Question

dialogue on demonetisation

Answer 1

The Prime Minister announcing the withdrawal of the legal tender status of Rs 500 and Rs 1000 notes was conceived as a surgical strike on black money. At the sametime, the demonetisation of currency is intended to push the economy towards a less cash society. In a less cash society, themenace of black money can be controlled to a large extent. The notion of demonetisation of currency is not novel. Mario Draghi, the President of European Central Bank, proposed the idea of scrapping €500 notes early this year. The move was mainly to curb funding for terrorism and to lift the economy from deflation. Kenneth Rogoff, in his latest book,The Curse of Cash,also proposed the idea of moving towards a less cash society. He recommended the phasing out of $100 bills,followed by $50 and $20. According to Rogoff, move towards less cash society canhelp boost economic growth by shoving theeconomy to negative interest rate territory. Negative interest rate regime discourages savings, inducing the people to spend more,which can add up to the GDP of a country.Demonetisation is among the various steps taken by the Central Government for fulfilling one of the key promises made during the 2014 Lok Sabha election campaign – fight against black money. The first step in this battle was the introduction of Income Declaration Scheme (IDS), which came into force on June 1, 2016. IDS should be considered successful, as the Government was able to gather around Rs 65,000 crore from this exercise. Even though the Prime Minister had warned of stern action against those who did not come clean with IDS, the demonetisation of higher denomination notes came as a surprise.