8th November 2016 will always be considered a day of great significance and the embodiment of newfound resolve to fight corruption by attacking Billions of Rupees hoarded over several decades in a number of decades. The impact of Demonetisation are not hidden from anyone with the economy being cleansed of several ills and the BJP posting a massive electoral victory which can be considered to be a referendum on the historic move.
With the old high currency notes coming back into the bank coffers there was a need to ramp up the production of new currency which was to replace the demonetized currency. The Government took a calculated move and introduced the Rs. 2000 currency notes that went a long way in tackling the temporary cash crunch in the market. Replacement of the old notes with notes of a similar value would have added to the inconvenience caused while the decision to print Rs. 2000 notes helped in tackling the shortage in a much faster way.
Now, that the high value notes have done their job its time to completely cleanse the system and as per the latest speculations the Government might be heading towards Demonetisation 2.0 by taking Rs. 2000 notes out of the system and replacing them with new Rs. 200 Notes.
What’s the need for Demonetisation 2.0?
Now, that the high value notes have done their job its time to completely cleanse the system and as per the latest speculations the Government might be heading towards Demonetisation 2.0 by taking Rs. 2000 notes out of the system and replacing them with new Rs. 200 Notes.
The high value Rs. 2,000 currency notes were a purely short term measure to reduce the workload that was inflicted post demonetization. In the long term they suffer from the same ills like easy storage and hoarding of black money, use for terror activities and counterfeiting. Similarly, smuggling and pushing in fewer notes and smaller wards becomes easier for India’s neighbouring enemies when compared to low value notes. Though the high value notes helped in tiding over the temporary shortage it has made the current series (10,50,100,500,2000) senseless with lower availability and greater demand of lower value bills. On the other hand, Rs. 200 notes would fit in the series perfectly.
Moreover, this may also incentivize the general public to make greater use of e-wallets and other cashless means in absence of any high value alternative and thus helping the Modi Government to move a step ahead in realizing the aim of a cashless economy.
Hoarders in for a rude shock:
If certain news reports are to be believed, the RBI has stopped the production of Rs. 2000 notes even as the focus turns onto the production of lower value Rs. 200 Notes. This hints at planned phasing out of the Rs. 2000 notes whereby the hoarded black money would remain as it is in the market and the untainted currency will come back into the Bank coffers which would help the Government in cornering the hoarded money. Since, high currency notes are as a general rule suspect of being hoarded this move will help in taking by surprise the hoarders by surprise, making them vulnerable and pushing them to the wall. Since, the Government will be moving ahead with much better planning, in a much more organized and as a result the exercise non disruptive the second round of demonetization is bound to garner greater success than Demonetization-I.
Conclusion:
Wait for another big bang demonetisation announcement by the Central Government! This could very well mark the end of the Demonetisation cycle and give it a meaningful conclusion. But with a Prime Minister in the office constantly trying to out-think and outplay the disruptive elements in the economy one can only guess with little conviction.