World India grapples with the effects of withdrawing 86% of cash in circulation

Discussion in 'Headline News' started by tom_mai78101, Nov 27, 2016.

  1. tom_mai78101

    tom_mai78101 The Helper Connoisseur / Ex-MineCraft Host Staff Member

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    A NEW strain of trickle-down economics has been spawned by the decision, on November 8th, to withdraw the bulk of India’s banknotes by the end of this year. As holders of now-useless 500-and 1,000-rupee ($15) notes rushed to deposit them or part-exchange them for new notes, an e-commerce site offered helpers, at 90 rupees an hour, to queue outside banks in order to save the well-off the bother.

    Elsewhere, a chronic shortage of banknotes in a cash-dominated economy has left most trades depressed. Seven out of ten kiranas (family-owned grocers) have suffered a decline in business, according to a survey by Nielsen, a consultancy. Supply chains, in which wholesalers and truckers deal mostly in cash, have fractured. Some 20-40% less farm produce reached markets in the days after the reform. City folk admit to hoarding the 100-rupee note, the largest of the old notes to remain legal tender. Taxi drivers refuse to break the new 2,000-rupee note. Road-tolls have been suspended until at least November 24th, to prevent queues. Beggars have disappeared from parts of Delhi; no one has spare change.

    India’s prime minister, Narendra Modi, is gambling that this temporary pain will be worth it. His goal is to flush out “black money”, stores of wealth that bypass the tax system, finance election campaigns and grease the wheels of high-level corruption. An enforced swap of high-value notes, say the reform’s boosters, acts as a tax on holders of illicit wealth. The element of surprise is disruptive but without it, there would be time for black-money holders to launder their funds by purchasing gold, foreign currency or property. A tight deadline makes it hard for holders of large stashes of notes to swap or deposit them without alerting the tax authorities.

    This swiftness comes with a cost. Aside from cases where hyperinflation has rendered a currency worthless, such swaps generally take place over long periods to avoid disrupting commerce. GDP growth might be as much as two percentage points lower this quarter and next before returning to normal as the money stock is replenished, reckons Pranjul Bhandari of HSBC, a bank. Much depends on how quickly new cash can be swapped for old. It has not been a smooth process so far. The Reserve Bank of India (RBI), which issues notes, waited for six days before setting up a task force to ensure ATMs could dispense the new 2,000-rupee note. Only a quarter of ATMs in four big cities were full on November 21st, according to Goldman Sachs.

    Read more here. (The Economist)
     
  2. Varine

    Varine And as the moon rises, we shall prepare for war

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    Holy fuck. How long did they do this over? The article makes it seem like an overnight change.
     
  3. tom_mai78101

    tom_mai78101 The Helper Connoisseur / Ex-MineCraft Host Staff Member

    Ratings:
    +955 / 4 / -1
    It was just 1 night I think.
     
  4. Varine

    Varine And as the moon rises, we shall prepare for war

    Ratings:
    +832 / 11 / -1
    That would explain it.
     

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