Demonetisation Curious Case of Cash Shortage and Currency Hoarding (Analysis of Mr. Surajit Mazumdar's paper)

DEMONETISATION

CURIOUS CASE OF CASH SHORTAGE AND CURRENCY HOARDING

(SURAJIT MAZUMDAR)
- An analysis of his paper -

Demonetization is a radical monetary step in which a currency unit’s status as a legal tender is declared invalid. “it is usually done whenever there is a change in the national currency. The process of demonetization involves either introducing new notes or coins of the same currency or completely replacing the old currency with new currency.

   

Recently the Indian government planned to demonetization the Rs.500 and Rs. 1000 notes. These accounted for 86% of the country’s cash supply. In India , demonetization was carried out for the following reasons:

1.     To tackle black money in the economy.

2.     To lower the cash circulation in the country which is related to corruption in our society.

3.     To eliminate fake currency and dodgy funds which have been used by terror groups to fund terrorism in India.

4.     To fight tax evasion.

5.     To promote a cashless economy.

The article (curious case of cash shortage and currency hoarding) is written by Surajit Mazumdar. According to author of article total currency issue dby RBI consists of two parts :- black cash hoard and money active circulation. If the hoarded black cash part is very large out of the total currency. Then a smaller replenishment is needed to restore normalcy. If the pain of demonetization is longer then it would mean that the logic of demonetization is undermined. It will be a problem for the government of the pain is longer  then it will mean that government was wrong.

The hold money which has deposited in the banks, amounts to Rs. 12.44 lakh crores. This money is available for digital use. Replacing the Rs.1000 note with Rs. 2000 does not properly reduce the burden of printing . higher demonization means that larger amount of currency is needed for the same level of transaction.

Analysis of the currency circulation numbers before and after demonetization suggests that the money hoarding in past demonetization scenario is more than pre-demonetization scenario. The total amount of cash deposited with the banks after demonetization is very large relative to the total quantum of demonetization currency.

This suggests that lot of black money has found its way back into banking system. This also defeats the purpose of demonetization as stated by the government.

The logic that demonetization will result in a significant of tax pace. However this logic is also belied by the analysis of the stick of black money versus the black income.

This article impacts the economic decision in the government and the public at large who all affected by the various aspects of demonetization.

There have been major implications for policy in at the government level.

The article clearly suggests that the objective of demonetization by the government is not being for an important reason for this is that the much bigger chunks of demonetized notes is    by public in the banks.

This may have happened because some officials the banking sector have concluded with the black money hoarders to help them deposits  their black money into their respective bank accounts.

Considering that the people of this country, particular the relatively poor ones have been badly his by the effects of demonetization.

The popularity of this government and the supply for this   demonetization more may go down as people may feel that they are facing so many economic hardships either because of wrong assumptions or faculty execution by the government.

The government must take immediate corrective methods to hault this phenomenon and strong their efforts to bring to book the wrong deeds committed by many bankers acting in tandom.

This article will not only have economic impact but also social and political ramifications both immediate and long term perspectives. It applies to my family as it throws light on the impact of demonetization on economic activity and the tendency among people to hoard new currency notes.

It has socially impacted the masses at large the society will become more equitable with lesser class distinction. Some slum dwellers may actually have to pay taxes and loss their BPL status and finally politics may change forever.

I Personally really enjoyed reading this article and learnt numerous new things this is the only article and learnt numerous new things. This is the only article I have read on demonetization which using economic rationals and hard data refutes some of the logic given by governemtn for demonetization.

There is no biased or prejudice in the writer’s opinion and he doesn’t seem to belong to any particular ideology. This is a very objective and systematic analysis of the pre and post demonetization facts and figures. The process the writer also throws light on some very significant economic inter relationship.

This article impacts the economic decision maker in the government and the public at large who are all affected by the various aspects of demonetization.

There have been major implications for policy making  at the government level.