Currency Demonetisation and Future course of Indian Economy

[Rishi Verma]

1cr in new notes found from Thane.
Good all resources being put to use.

We had ED, i-T, CBI, now Thane crime-branch getting into action.

[uddu]

Going by the run rate dec7(11.55 lake crore) to today dec13(12.44 lake crore) almost all of the money will come back

That's Nov 30 right? for 11.55 trillion So by that run rate till today we can expect mostly 1 more trillion? But yes the black money has to come. Also many of the deposits could be black...The question now is how the govt will identify these?

[Suraj]

They compare the prior IT filing of the person based on their Aadhar information and flag disproportionate deposits . Everything that's assessed as untaxed income is applied a 50% tax, and of the remaining 50%, half of it is required to be placed in the Pradhan Mantri Garib Kalyan Yojana scheme for at least 4 years. Note that all the deposited money must be proved to be from legal sources, i.e. vice money cannot be made white this way. All such money is confiscated entirely, plus penalty.

[jamwal]

Is it within law or somehow possible to use the valid seized currency notes ? I mean that people need these notes and govt should be able to pump these notes in to circulation . If the people caught are proven innocent and money has to be returned, is it essential that these have to be the exact notes or can they be reimbursed in a different manner ?

I suppose the seized currency notes would be used in trial too ?

[jamwal]

So 3 more trillions to net. BTW, do you have a link to the 15.44 trillion data? thx

There has been double counting, the actual deposit may be much lower:
http://www.firstpost.com/politics/demon ... 34788.html

Nothing like this in article

[suryag]

There has been double counting, the actual deposit may be much lower:
http://www.firstpost.com/politics/demon ... 34788.html

Nothing like this in article

Jamwal ji a recent case in Hyderabad gives a brief overview of the process

http://m.timesofindia.com/city/hyderaba ... 885988.cms

In short looks like it is converted to fixed deposit following photocopying of notes and then it is free to be used as found necessary.

[SaiK]

nearly 20% are corrupt! [so far, and satisfying the famous 80-20 analogy]. I doubt they will turn it in and get fined and subsequently jailed. They might have fakes and there is no 50% taxes for fakes. Fakes may be hidding under Kala box.

[Karan M]

deans, singha thanks for the info. akshay saar will mail you later. am on a mobile device.

[Karan M]

Higher denomination of Rs 2000 and 500, we have issued 1.7 billion notes in this period: R Gandhi, RBI #DeMonetisation Of which 20.1 billion pieces belong to small denominations of Rs 10, 20s, 50s, 100s: R Gandhi, RBI

hope its a different rgandhi otherwise we now know reason why note distribution was an issue. in morning i woke up at night

[ShauryaT]

Going by the run rate dec7(11.55 lake crore) to today dec13(12.44 lake crore) almost all of the money will come back

The new figures are dated for Dec 10.

[Karthik S]

Read somewhere about re-saving/re-depositing into bank accounts post Nov 8. Not sure if the figures above are net of these transactions. Other than that even if 1.5L crores of 14.5L Crores doesn't come back, that's still more than $20B.

[ShauryaT]

I know the type of responses that will dominate such a post, but it is important to raise the banner of a policy disagreement without recourse to partisan positions.

The main criterion by which to judge economic policies and institutions is whether they advance human freedom. On this standard, demonetisation is an unarguably regressive move

Among the many curious things about demonetisation is the ardent defence of this exercise by economists and economic commentators sympathetic to the government. It is as though the currency swap is being accompanied by an ideology swap. These economists had for years railed against the planned economy and had called for cutting back the state’s role in the management of the economy. They applauded this government’s decision to abolish the Planning Commission and replace it with the NITI Aayog. Yet, they would now have us enthusiastically embrace this massively statist policy. What’s more, they proclaim this as bold reform.

These debates are worth recalling because they remind us that the ongoing demonetisation is a throwback to the worst forms of economic planning. It is a textbook example of James Scott’s “High Modernism”: the notion that planners—be they the Lenins or the Le Corbusiers can reorder and programme entire societies. Extending Hayek’s insight into social policy, Scott observed that the main problem with “High Modernism” was that the planners on top could not access widely dispersed local knowledge and expertise.

Demonetisation has also left in tatters the independence and credibility of the Reserve Bank of India (RBI). There are echoes of the 1960s, when then RBI governor P.C. Bhattacharya openly admitted: “Monetary policy is as much an aspect of the State’s intervention in the economic process and must naturally be attended to the large economic objective of the State.” To package such regression as reform is extraordinarily cynical.

The economists who are doing so have also abandoned Hayek’s enduring insight: the main criterion by which to judge economic policies and institutions is whether they advance human freedom. On this standard, demonetisation is an unarguably regressive move.

By trying to persuade us otherwise, these ostensibly pro-market economists and commentators have lost their claims to speak for freedom.

Back to the worst forms of central planning

[Suraj]

"Policy disagreements" about demonetisation are such a funny thing right now. It's like discussing the merits of whether to keep the stable door open or closed after the horse has crossed the border into the next state. The point is, feel free to critique the policy, but it's far too later for such gasbag 'high modernism' articles. Today, it's FAR more worthwhile to figure out how to make the best of the present, than to debate how the past could have been allegedly done better. Oh yes, and don't forget to deposit your old notes before Dec.30.

[Rishirishi]

Why Demonnetisation did not work


As the banks started to get Rs 2000 notes in, they switched them with old notes and deposited the old notes.

Rakesh comes in with a Rs 2000 to deposit. The bank manager credits Rakesh account. Now the bankmanager goes and sells this Rs 2000 note for Rs 2200 in old notes. He then deposits the old notes.

The bank managers got 10% and the dealers got 10%. Initially the ratio was 40% now it has droped to 20%.

Effectively the corrupt bank staff and money dealers ended up with arreound 50 000 to 1 lack crores rupees.

[RajeshG]

These people are not mules to begin with. It also entirely discounts what disha said - that people are not interested in being mules.

Are you serious ? Were you even in India in November ? GoI had to stop the whole money exchange scheme because of money mules.

[Suraj]

These people are not mules to begin with. It also entirely discounts what disha said - that people are not interested in being mules.

Are you serious ? Were you even in India in November ? GoI had to stop the whole money exchange scheme because of money mules.

What "whole money exchange scheme" ? Who stopped it and when ? News articles or other references, please.

[RajeshG]

http://indianexpress.com/article/india/ ... d-4393985/

[Suraj]

The article claims Modi promised to increase the exchange limit in his original speech. Yet there's no such promise in that speech. Nor does the RBI press release make any promise it broke. You can continue to exchange old money for new.

The term 'exchange' you are using here refers solely to those who exchange cash for cash with no banking presence at the bank they are using. Anyone who actually has a bank account doesn't want these people using up the cash. Get a bank account first! Why should customers wait in line longer because of non-customers ?

Further, where's the proof that non-customers are mules ? For example, my dad and his retiree friends used the local bank to change some incidental cash at the beginning. None of them have accounts there. They subsequently stopped since they have no more loose cash and used their own branches to withdraw cash. People are conditioned to take the path of least resistance, which often means using the nearest bank even if they have no account.

The closure of cash for cash exchange is good policy. It ensures banks can distribute their load among their own account holders.

[JohnTitor]

Why Demonnetisation did not work

Wait what? How did you come to that conclusion when:
1 - The process itself has another 2 weeks to go
2 - The success/failure is yet to be seen as there is no data to make such a conclusion (if anything, inflation is down, that should be good, no?)

As the banks started to get Rs 2000 notes in, they switched them with old notes and deposited the old notes.

Rakesh comes in with a Rs 2000 to deposit. The bank manager credits Rakesh account. Now the bankmanager goes and sells this Rs 2000 note for Rs 2200 in old notes. He then deposits the old notes.

The bank managers got 10% and the dealers got 10%. Initially the ratio was 40% now it has droped to 20%.

Effectively the corrupt bank staff and money dealers ended up with arreound 50 000 to 1 lack crores rupees.

I don't quite follow
Rakesh comes and deposits 2k .. manager takes Rakesh's 2k note and sells it for 2.2k (fair enough, assuming Rakesh didn't withdraw any money).. Now manager has 2.2k in old notes. The only portion of that he can readily use is the 0.2k since it would be 100s/50s/20s/10s.. but the 2k still is in 500/1000. Why would that 2k be in anything other than 500/1000 since the other notes are still legal fiat?

So the question to you is.. what does he do with it? If he deposits it, it will have to be either in his account or someone elses because that 2.2k is worthless. Whose account are you saying he has deposited that into now?

[Suraj]

Why Demonnetisation did not work


As the banks started to get Rs 2000 notes in, they switched them with old notes and deposited the old notes.

Rakesh comes in with a Rs 2000 to deposit. The bank manager credits Rakesh account. Now the bankmanager goes and sells this Rs 2000 note for Rs 2200 in old notes. He then deposits the old notes.

The bank managers got 10% and the dealers got 10%. Initially the ratio was 40% now it has droped to 20%.

Effectively the corrupt bank staff and money dealers ended up with arreound 50 000 to 1 lack crores rupees.

Boss, you can't 'deposit the old notes'. They're not money anymore... And banks cant request unlimited new cash from RBI. They have to physically transfer the old notes and ensure their new and old figures add up, and then RBI sends them more. Sure you can find some limited fudging here, but this isn't something that's replicable nationwide.

[hanumadu]

SBI is insisting there is double counting of deposits. They are not saying by how much though.

[A_Gupta]

I don't quite follow
Rakesh comes and deposits 2k .. manager takes Rakesh's 2k note and sells it for 2.2k (fair enough, assuming Rakesh didn't withdraw any money).. Now manager has 2.2k in old notes. The only portion of that he can readily use is the 0.2k since it would be 100s/50s/20s/10s.. but the 2k still is in 500/1000. Why would that 2k be in anything other than 500/1000 since the other notes are still legal fiat?

Let's try it a different way:

1. Local Mr. Black Money gives the bank manager Rs 200 in valid currency and Rs. 2000 in 500/1000.
2. When Rakesh deposits a new Rs 2000 note, the bank manager records it as a deposit of 2000 rupees worth of 500/1000 notes, and gives the Rs 2000 note to Local Mr. Black Money.

[bharotshontan]

AGji, I think we're still all confused. Are there now 3 players in this (Rakesh, Mr Black Money, Bank Manager) or 2 (Rakesh=Mr Black Money, Bank Manager)? I think this thread has seen a lot of these hypotheticals from the minute the move was announced. How many people are depositing the newly attained Rs 2000 notes at this moment?

[Rishirishi]

Why Demonnetisation did not work

Wait what? How did you come to that conclusion when:
1 - The process itself has another 2 weeks to go
2 - The success/failure is yet to be seen as there is no data to make such a conclusion (if anything, inflation is down, that should be good, no?)

As the banks started to get Rs 2000 notes in, they switched them with old notes and deposited the old notes.

Rakesh comes in with a Rs 2000 to deposit. The bank manager credits Rakesh account. Now the bankmanager goes and sells this Rs 2000 note for Rs 2200 in old notes. He then deposits the old notes.

The bank managers got 10% and the dealers got 10%. Initially the ratio was 40% now it has droped to 20%.

Effectively the corrupt bank staff and money dealers ended up with arreound 50 000 to 1 lack crores rupees.

I don't quite follow
Rakesh comes and deposits 2k .. manager takes Rakesh's 2k note and sells it for 2.2k (fair enough, assuming Rakesh didn't withdraw any money).. Now manager has 2.2k in old notes. The only portion of that he can readily use is the 0.2k since it would be 100s/50s/20s/10s.. but the 2k still is in 500/1000. Why would that 2k be in anything other than 500/1000 since the other notes are still legal fiat?

So the question to you is.. what does he do with it? If he deposits it, it will have to be either in his account or someone elses because that 2.2k is worthless. Whose account are you saying he has deposited that into now?

Yes let us hope Modhi has some more cards to play. Like demonesiation of the Rs 2000 note itself and only allow Rs 500 notes to be withdrawn from ATMS.

The bank manager deposits the Rs 2000 note into the account. But no one knows that it is an new note that has come in. So he can simply exchange the new note and deposit the old note. The Rs 200 that he earns as "profit" is whitewashed in the same way.

[JohnTitor]

Let's try it a different way:

1. Local Mr. Black Money gives the bank manager Rs 200 in valid currency and Rs. 2000 in 500/1000.
2. When Rakesh deposits a new Rs 2000 note, the bank manager records it as a deposit of 2000 rupees worth of 500/1000 notes, and gives the Rs 2000 note to Local Mr. Black Money.

I see. Makes more sense. Thank you

But, I'm assuming rakesh depositing the 2k is the money he got from a cash machine. Are you saying 100s of crores in new 2k notes are being deposited by customers who got them from cash machines? (Since we know that there have been a few raids where 20-50crore in new 2k notes were hoarded) It doesn't add up.

[Manish_Sharma]

These people are not mules to begin with. It also entirely discounts what disha said - that people are not interested in being mules.

Are you serious ? Were you even in India in November ? GoI had to stop the whole money exchange scheme because of money mules.

1. It is you who is not serious Rajesh, changing the "mulayam's money in poor mules' accounts" CHANGED TO "money exchange mules".

2. Govt. didn't shut the scheme it was only to be until 24th of november and it completed the full term. Yes last 3-4 days it was changed to Rs. 2000/- from Rs. 4000/-

If you go to mulayam-azam belt you will see what kind of people make up their vote belt. They are the kind who won't return money even if their own father has put them in their account. Such is m-yadav votebank. Specially Rampur-Azamgarh areas.

Anyway how would they get the money back, with limit imposed on Jan-Dhan accounts of Rs. 10,000 monthly plus anyone crying against a sting news camera "...please help and save my family mulayam and azam's men are threatening the life of my family for they forcefully made me put their money in my account....booo hooo sob sob ..."

[Suraj]

Yes let us hope Modhi has some more cards to play. Like demonesiation of the Rs 2000 note itself and only allow Rs 500 notes to be withdrawn from ATMS.

The bank manager deposits the Rs 2000 note into the account. But no one knows that it is an new note that has come in. So he can simply exchange the new note and deposit the old note. The Rs 200 that he earns as "profit" is whitewashed in the same way.

Boss, the bolded part is all wrong. RBI knows exactly how many notes it prints. It knows which bank it sent them to. They don't end up in random amounts in random places where no one knows how many went where.

[disha]

I know the type of responses that will dominate such a post, but it is important to raise the banner of a policy disagreement without recourse to partisan positions.

I find it offensive that an exercise in logic when not won is termed as a policy disagreement with the person winning the logic as taking recourse to partisan positions. Anyway., just breaking down this logically on the topic of massive inflation introduced by 85% of currency circulating as High Value Notes as a English Language #mediapimp :

The main criterion by which to judge economic policies and institutions is whether they advance human freedom. On this standard, demonetisation is an unarguably regressive move

I want to use goat heads and cow heads as currency. In fact the following has been used as currency longer than paper currency:

1. Yap stone currency of micronesia
2. Salt bricks from select mines
3. Saffron/Cocoa/turmeric
4. Gold

It is extremely regressive of economic policies and institution where I cannot monetize any of the above currencies.

Among the many curious things about demonetisation is the ardent defence of this exercise by economists and economic commentators sympathetic to the government. It is as though the currency swap is being accompanied by an ideology swap.

"Among the many curious things about the monetization of the high value currency is the ardent defense of this exercise by economists no less led by PM Manmohan Singh and economic commentators sympathetic to the government. It is as though the introduction of high value currency is being accompanied by an ideology swap.

Moving on:

These economists had for years railed against the planned economy and had called for cutting back the state’s role in the management of the economy. They applauded this government’s decision to abolish the Planning Commission and replace it with the NITI Aayog. Yet, they would now have us enthusiastically embrace this massively statist policy. What’s more, they proclaim this as bold reform.

[Copy the above verbatim and replace NITI Aayog with PC]., Yet they would now have us enthusiastically embrace this massively statist policy of inflating the economy to unsustainable levels. What's more, they proclaim this as bold reform.

These debates are worth recalling because they remind us that the ongoing demonetisation is a throwback to the worst forms of economic planning. It is a textbook example of James Scott’s “High Modernism”: the notion that planners—be they the Lenins or the Le Corbusiers can reorder and programme entire societies. Extending Hayek’s insight into social policy, Scott observed that the main problem with “High Modernism” was that the planners on top could not access widely dispersed local knowledge and expertise.

These debates are worth recalling because they remind us that the ongoing inflationary spiral is a throwback to the worst forms of economic planning. It is a textbook example of Idli’s “High Brahminism”: the notion that planners—be they the Vadas or the Dosas can reorder and programme entire societies. Extending masala’s insight into social policy, Idli observed that the main problem with “High Brahminism” was that the planners on top could not access widely dispersed local knowledge and expertise of the chaddiwallahs.

The rest is too much to quote and respond., so just responding in a single block:

Massive inflation has also left in tatters the independence and credibility of the Reserve Bank of India (RBI). There are echoes of the 1960s, when then RBI governor P.C. Bhattacharya openly admitted: “Monetary policy is as much an aspect of the State’s intervention in the economic process and must naturally be attended to the large economic objective of the State.” To package such reform as regression is extraordinarily cynical.

The economists who are doing so have also abandoned Masala's enduring insight: the main criterion by which to judge economic policies and institutions is whether they spice up human freedom. On this standard, inflation is an unarguably regressive move.

By trying to persuade us otherwise, these ostensibly anti-market economists and pimp-commentators have lost their claims to speak for sexual freedom.

There you go.

The live-mint article was a typical elitist rona-dhona., throwing in Hayek/Scott/Corbusiers and Lenins does not make it a scholarly piece. For all you care., one can replace the names with idli/vada/dosa & masala and make it interesting piece more logical than the original elitist garbage spewed out.

[Manish_Sharma]

I know the type of responses that will dominate such a post, but it is important to raise the banner of a policy disagreement without recourse to partisan positions....

Because the pattern never changes by you, in "Siachin Vacating..." thread you had brushed aside General Shri V.K. Singh's opinion and beat the drum of gurmeet kanwal and tyagi kind of people's opinion that we should vacate Siachin.

Same way you are now ignoring the opinion of four reserve bank governors :

http://www.newsbharati.com/Encyc/2016/1 ... netization

New Delhi, Nov. 25: Four out of five former governors of Reserve Bank of India (RBI) have praised the Narendra Modi government’s decision to scrap high-value currency notes of Rs 500 and Rs 1000 from circulation.

Former RBI Governors Y V Reddy, C Rangarajan, D Subbarao, and Bimal Jalan have hailed the demonetization decision taken as a step against corruption and to flush out black money and stop fake currency notes from circulation.

However, former RBI governor Raghuram Rajan has expressed his reservations about the efficacy and positive impact of this move in arresting corruption and black money.

Y V Reddy who served the central bank from 2003 to 2008, described this decision of the Modi government as ‘perfectly timed’ as it preceded the GST implementation. Terming this as a ‘historic moment’, Reddy said that this will bring in a paradigm shift in the economic and political system of the nation.

According to Economic Times, Reddy said that the system was ripe for a change when the country is readying for GST. Anticipating inconveniences, the former governor said that it was impossible to have a big change sans some inconveniences and temporary disruptions.

C Rangarajan who remained to the top post during the post-liberalisation period from 1992-1997 said that this move was ‘standard prescription’ and was tried in the past also. But this time the government was specifically targeting those who have stashed huge money, indulge in fake currency and funding terrorist activities.

He said that the government this time had the above mentioned three fixed targets and the last two were of different nature. He exuded confidence that this measure would reduce black money or unaccounted money from the economy of the country.

D Subbarao, who headed the RBI during the 2008 financial crisis, asserted that the short-term difficulties notwithstanding, this positive and substantial measure would attract investments and encourage people to go in for electronic transactions instead of cash dealings.

According to Livemint, Subbarao said that the positive effects of this decision outnumber the negative ones. The increase in bank deposits was a good sign he said adding that it will help banks to reduce lending rates and enable banks to give more credit which will have a positive effect on the economy.

Bimal Jalan, who was the RBI governor from 1997-2003, described this demonetization as a positive and good intentioned move. ‘Economic Times’ quoted him as saying that it would take three to see how it would work.

Jalan said that increasing the extent of the banking network was the most crucial issue at present so that banks can be made accessible to those who do not have bank accounts as yet. The banking network needed to be spread in rural and semi-urban areas to facilitate banking operations.

However, Raghuram Rajan, the immediate past governor of RBI has not made any comments on the current move. But he had raised his doubts regarding the efficacy of demonetization decision to rid the economy of the black money.

According to Huffington Post, Rajan had expressed his reservations about the effectiveness of demonetization in flushing out black money as ‘clever’ people devise ways and means to hide their stashed money.

“You do find that people who haven’t thought of a way to convert black to white, throw it into the Hundi in some temples. I think there are ways around demonetization. It is not that easy to flush out the black money”, he said.

And you know why Raghu Ram Rajan guy is not giving his opinion, 'cause if he opposes now then in 3 years time full results of DeMo will be there for all to praise and SSwamy will repeatedly quote R^3's opposition exposing him.

That is why Rndtv and other rajan worshippers are also not taking his interview and comments now 'cause they have to protect their "next manmohan singh ~ rajan"

[disha]

Why Demonnetisation did not work

The second part of the sentence is "for the BM hoarders given that they are being caught by the dozens".

Here is your scenario:

1. 'A' brings 2x1000 notes to the bank manager
2. Bank manager notes that A-BM has deposited 2x1000 notes - takes out new 2000 note and sells it for 2200 in various bills., say 22x100.
3. Bank manager then deposits 20x100 into the account and pockets 200 (or 2x100).
4. 'A' withdraws Rs. 2000. And gets say either 20x100 or 2000 note. Let us say 'A' gets only 20x100.

Here is the elephant in your ointment., now let us say the branch received 100 notes of 2000. The bank manager through steps 1-4 embezzles 50 notes of 2000. The asst. manager - lets call her sunny comes in and to ordinary people issues the remaining 50 notes. And duly runs out of 2000 Rs. notes. Calls up the RBI and places an order of 100 more notes., duly indicating in triplicate that the original 50 notes given by RBI has been disbursed.

RBI contacts back., but where is the other 50 notes? And at that time the games up. Since the other person who had the key was the manager who surreptitiously liquidated the 50 2000 Rs. notes. And has now 200 x 50 money lying around in his bedroom. Now both the BM hoarder who contacted the manager at point #2 and the bank manager are in trouble

[Aarvee]

http://www.theage.com.au/federal-politi ... takk5.html

http://www.news.com.au/finance/economy/ ... da4e20de35


Now Australia may follow India and ban 100$ notes (the biggest currency note in OZ btw)

Some interesting snippets:

There are only 12 100 AUD notes in circulation per Australia

The Cash economy is only 1.5% of GDP ($21 billion)

In November India scrapped the 500 and 1000-rupee bank notes and issued new currency in a "surgical strike" against tax evasion.

The 500 and 1000-rupee notes stopped being legal tender on the night of the announcement but people were given 50 days to bank or exchange them. The banknotes declared illegal represented 85 per cent of India's cash in circulation.

In Europe, the €500 note is also being phased out.

In Australia $50 notes and $100 notes represent 92 per cent of the cash in circulation.

In a submission to the financial system inquiry former Reserve Bank official Peter Mair suggested doing away with $100 and $50 notes altogether. They would be given a use-by date. Anyone who didn't hand them in within, say, five years would get nothing in return.

He said the bulk of $100 notes appeared to be used to for illegal activities and to avoid tax and the pension assets test.

[Rishirishi]

Let's try it a different way:

1. Local Mr. Black Money gives the bank manager Rs 200 in valid currency and Rs. 2000 in 500/1000.
2. When Rakesh deposits a new Rs 2000 note, the bank manager records it as a deposit of 2000 rupees worth of 500/1000 notes, and gives the Rs 2000 note to Local Mr. Black Money.

I see. Makes more sense. Thank you

But, I'm assuming rakesh depositing the 2k is the money he got from a cash machine. Are you saying 100s of crores in new 2k notes are being deposited by customers who got them from cash machines? (Since we know that there have been a few raids where 20-50crore in new 2k notes were hoarded) It doesn't add up.

People who take out money from ATM will spend it in shops. The shopkeeper will go and deposit it. Hence now the bank staff can simply switch the new note with old ones and show the deposit.

[Rishirishi]

Yes let us hope Modhi has some more cards to play. Like demonesiation of the Rs 2000 note itself and only allow Rs 500 notes to be withdrawn from ATMS.

The bank manager deposits the Rs 2000 note into the account. But no one knows that it is an new note that has come in. So he can simply exchange the new note and deposit the old note. The Rs 200 that he earns as "profit" is whitewashed in the same way.

Boss, the bolded part is all wrong. RBI knows exactly how many notes it prints. It knows which bank it sent them to. They don't end up in random amounts in random places where no one knows how many went where.

It does not know when the new notes come back into the banks to be deposited.

[Rishirishi]

Where did all the RS 100 rupee notes go??

Here is how. A legit bunisess comes in to deposit Rs 10 000 all in Rs100 notes. Now all the bank staff has to do is to swith the Rs 100 notes with black demonitised notes. The Rs 100 rupee notes are routed to BM holders (for a commission) and the old Rs 1000/500 notes are returned to the RBI. In this way billions of Rs 100 rupee notes went out of circulation and into the BM holders vaults.

[hanumadu]

What bills get deposited is noted in the deposit slip. Won't banks tally at the end of the day what bills came in and what were given out?

[Suraj]

Where did all the RS 100 rupee notes go??

Here is how. A legit bunisess comes in to deposit Rs 10 000 all in Rs100 notes. Now all the bank staff has to do is to swith the Rs 100 notes with black demonitised notes. The Rs 100 rupee notes are routed to BM holders (for a commission) and the old Rs 1000/500 notes are returned to the RBI. In this way billions of Rs 100 rupee notes went out of circulation and into the BM holders vaults.

... and now the RBI *and* the IT department knows that the BM holder deposited Rs.500/1000 and slaps him with a 50% tax, which he can pay using those Rs.100 notes

What bills get deposited is noted in the deposit slip. Won't banks tally at the end of the day what bills came in and what were given out?

Indeed. Rishirishi's example is entirely about recycling small denominations into the hands of black marketers. An interesting but small scale jugaad that's physically impossible to scale. Why ? Because 14% by value of all currency notes are Rs.100 and under. 86% of notes by value were Rs500/1000 . In other words, even if this bank managed to corner every last small denomination note (hah!) , 72% of all remaining notes still become toilet paper. In reality, this jugaad exercise is just one of several small scale hacks that people will manage to squirrel away money with, but in the end, a few lakh crores are going to turn into toilet paper instantly on Dec 31, way more than all these successful hacks *combined*.

I still don't understand why people come up with these jugaad. What's the point ? Yes a 5-10% leakage in the DeMo exercise is a given. It's a ridiculously complex undertaking in scale and scope that no other country has ever done, and no one has the ba11s to do either. "Yay I came up with this clever plan to hide a lakh!" is like talking about how someone cheated the system out of 25 paise on a 10 lakh deal...

[vnms]

I think now would be a very good time for Modi to announce a change in DeMo policy. All deposits are to be done by the end of the week! Most likely, the only money out there is the illegal kind.

The more time the crooks get, the better their chances to subvert the system.

The only ones complaining will be the looters.

So, what would prevent Modi from doing this and what would be the consequences?

[surendra]

Where did all the RS 100 rupee notes go??

Here is how. A legit bunisess comes in to deposit Rs 10 000 all in Rs100 notes. Now all the bank staff has to do is to swith the Rs 100 notes with black demonitised notes. The Rs 100 rupee notes are routed to BM holders (for a commission) and the old Rs 1000/500 notes are returned to the RBI. In this way billions of Rs 100 rupee notes went out of circulation and into the BM holders vaults.

I thought there was a form that had to be filled indicating the number of 500 & 1000 notes tendered with signature. How is the bank manager going to manage that?

[Manish_Sharma]

Here is how. A legit bunisess comes in to deposit Rs 10 000 all in Rs100 notes. Now all the bank staff has to do is to swith the Rs 100 notes with black demonitised notes.

Do you seriously believe that from 10th of November till today a single person stood in a line for hours in front of a bank to deposit cash in 100/- Re notes?

Even if they did, the deposit slip has to filled with denominations and quantity of each denomination, so the bank employees would be caught.

[Kashi]

Even if they did, the deposit slip has to filled with denominations and quantity of each denomination, so the bank employees would be caught.

Precisely. The deposit slip must indicate the quantities of each denomination such as 5x1000, 10x500 etc. The main part of the slip is detached and retained by the bank while the customer/depositor retains the smaller stub, which too retains the info.