[Ed note: Updated to include actual examples of how some Indians dodged the clampdown. --martyb]
On November 8, 2016, India's Prime Minister Narendra Modi in a shock decision declared all 500 and 1,000 rupee notes to be "worthless pieces of paper" from midnight onwards. This surprise demonetisation sucked out 86 percent of cash from circulation, ostensibly in an attempt to flush out unaccounted wealth, or "black money".
More than one billion Indians had less than eight weeks to return all of their old notes. For the nation's largely cash-based society, this unprecedented move induced a period of chaos. Banks scrambled to keep up while lines trailed out their doors and around street corners. Life's basic daily transactions screeched to a standstill as people struggled to withdraw cash, causing immense stress and even death in some cases.
[...] "As far as my business is concerned, we were never affected, nor are we going to be affected," says Sunil*, a young businessman with garment factories on the suburb outside of New Delhi. Though he had stored hundreds of thousands of rupees in untaxed cash, he claims demonetisation left him without any significant losses.
[...] He contacted his suppliers and purchased fabrics in advance, all in 500 and 1,000 rupee notes worth $7.4 and $14.8 respectively. He said that for him, this was "the main source of getting rid of old currency notes".
Of Sunil's 400 employees, many are low-paid tailors and labourers that normally receive cash payments. He decided to give them all hefty cash advances, also in old notes.
[Continues...]
[...] Uraaj*, a casino manager who was sitting on a substantial stack of untaxed cash, says he paid the trusted members of his house staff six months in advance as one way to dispose of his money.
In situations where there are pronounced power dynamics between employers and employees, it can be difficult for a labourer to refuse advance payments. "It’s actually like indentured servitude. You are kind of sugar-coating it when you say, I’m paying you in advance for three months," says Udayan Baijal, a Delhi-based filmmaker.
[...] Some people seized the opportunity to pay off debts in cash. Ramya Pothuri, a 20-year-old singer-songwriter from Mumbai, had not received payment for months from the restaurant where she performs weekly. After demonetisation, the restaurant manager "dumped 40K on [her]" in old notes.
"At first, I was like, no," she says, "because I didn’t want to go to the bank and stand in that line. But I knew that if I didn’t take that cash then, it would take ages for me to get paid".
Other black money hoarders paid professionals to change their currency. Ashish*, who works for a political party, claimed he sent 3 million rupees to his contact within a bank, who exchanged the currency for a 35 percent commission.
*Names have been changed to protect identities.
Could a better designed demonetisation tactic help elsewhere?
(Score: 0) by Anonymous Coward on Thursday February 16 2017, @10:25AM
The title does not match the summary.
(Score: 0, Troll) by fraxinus-tree on Thursday February 16 2017, @10:25AM
for trying a stupid idea and showing it cannot work for everyone to see.
(Score: 2) by FakeBeldin on Thursday February 16 2017, @11:44AM
for trying a stupid idea and showing it cannot work for everyone to see.
Hey! Venezuela! Wake up! No sleeping in the back of the class!
(Score: 0) by Anonymous Coward on Thursday February 16 2017, @02:08PM
Trying a stupid idea? See it more as an economic experiment by the western banks and Neoliberal politicians. I guess you also believe the austerity measures in Greece were to really help them, yeah right. That's also an economic experiment, which seems to fail now... well at least our banks were saved by socializing the private debts.
(Score: 0) by Anonymous Coward on Thursday February 16 2017, @02:47PM
The biggest hypocrisy in a long time... "Damn socialist hippies! Now pay off our debt from bad business decisions, we're too big to fail!"
(Score: 0, Troll) by khallow on Thursday February 16 2017, @03:47PM
"Damn socialist hippies! Now pay off our debt from bad business decisions, we're too big to fail!"
Let us keep in mind that the bad business decisions here were lending to said "socialist hippies".
(Score: 1) by khallow on Thursday February 16 2017, @03:52PM
Trying a stupid idea? See it more as an economic experiment by the western banks and Neoliberal politicians.
Who had nothing to do with this failed experiment in India.
I guess you also believe the austerity measures in Greece were to really help them, yeah right. That's also an economic experiment, which seems to fail now... well at least our banks were saved by socializing the private debts.
The "private debts" were owed by Greece. Funny how states don't need to pay back money when it's owed to people you don't like.
(Score: 1) by j-beda on Thursday February 16 2017, @04:27PM
But they were owed to non-public institutions, at least until they were bailed out by various public bodies. Those institutions set their rates in part on Greece's ability to repay them. That's part of the job of lenders, deciding how likely the borrower is going to be able to pay them back. Sometimes a business makes a bad decision and gives a loan to someone who can't pay it off.
In the olden-days the lender would break the kneecaps of the borrower who couldn't pay back the loan as a lesson to others. More recently, the borrower declares bankruptcy and the lender may get a bit of their money back, and the borrower can start over again at close to zero. Policies to put the borrower further into debt while not having much negative impact on the lender do not seem like the best long-term system for a society to put into place. If a lender becomes too-big-to-fail then probably the state should take over and remove the ability of the owners to have a business with now "downside risk".
(Score: 1) by khallow on Thursday February 16 2017, @09:59PM
But they were owed to non-public institutions
So what? There's two things to note here. First, there shouldn't be a distinction between public and non-public. Second, bankruptcy is for entities which no longer have ability to pay. Sorry, Greece still has ability to pay.
If a lender becomes too-big-to-fail then probably the state should take over and remove the ability of the owners to have a business with now "downside risk".
How about countries? Should other states step in and remove the ability of Greece and other such states to do the things they do?
(Score: 0) by Anonymous Coward on Thursday February 16 2017, @05:16PM
for trying a stupid idea and showing it cannot work for everyone to see.
Please define "cannot work."
They have clearly not gotten 100% of the black money. But if they got 90% of it, for example, would you still say that it didn't work?
I don't know too many details of this effort, but I imagine they both inconvenienced black money (and clean money, too, albeit less so) and managed to capture some of the black money from those who hoard the most of it. Plus, they are forcing a new risk to those people laundering their money (do you really think 100% of people paid 6 months in advance will stay with the organization for that full time; remember, even if they wanted to, people get sick/injured/killed all the time). Plus it is introducing a massive amount of liquidity to the underclass, for better or worse.
I have no knowledge of how effective this effort was, but do you have the numbers and information to backup your claim that it failed?
(Score: 2) by HiThere on Thursday February 16 2017, @08:02PM
To me the point was not that this "cannot work", as it can, but rather that the costs are excessive. Of course, if you don't care about those who need to bear the costs this won't bother you.
Javascript is what you use to allow unknown third parties to run software you have no idea about on your computer.
(Score: 1) by khallow on Thursday February 16 2017, @10:03PM
They have clearly not gotten 100% of the black money. But if they got 90% of it, for example, would you still say that it didn't work?
I'd still say that it didn't work even if they got 100% of the "black money". There are more important things out there, such as a stable money supply and the well-being of your citizens that is more important. There are huge costs to doing dumb things with your money supply.
In addition, my view though is that they probably didn't break 10% of the black money, because it's not in Indian currency. The very premise is so profoundly stupid you have to wonder what the real game was.
(Score: 0) by Anonymous Coward on Friday February 17 2017, @06:28AM
By now we should all realize, the goal is to move all financial transactions into formats that are easily tracked. Such moves tear me in two. On one hand you get control of financial transactions which allows the gov to more easily find criminals of various sorts, money laundering becomes much more difficult. This seems like a good thing, allowing the government to find people who operate outside the social boundaries. However, such information can be used as power to control/blackmail anyone. It forces people into digital transactions which are easily tracked.
Sure it helps fight crime, but living under the eye of Sauron is a terrible price to pay. I'd rather rely on actual police work to fight crime.
Incidentally: khallow how old are you?
(Score: 1) by khallow on Friday February 17 2017, @08:44AM
This seems like a good thing, allowing the government to find people who operate outside the social boundaries.
Not seeing why "operate outside the social boundaries" should be under the thumb of government.
Incidentally: khallow how old are you?
Upper forties.
(Score: 0) by Anonymous Coward on Thursday February 16 2017, @12:31PM
I hate articles that link a bunch of keywords to unrelated things and include quotes that aren't linked to anything. Which link is the article referring to?
(Score: 1, Interesting) by Anonymous Coward on Thursday February 16 2017, @12:40PM
I've wondered if the all this applies to the fatcats in India.
Why not just keep your cash stash in Pounds, euros, or Dollars?
(Score: 1, Informative) by Anonymous Coward on Thursday February 16 2017, @02:23PM
Most likely because the official exchange rate is far below the black market rate, and the black market does not have enough supply of foreign currency, so exchanging it via official channels would be worse than paying actual tax.
(Score: 2, Interesting) by Anonymous Coward on Thursday February 16 2017, @03:00PM
I've wondered if the all this applies to the fatcats in India.
Why not just keep your cash stash in Pounds, euros, or Dollars?
You are correct, most of the shady rich have their wealth in other forms - foreign currency, real-estate, gold.
But the outright criminals do keep a lot of cash on hand because they didn't really need to launder it.
The biggest problem though is that poor people don't use banks. So all of their money was in cash.
They got fucked the hardest by this surprise policy change. Kinda the way it usually works when rich people make unilateral decisions for everybody.
(Score: 0) by Anonymous Coward on Thursday February 16 2017, @02:28PM
I love how this guy found it not a big problem. He just used all the cash he had of those denominations, passing the problem to those persons. So all his employees had to stand in line to deposit their advances... at least he didn't have to.
(Score: 0) by Anonymous Coward on Thursday February 16 2017, @02:33PM
This is the traditional way richer Indians deal with poorer Indians. Caste mentality.
(Score: 2, Insightful) by Anonymous Coward on Thursday February 16 2017, @02:37PM
Don't think bosses wouldn't do it to their employees in the US under similar circumstances.
(Score: 0) by Anonymous Coward on Thursday February 16 2017, @03:49PM
Id take the advance and go pent rent in advance, now their problem.
(Score: 0) by Anonymous Coward on Thursday February 16 2017, @03:50PM
Yes, a US employer might pay in advance, if he knew the money would soon become worthless. That does ring true.
(Score: 1) by khallow on Friday February 17 2017, @09:24AM
Yes, a US employer might pay in advance, if he knew the money would soon become worthless. That does ring true.
In fact, I would approve of them doing so. If Trump were to do that, then spreading the pain among the voters would be a good way to illustrate the stupidity of the monetary tactic in the first place. Rub their noses in it.
(Score: 0) by Anonymous Coward on Thursday February 16 2017, @04:08PM
But, it did get around the legality issue of holding all those notes. If the employer took it to the bank, the government would tax it heavily. Perhaps with penalties for not declaring it earlier. By paying salaries in advance, he avoided all that. The employees aren't technically in a problem spot either. The can deposit/exchange the notes without penalty as well as they have a paper trail back to a legitimate reason for having the notes. It's a PITA, but it's legal and without risk - other than getting robbed standing in line with all that cash.
The real "criminals" are the ones working with banks to launder their bills for a 35% charge/fee.
(Score: 2, Interesting) by j-beda on Thursday February 16 2017, @04:34PM
Well, anyone who used unaccounted money to pay off or prepay business debts could have a problem if they ever get audited in explaining where the money came from and/or explaining why they suddenly have multple months of no labour costs if they never book the expenses.
The whole exercise might have had the effect of getting a whole lot of cash out of the box-under-the-bed and into the banking system where it might have positive effect by now being able to be loaned out to others. Sitting under the mattress, it does nothing for the economy, but in the bank it can be loaned out to people who start new businesses, etc.
(Score: 1) by khallow on Thursday February 16 2017, @10:06PM
The whole exercise might have had the effect of getting a whole lot of cash out of the box-under-the-bed and into the banking system where it might have positive effect by now being able to be loaned out to others. Sitting under the mattress, it does nothing for the economy, but in the bank it can be loaned out to people who start new businesses, etc.
I would side with Indian people versus their banking system. If they were putting it under the bed, then they had a good reason for doing so.
(Score: 0) by Anonymous Coward on Friday February 17 2017, @02:26PM
They did have a good reason - No taxes then. That's really all it is. They didn't want to pay taxes.
(Score: 1) by khallow on Friday February 17 2017, @02:36PM
They did have a good reason - No taxes then. That's really all it is. They didn't want to pay taxes.
Why don't you see that everywhere in the developed world?
(Score: 1) by khallow on Friday February 17 2017, @09:19AM
I love how this guy found it not a big problem. He just used all the cash he had of those denominations, passing the problem to those persons. So all his employees had to stand in line to deposit their advances... at least he didn't have to.
It's not his job to stand in a line just because the government does something retarded. And odds are good that the people who did have to stand in line voted for the cause of the problem in the first place.
(Score: 1) by segwonk on Saturday February 18 2017, @05:18AM
...how much is 500/1000 rupees worth?
.......go til ya know.