Got this msg from Amazon.in today & turns out that it’s been quite some time since the news floated on Media. So now that all media houses have stopped writing about it, I thought it best to give my unsolicited, unfiltered opinion on the move.
Exactly 2 months ago, the RBI decided to take INR 2,000 notes off the circulation train in pursuit of their Clean Note Policy. These notes will still be legal tender, so you can still flash them like a boss while shopping, but the important Q is of acceptance & not of allowance!
Back in 2016 when the demonetization drama unfolded, and Indians were scrambling to exchange their INR 500 and INR 1,000 notes, there was so much of chaos! But this time, it's not another demonetization show, just a smooth move similar to what the RBI did before.
But how is the move likely to impact the economy?
Brace yourselves, there's gonna be a flood of deposits in banks, which should lead to lower rates as the banks enjoy a liquidity boost. FD rates might wave goodbye, and lending rates will follow suit, making banks more credit-friendly. With lower rates, loan demands are gonna be knocking at the bank's door, benefiting the entire financial ecosystem.
Moving on to the legendary black money topic. There's a widespread belief that this move will flush out the infamous black wealth. But here's the tea: those with serious black money stash don't keep it in cash! It's just a teeny tiny portion, folks!
There’s a White Paper on Black Money that states that based on data, cash forms less than 1/20th of the total undisclosed wealth - yep, very minuscule indeed!
But yes, there will always be stories of the few who get caught and make headlines. But those are the rare exceptions that prove the rule!
Back in 2016, pundits made the prophecy that 1/3rd of the demonetized money will not return to banks.
It turned out to be hilarious because over 99% of it found its way back home!
This time it’s different. For Rs 2,000 notes, notes worth only Rs 3.62 trillion - only 10.8%, which is a little over 1/10th of the total available currency [as of 31.03.2023] is saying goodbye.
In 2016 de-mon, this proportion was more than 86%. So, if 86% of the currency can come back without any repercussions, how difficult will it be for 10.8% of the currency?
As per RBI, as of July 1st week, 76% of the Rs 2,000 notes have already made their way back to the banks, taking the scenic route of deposits, of course! Because in India, who doesn't love a trip to the banks for depositing cash, right? 🏦
In India, you can effortlessly transfer 50K to your friend through a world-class UPI system, but if you need to deposit 50K of cash in 2000 Rupee notes, be ready for an adventure at the bank - Plan to visit a bank, stand in queue for 45 mins, fill pointless forms, and then stare at the clerk for 7 mins while he angrily stamps the deposit slip.
Now, back speculative thinking - for all advocates of “This is done to prevent black money”.
In the current scenario, individuals with undisclosed money, even in the form of Rs 2,000 notes, are compelled to trust other forms of currency. As high-denomination notes may be subject to recall in the future, there is a possibility that black money in cash will be rapidly converted to assets like property, gold, and other valuables.
This could lead to increased cash accumulation by builders. Let’s extrapolate this to the strong nexus between builders and politicians.
With cash flowing into the hands of politicians, it may find its way into election funding, potentially converting some black money into white and even leading to funds being transferred abroad to tax havens.
I know I’m thinking too far-off, but just being a devil’s advocate, I clearly do not see this move as one against Black Money. To say the least, the situation highlights the complexities and consequences of dealing with undisclosed money.
Disclaimer: This post is for educational purposes only & I am not a SEBI regd. financial advisor. Kindly do your own research before taking investment/trading decisions.
Feel free to reach out to me for any queries, suggestions, or just a quick chat!
Till then, stay safe, stay invested!
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