Money Matters: The era of phasing out currency notes is back

The question always pops in mind. Why did the Indian government introduce new Rs 500 and Rs 2000 notes and scrapped Rs 1000 notes? And again, the government is on the verge of phasing out Rs 2000 notes and focusing on Rs 200. It sounds confusing and looks confusing but has a bigger thought behind it.

In November 2016, the Indian government demonetised Rs 500 and Rs 1000 notes. It was not only just Indians but who were taken aback, but even world leaders, economists, and international organisations watched the bold experiment with mix of wonder and worry. Would it work as a means to crack down on accounted cash and counterfeiting currency? As the figures are speaking, Indian government’s move has left many people scrambling for cash, hitting consumption and thereby threatening GDP growth in India.

But was this move really bold move to eradicate counterfeiting and black money, or is there bigger picture behind and what will happen next to Rs 2000, when Rs 200 will be introduced. Not only India, but even Europe is on its way to phase out 500 euro note and introduce new series 100 and 200 euro notes. The European central bank will permanently phase out 500 euro note at the end of 2018.

The announcement of permanently ending the production of €500 banknote by the European Central Bank was taken in May, 2016, and after six Narendra Modi-led Central government to its decision of demonetising the Rs 500 and Rs 1000 notes. But €500 banknote will still remain legal tender and retain their value even after 2018. Even it is still not clear, but according to reports the Rs 2000 will also be a legal tender after Rs 200 are introduced.

So what makes them take this move whether it be India or Europe the move was taken to cut down suspected use in criminal activities like fraud and terrorist financing. Mainly higher denomination notes will are used during money laundering or for counterfeiting.

It goes beyond doubt that, given the phase out of the Rs 2000 note, any deposit will increase the chances of being reported to the financial authorities and therefore reduce the money laundering phenomenon. In order to curb fresh generation of black money, the Central government is preparing to gradually phase out the new Rs. 2,000 note. The government is also preparing to bring in laws to take penal action against hoarders of the new Rs. 2,000 note. While passing the Finance Bill, 2017, the government made an amendment where it allowed income-tax officials the power to raid anyone without citing any reasons.

So now the entire phenomena is clear about the demonetisation of Indian currency, and that the step is copied from European Central Bank. It is still unclear if it will help the GDP growth of India. Will it really help in curbing counterfeiting and money laundering, only time will tell. Well it will also be in everyone’s mind, what next? Which notes to phase out or new notes to be introduced? Well these questions can be answered by the Modi-led government which is currently keeping mum about all this.

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