November 14, 2016

War on Black Money or Peace with Magenta Money?

Praveen Chakravarty, Visiting Senior Fellow at IDFC Institute explains why introduction of Rs 2,000 rupee note goes against the very grain of demonetisation of high value currency to prevent black money. 


"Perhaps the situation of counterfeits and illicit cash was so grave that it needed this ‘shock and awe’ cleansing action which other punitive measures could not achieve. Withdrawing counterfeit notes from the economy, in itself, would have made this a perfectly legitimate exercise. But the spin rhetoric of this being a ‘war on black money’ with all the theatrics of an overnight ban was perhaps unnecessary.


When all of the travails of currency exchange of old with the new is done and dusted, the fact remains that the new currency regime makes it easier to hoard cash than the older currency regime. It is argued that the sheer suddenness of this action will be a strong enough signal to instill fear to prevent future attempts to accumulate black money. This is a big leap of faith and a gross underestimation of the skills of the ‘bad guys’. But it still does not explain the need to make it easier to hoard illicit cash by introducing a Rs 2,000 rupee note. "


Read the full article here.

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