆One could have been a different resource allocation from the beginning to increase availability of 500s by reducing that of 2000s from day one. (If 2000 is intended to be short lived, lot more homework is warranted.)
☆Another could have been introducing 800 instead of 500. When FOUR new 500 = 2000 only TWO new 800 + four old 100 = 2000.
☆Yet another could be NEW 800 & 400. TWO new 800 + ONE new 400 = 2000 (only 3 pieces required insread of 4 and 500 & 1000 not in picture).
pictureOART 9 GOING DIGITAL - WHAT I SAW AT A CROWDED BANK COUNTER ON 30112026
☆A customer submists withdrawal slip.
Staff: "is your account in this branch"?
"No"
"Then slip won't work. Have cheque leaf"?
"No"
"Have card"?
"Yes"
"Give"
After swiping, turning POS gadget to customer "Enter PIN"
Customer blinks!
Staff: "PLEASE ENTER PIN" Customer shouting "N1 N2 N3 N4" (ATM PIN to the staff!!!)
Most customers and staff stare at him.
☆Just remember how many years, by what all means banks etc had been educating customers about the risk of disclosing/sharing or even scribbling down the ATM PIN! GOI want/expect India to go digital OVERNIGHT.
☆What remains to be seen is the time when such customers part with their hard earned money!!
PART 1
Initially like other creatures humans also were only using what Nature made for them. In contrast to other creatures humans advanced step by step to (I)storing(?), (II)producing/cultivating & (III)exchanging (bartering). Then would have come the concept of money (for ease of transaction/handling) made of valuables like metal, then Leather currency following material value of metal money exceeding its logical/monetary value, followed by Paper currency, Cheque/Draft and now virtual money like Bit-coin.
Theft must have been there right from the beginning. Counterfeit currency (produced by unauthorised/illegal sources) must have come as an advanced/sophisticated version of theft; Black money must be the aftereffect of taxation (to evade it)!
PART 2 DEMONITISATION
Counterfeit currency as well as Black money are headache & threat to Governments/rulers. Demonisation is a measure against those. It is analogous to sweeping a floor, washing a dress or taking a bath to cleanse the dirt. Hence it follows that it must be repeated periodically.
PART 3 THE PROCESS
It is invalidating one or more denominations of currencies in legal circulation/use, by a proclamation of the competent authority. From the time of the demonitisation taking effect, those currencies lose their monetary value & become simple pieces of leather/paper/plastic/cloth. Advantage is that the counterfeit currencies & black money in those denominations also turn invalid & useless, where bye getting removed from the legal structure of finance.
PART 4 SOME HISTORY
Demonitisation was resorted to, several times at different parts of the world. It was done in India during 1978, earlier. Then currencies of value Indian Rupees 1000, 5000 & 10000 were invalidated.
PART 5 IMPACT
Factors involved in impact of Demonitisation are:
1. Populatio size
2. % of population affected
3. Size of commerce by way of products (dress, footware, ornaments, watch/clock, ...), services, shopping, entertainment, hoteleering, tourism, healthcare, education, travel, transport/vehicles, fuels, housing so on & so forth.
During 1978 a small portion of the currencies only were of high denomination and a similar protion of it alone were in circulation with people; lion's share was with banks & at RBI Cash Chests. Moreover a neglegabily small portion of the population alone had access to the high denomination notes.
PART 6 WHAT WOULD HAVE HAPPENED PRIOR TO DEMONITISATION
Justification for demonitisation is sound, just & good. (The strategy or steps of implementation only goofed.) Having finalised the wise decision to demonitise high denomination (500 & 1000) notes, one of the 'modus operandis' suggested might have been something like: "Sir, by this 'I+J' number of notes will become useless. This vacuum is to be filled by next bank working day, sir. But for printing that many (I+J) pieces we need 'P' days with the four currency presses operating three shifts daily, sir. Ruling out information leaking in this long duration may be doubtful, 'am afraid sir. Instead if we print Rs 2000 notes, it would need less than half the time only to print that much money, sir. Distribution too will be faster & easier, sir. ", it is felt.
PART 7 THE MISSED THORNY SIDE OF THE SCENARIO
☆Advisors would have presented only the rosy side of the picture. There is a thorny side, left out!
☆Till 08112016 the gap between the highest denomination currency & the second highest one was just two (1000÷500=2) and the gap between second & third highest was five (500÷100=5).
☆Whereas, after 08112016 the gap between the highest denomination currency & the second highest one is 10 times larger, namely twenty (2000÷100=20) and the value of the third highest is only one-fifth of the earlier (Rs20 instead of Rs100).
☆The number of people making day-to-day transactions in multiples of 2000 is so less that the demand for smaller denominations skyrocketed these days & people (me too) stopped spending those freely. This could have been avoided by different strategies.
PART 8 PROBABLE SOLUTIONS
☆One could have been a different resource allocation from the beginning to increase availability of 500s by reducing that of 2000s from day one. (If 2000 is intended to be short lived, lot more homework is warranted.)
☆Another could have been introducing 800 instead of 500. When FOUR new 500 = 2000 only TWO new 800 + four old 100 = 2000.
☆Yet another could be NEW 800 & 400. TWO new 800 + ONE new 400 = 2000 (only 3 pieces required insread of 4 and 500 & 1000 not in picture).
pictureOART 9 GOING DIGITAL - WHAT I SAW AT A CROWDED BANK COUNTER ON 30112026
☆A customer submists withdrawal slip.
Staff: "is your account in this branch"?
"No"
"Then slip won't work. Have cheque leaf"?
"No"
"Have card"?
"Yes"
"Give"
After swiping, turning POS gadget to customer "Enter PIN"
Customer blinks!
Staff: "PLEASE ENTER PIN" Customer shouting "N1 N2 N3 N4" (ATM PIN to the staff!!!)
Most customers and staff stare at him.
☆Just remember how many years, by what all means banks etc had been educating customers about the risk of disclosing/sharing or even scribbling down the ATM PIN! GOI want/expect India to go digital OVERNIGHT.
☆What remains to be seen is the time when such customers part with their hard earned money!!
