Policy Measure: New Currency Notes

In a recent move, the Indian government ceased the validity of the old currency notes of Rs. 500 and Rs.1000. These will be replaced by a new form of Rs. 500 notes and introduction of an all new Rs.2000 notes.

What is the significance and the importance of the move?:

It will tackle:

  • Black/concealed/ unaccounted money of various businesses or politicians among others across the country.
  • Will curb Money laundering*.: 
  • Will tackle the terror financing . Black money could be used to finance terror groups
  • Will hit the counterfeit currency* holders and circulators.

*Money Laundering: A mechanism through which the illegal money is transferred to conceal its origin and in turn legalize it through the involvement of legitimate business or foreign banks. Hawala transactions is one of the commonest way to carry out this process of laundering.

*Counterfeit Currency:  Fake currency notes with considerable similarities to the original ones. This has a counterproductive impact on the economy as the liquidity is a duped one. It also creates a trust deficit between the consumer and the currency.

How black money can be tackled with this?

Those with unaccounted money or black money will no more be having legal tenders(money that is acceptable). Also, they could not come out with this money to swap it with banks as it is unaccounted and unreported or illegal money. This way the concealed money would now be tantamount to the accrued dust at their homes.

Has all the money gone waste?

This is not so for the honest and white money keepers.

  • You can get your currencies swapped with the new ones from 10th November to 30th December(50 days). All you need is an which may be a PAN or Aadhaar card). However, per day limit of swapping would be Rs. 4000.
  • You can deposit these notes into your bank account and withdraw new currencies from the ATMs soon.
  • You can also deposit the old currencies in the post office.

Is there any negative impact of such a move?

Yes, there would be a negative impact in short term:

  • GDP may face a slowdown in short-term as the investment may suffer(however, it will pick up in long-term).
  • Small businessmen who carry on their transactions in cash may suffer for a month or two till the condition stabilizes.
  • Stock markets may slump down due to a sudden withdrawal of money.
  • The majority of the population of India is still not using cashless means for transactions like credit card, m-payments etc. This would affect the accessibility to the commodities which require medium to big payments.
  • Has led to sudden rushing up to commodity stores, petrol pumps, etc. thus, destabilising the public order.

On one side we have we have eliminated Rs.1000 notes and on the other side, we have introduced Rs.2000 notes? Is it a paradox?

Not really. Yes, the government has introduced notes of greater value which may again be used for illegal purposes as earlier. The need is to introduce it with greater security features. It has been rumored that the 2000 Rupee notes embed a Nano-GPS Chip in it which would allow its tracking anywhere in the world through satellites(even up to a depth of 120 m below the earth). However, it has not being corroborated by the Reserve Bank.

How does the new currency look like?

Like this:

 

 

 

 

 

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