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Comment by impy | Hacker News Reader

As a foreigner visiting India with the demonetisation is also not the most pleasant experience, I had landed on the day that happened. A lot of places luckily accepted credit cards, though in a few cases the authorisation failed (which can also occur at the ATM's, so be careful when queuing) and they don't always have the best infrastructure either (http://imgur.com/a/iJDfw). PayTM isn't an alternative as a foreigner, since you can only charge your account with Indian issued debit or credit cards.

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The whole "demonetization" argument seemed blatantly propagandistic to me. The stated goal was to repatriate "black money" (theoretically large untaxed cash reserves held by rich Indians). Let's assume that "black money" is a real problem and not an overstated political bogeyman. Let's ignore the fact that the last thing anyone with serious money is going to store wealth in is cash (especially not Rupees). So you get rid of your largest denominations and what do these theoretical rich people do? They sell their cash at a slight loss for lower denominations. Poor (but still identified and banked) people can make a quick buck by trading all their cash for slightly more cash at the soon-to-be-useless denominations and trading them at a bank (under the allowed daily trade limits).

On the other hand, anyone disconnected enough not to have an ID or a bank account but wealthy enough to have a few high-denomination bills gets screwed because changing money at the bank requires you to have an ID or an account. They can also sell their cash on the black market, but they get a worse deal because they're trying to hawk a couple bills, not the large bulk transfers that wealthy people are doing.

And, of course, this move decreases the fungibility of Rupees and increases our expectation that the Indian government will do something similarly inconvenient in the future. If the Rupee ever hopes to be a strong currency, this probably didn't help.

I suspect a secondary goal of this move was to initiate a migration away from cash. Once you get rid of cash and make all legal money banked, you can do all sorts of fun stuff like impose negative interest rates. The ECB, Denmark, Sweden, Switzerland, and Japan have already experimented with negative interest rates; I expect to see other nations make moves towards it as well. It's an effective way of doing things like propping up property values, as long as you can force people into it.

I believe the aim was not to repatriate cash, but to help tackle corruption in India, which is endemic, and often takes the form of literally under-the-table cash payments to public and local officials, policemen, and the like. By eliminating high-value cash it means these illegal transactions become less practical: illegal participants must either use larger amounts of less-valuable currency (passing bricks of notes isn't exactly subtle) or use foreign currency (harder to launder). The hope is that people would find it easier just to keep things above-board because all transactions become electronic, logged, and auditable.

Though I'm sure some enterprising folks will find way to electronically launder bribe money somehow - I expect a lot of people to suddenly inherit money from long-lost foreign relatives.

High value cash wasn't eliminated. In fact, quite the opposite: previously the highest value note was Rs1000, now it's Rs2000. Although calling $30 high value is a bit of stretch.

Average salary in India is RS18k.. so RS2k is 1/9th of that.

US average salary is ~50k.. so it would be equivalent with a $6,250 note.. which to me sure seems like a high value note.

How many government employees were arrested since Modi took over? Don't see the corruption angle. The measure was primarily to improve governments tax receipts and to eliminate the cash economy (thereby increasing governments control over the economy).

Right now it seems that every measure seems to be to increase governments control over the masses and to reduce their corruption, without any measure to increase governments transparency or reduce government's corruption. Trickle down economics and trickle up anti-corruption measures.

>(passing bricks of notes isn't exactly subtle)

But is plenty done out here - not just bricks, even suitcases. There are even slang terms for it in movies (taken from real life, like khoka - "suitcase" - meaning a crore or so, but I'm not a big movie watcher, so not sure of the exact terms ... :)

Again, movies, and probably real-life stings, though I don't have links to show.

See my reply to wyager.

> Let's assume that "black money" is a real problem and not an overstated political bogeyman.

It absolutely is a real problem. I would say that undocumented cash transactions are the default, not the exception.

> Let's ignore the fact that the last thing anyone with serious money is going to store wealth in is cash

The kind of "wealthy" people you're thinking of are not necessarily the sorts targeted. We're not talking about rich industrialists and financiers (those folks have access to the same tax avoidance tactics in use in the West, or they can just ship the money abroad), but entire industries like general retail, real estate and domestic construction that have been running almost entirely on cash that never goes on any audited book. Until demonetization, you simply could not buy most properties in India if you weren't willing to pay at least half the asking price in off-book cash. I'm not sure how those big-ticket transactions are taking place now, but one can probably guess from the number of people already caught with massive sums of the _new_ banknotes.

Could you imagine the US Federal Government declaring $50 and $100 notes null and void because drug dealers use them? I'm surprised the Indian people have not revolted against this action -- I'm pretty sure Americans would.

The US government withdrew all bills over $100, but over a very long period of time. The bills were last printed in 1945, and have been withdrawn (destroyed when handed into banks) since 1969. They are still legal tender.

https://en.wikipedia.org/wiki/Large_denominations_of_United_...

So here we have the same motivation -- but a quite different implementation.

Instead, India could require all cash transactions over $10,000 to be reported. This is how the US actually catches money laundering via cash.

I should have been more clear - I'm not defending demonetization. I'm really, really tired of standing in ATM queues. Just pointing out that black money is a real and serious problem at an almost intractable scale.

>The whole "demonetization" argument seemed blatantly propagandistic to me. The stated goal was to repatriate "black money" (theoretically large untaxed cash reserves held by rich Indians). Let's assume that "black money" is a real problem and not an overstated political bogeyman.

It is a very real thing, as every Indian knows and hears and sees (from generations past, probably even before independence. Hey, it even plays a part in Indian movies).

Please don't make assumptions. Check out the facts on the ground, preferably by coming to India and spending some time here, before talking about it. I see from your profile that you are scientific, but you are not really exhibiting that here.

>Let's ignore the fact that the last thing anyone with serious money is going to store wealth in is cash (especially not Rupees).

Maybe you are not from India (sounds like it) and don't understand the fact that infrastructure and conditioning and people's minds can vary a hell of a lot across countries (not even to start mentioning the differences between more and less developed countries). There have been reported (and exposed) labyrinthine schemes for evading tax and so on out here, maybe more than you can wrap your brain around (without knowing more).

Edit: to make it clear, I am not saying that the scheme is perfect. By reports in the papers as well as by my own experience, it has led to many issues. It could and should have been planned and handled better.

> It is a very real thing, as every Indian knows and hears and sees

How do you know it to be a problem? Governments love to overstate the seriousness of things for political leverage. Many people make incorrect conclusions from what they hear and see in pop culture.

> Hey, it even plays a part in Indian movies

If this is what you mean by "know and hear and see", then I think you need more evidence. Movie production culture (from Hollywood to Bollywood) loves to latch onto political and criminal tropes regardless of how true they are. For example, there are a number of laws passed by US congress and state governments that can be directly traced back to exaggerations in Hollywood movies. The banning of Switchblade knives can be traced back to Hollywood incorrectly depicting them as a popular tool for mafia activity. The banning of gun suppressors can be directly traced back to exaggerated Hollywood depictions of their effectiveness. Basically, you shouldn't trust everything you see in movies. "Black money" is a great narrative vehicle that is stuck in the Indian pop culture memeome, so it makes sense that Indian movies reference it.

>How do you know it to be a problem?

You seem to have not understood, or maybe I was not clear enough. It is not from the movies - those are secondary, reel life imitating real life. Neither is it based on what government says - though they do say it exists.

This is how (said earlier):

>It is a very real thing, as every Indian knows and hears and sees

That meant: from hearing from people one knows personally (and trust), who heard from others they know (ditto).

> from hearing from people one knows personally (and trust), who heard from others they know (ditto).

So what you're telling me is that you know the economic impact of this phenomenon from social gossip?

Like I said, you need actual evidence. For example, a survey from a reputable census data agency. "It is known" and "he said/she said" are not acceptable arguments.

Wow. What I said:

>>from people one knows personally (and trust)

vs. what you're imputing to me (i.e. interpreting/twisting my words as/into, or you didn't bother to read before replying):

>So what you're telling me is that you know the economic impact of this phenomenon from social gossip?

So, words from a person you trust (like a close friend or relative), are "social gossip" to you?

If a close friend or relative tells you: "I saw that road A on the way to your work is being repaired, so has a barrier, I suggest you take alternative road B today", do you dismissively tell them that you "need actual evidence. For example, a survey from a reputable census data agency"?

There is a continuum from scientific facts proven by experiments -> things you can be confident about from hearing from people you trust -> roadside gossip. (And for that matter, scientific "evidence" or "laws" can also be proven wrong, so how about your census agency?? how about biased surveys, relevant people not participating (oops, of course black money hoarders are going to answer truthfully to a survey that they hoard black money! /s) People believed the earth was flat and/or that the sun revolved around the earth, before Galileo / Copernicus etc. If you could show a computer or smartphone or even a car - while in use - to a Neanderthal, he would think it was magic. Knowledge, including science, evolves.) Or do you also ask for scientific evidence before you do anything at all?

And:

>"It is known" and "he said/she said" are not acceptable arguments.

Acceptable to whom? That's the key point. You don't need to believe what I do, nor vice versa.

I was trying to clarify a misconception you had, as a person who likely did not know the situation on the ground. Not interested in continuing this discussion further.

> So, words from a person you trust (like a close friend or relative), are "social gossip" to you?

Yes. Is that a serious question?

I also don't have any reason trust you or whichever random people you're citing as authoritative sources on large-scale socioeconomic phenomena.

> "I saw that road A on the way to your work is being repaired"

This is a straightforward factual claim that's not subject to misinterpretation or invalid inference. My criteria for evidence is therefore much lower.

Instead of getting mad that I called you out on making economic/sociological claims without any sort of non-anecdotal evidence, you could actually try to provide evidence. Maybe you tried that and gave up. But whatever, it's up to you.

> People believed the earth was flat and/or that the sun revolved around the earth

Probably because people they trusted told them as much. You should consider this when you accept "trusted" hearsay as evidence.

> I was trying to clarify a misconception you had

Thank you, but this typically involves introducing new information. I'm aware of the opinion of the average underqualified member of the Indian public. More anecdotes along the same lines doesn't clarify much.

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