Swarajya Logo
Swarajya Logo
Politics States Economy Society Business Culture Infra Defence World Books Ideas Science Technology Heritage Archives Legal Movies Sports
  • Our Views
    Politics States Economy Society Business Culture Infra Defence World Books Ideas Science Technology Heritage Archives Legal Movies Sports
  • Magazine
  • Store

About Swarajya

Swarajya is a publication by Kovai Media Private Limited.

Swarajya - a big tent for liberal right of centre discourse that reaches out, engages and caters to the new India.

editor@swarajyamag.com

Useful Links

  • About Us
  • Subscriptions Support
  • Editorial Philosophy
  • Press Kit
  • Privacy Policy
  • Terms of Use
  • Code of Conduct
  • Plagiarism Policy
  • Refund & Cancellation Policy

Useful Links

  • About Us
  • Subscriptions Support
  • Editorial Philosophy
  • Press Kit
  • Privacy Policy
  • Terms of Use
  • Code of Conduct
  • Plagiarism Policy
  • Refund & Cancellation Policy

Participate

  • Contact Us
  • Write for us
  • Style Guide
  • Jobs

Stay Connected

  • Artboard 2 Copy 6Created with Sketch.
    Artboard 2 Copy 10Created with Sketch.
    Artboard 2 Copy 7Created with Sketch.
    Artboard 2 Copy 9Created with Sketch.
  • Andriod Logo
  • IOS Logo

Economy

As RBI Pumps In New Rs 200 Notes, It’s Time For DeMo-2 – Slow Withdrawal Of Rs 500 And Rs 2,000 Bills

R JagannathanWednesday, July 5, 2017 11:56 am IST
A bank staff member counts Indian 500 rupee notes to give to customers. (INDRANIL MUKHERJEE/AFP/Getty Images) 
A bank staff member counts Indian 500 rupee notes to give to customers. (INDRANIL MUKHERJEE/AFP/Getty Images) 
A bank staff member counts Indian 500 rupee notes to give to customers. (INDRANIL MUKHERJEE/AFP/Getty Images) 
  • The case for DeMo-2 is strong, and it should be put into effect without fanfare as soon as enough Rs 100 and Rs 200 notes are printed.
  • The Rs 2,000 and Rs 500 notes can then be withdrawn and squeezed out of the system without any disruption.
  • With the new Rs 200 currency note now in the process of being printed before release to the public, it is time to think about DeMo-2 – a non-disruptive and slow phasing out of higher-value notes printed in a hurry between November 2016 and now to replace the demonetised Rs 500 and Rs 1,000 notes.

    For a start, we must assume that some of the short-term goals of demonetisation – a huge revenue bonanza from notes that didn’t return to the system, a large increase in tax revenues – have either not been realised or even been overwhelmed by the losses in national output and jobs. DeMo-2 is important to salvage some long-term gains which may include the prevention of fresh accumulation of black money in cash, and use of counterfeit and other currency for terrorist and other illegal operations.

    Demonetisation (DeMo-1) was disruptive because in one fell swoop, 86 per cent of the currency in circulation (in value terms) was withdrawn, and the replacement took more than three months.

    DeMo-2 will be totally non-disruptive, since the idea is to stop printing the new Rs 500 and Rs 2,000 notes, and withdraw them steadily whenever they return to the banking system. At some point in the future, when there are enough Rs 100 and Rs 200 notes to replace them with, one can even give holders a six-month window for exchange and full withdrawal. But this may not be needed at all.

    DeMo-2 is important for three reasons:

    One, large value notes are easier to store, and hence they will continue to be held as black money hoards. Replacing high-value notes with Rs 100 and Rs 200 notes whenever black money is generated will be tougher, for storage and movement becomes more cumbersome.

    Two, counterfeiting and smuggling of fake notes becomes easier for India’s enemies like Pakistan when fewer notes must be carried in. Moving huge wads of smaller denomination notes across porous borders becomes tougher. According to the Reserve Bank of India’s last annual report, in 2015-16, 221,447 counterfeit notes were detected with a face value of Rs 100, 261,695 notes were in Rs 500 denominations, and 143,099 in Rs 1,000s.

    But here’s the point: the value of counterfeits detected was disproportionately high in the higher-value notes: while only Rs 2.2 crore worth of Rs 100 notes were detected, the value of counterfeits in the Rs 500 and Rs 1,000 categories were Rs 13 crore and Rs 14.3 crore respectively. And, remember, these were only the notes detected; a lot more may have been sloshing around undetected.

    Another worrisome thought: what if the DeMo rush to exchange old notes, a lot of counterfeits got exchanged for good money?

    Three, even for local transactions, once the top currency values are reduced, it will be more convenient for citizens to pay by card or e-wallet than in Rs 100-Rs 200 notes. This will give a nudge to digital currencies and non-cash modes of payment, at least in high-value transactions.

    The case for DeMo-2 is strong, and it should be put into effect without fanfare as soon as enough Rs 100 and Rs 200 notes are printed. The Rs 2,000 and Rs 500 notes can then be withdrawn and squeezed out of the system without any disruption.

    DeMo-2 need not even be announced, for all it requires is for the government to put out larger quantities of smaller value notes whenever the larger denominations come in.

    Tags
    Pakistan
    RBI
    black money
    Demonetisation
    Currency Notes
    DeMo 1
    DeMo 2
    Digital Currency

    Comments ↓

    An Appeal...


     

    Dear Reader,

     

    As you are no doubt aware, Swarajya is a media product that is directly dependent on support from its readers in the form of subscriptions. We do not have the muscle and backing of a large media conglomerate nor are we playing for the large advertisement sweep-stake.

     

    Our business model is you and your subscription.  And in challenging times like these, we need your support now more than ever.

     

    We deliver over 10 - 15 high quality articles with expert insights and views. From 7AM in the morning to 10PM late night we operate to ensure you, the reader, get to see what is just right.

     

    Becoming a Patron or a subscriber for as little as Rs 1200/year is the best way you can support our efforts.

    Get Swarajya in your inbox.


    Magazine


    Swarajya Magazine Cover Image
    Merchandise

    Merchandise


      Politics

      Not Like The Old Times: BJP's Feeble Victory In Rajasthan (Part I)

      Not Like The Old Times: BJP's Feeble Victory In Rajasthan (Part I)

      Venu Gopal Narayanan
      13h

      "Not Winning Solely On Modi's Popularity": Prashant Kishor Lists Out Four Reasons For BJP Victories In Three States

      Nishtha Anushree
      15h

      AIADMK Leadership Dispute: Madras High Court Rejects Sasikala's Bid For AIADMK Interim General Secretary Status

      Bhuvan Krishna
      18h

      Economy

      India Anticipated To Be Fastest Growing In Next Three Years, Set to Become Third Largest Economy By 2030: S&P

      India Anticipated To Be Fastest Growing In Next Three Years, Set to Become Third Largest Economy By 2030: S&P

      Nishtha Anushree
      19h

      Sensex Surpasses 69,000 For First Time As Investor Confidence Surges Post BJP Sweep In Three States

      Bhuvan Krishna
      21h

      Sensex, Nifty Close At All-Time High After BJP Victories In Three States, Record Surge Of Over 2 Per Cent

      Nishtha Anushree
      2d

      Defence

      On This Day, In 1971, Indian Navy Struck Pakistan's Naval Fleet At Karachi, Sank PNS Ghazi At Visakhapatnam, And Decimated Tanks In Longewala

      On This Day, In 1971, Indian Navy Struck Pakistan's Naval Fleet At Karachi, Sank PNS Ghazi At Visakhapatnam, And Decimated Tanks In Longewala

      Ujjwal Shrotryia
      16h

      On This Day, In 1971, Indian Air Force Struck Pakistani Installations For The Second Straight Day, Setting Stage For Historic Naval Raids On Karachi

      Ujjwal Shrotryia
      2d

      IAF's Mighty 'Mi-26,' Able To Lift Chinooks, Set For Overhaul With Russian Help

      Ujjwal Shrotryia
      2d

      World

      Moody's Downgrades China's Credit Ranking From Stable To Negative Citing Continuous Contraction Of Property Sector

      Moody's Downgrades China's Credit Ranking From Stable To Negative Citing Continuous Contraction Of Property Sector

      Nishtha Anushree
      16h

      Not Enough Joining US Military: Here's An Interesting Solution By A Senator — Let Illegal Immigrants Join, In Exchange For Citizenship

      Swarajya Staff
      21h

      Chinese Economic Crisis Deepens As Debt Defaults Reach Record High

      Swarajya Staff
      2d

      Culture

      'Celebrate At Home': Champat Rai Of Ram Janambhoomi Trust Urges Hindus Not To Visit Ayodhya On 22 January

      'Celebrate At Home': Champat Rai Of Ram Janambhoomi Trust Urges Hindus Not To Visit Ayodhya On 22 January

      Bhuvan Krishna
      22h

      'Animal': Sandeep Reddy Vanga 2 – Liberals 0

      K Balakumar
      4d

      Why The Insidious Anti-Hindu Communalism Of Certain Directors Goes Scot-Free

      Anonymous Contributor
      4d
      States

      infrastructure


      Arun Kumar Das
      1

      Delhi-Meerut-Ghaziabad RRTS: Power Supply Commences Beyond Priority Section On Rapid Rail Corridor

      2 Mins Read
      Amit Mishra
      2

      Groove On The Go: Delhi Metro Unveils Pilot Project For Audio Ads And Jingles

      1 Mins Read
      Amit Mishra
      3

      Vadnagar: Airport In The Works For PM Modi's Hometown, Central Team To Study Feasibility

      2 Mins Read
      Amit Mishra
      4

      Delhi-Meerut RRTS Corridor Achieves 67 Per Cent Completion, On Course For 2025 Deadline

      2 Mins Read