Currency 500-1000 are paper!

At 8.30 PM on 8th November 2016,        PM Modi banned old 500-1000 currency notes to be replaced by new 500-2000 notes a day later. Of course we all know the features of the scheme but I'll try to jot down a few pros-cons and what to expect in future.

Pros 

1. Black money specially from the UPA time lying with politicians and their pawns will have to come in mainstream banking or else it will be useless. 

2. This will sky rocket the money in circulation in our country. We may also know our real GDP on 31st March 2017.

3. Terrorism will take a major hit as it's funded by cash from across the border. 

4. New currency notes should be having more features to terminate or at least make it difficult to counterfeit. 

5. Citizens will be encouraged to use more from bank accounts rather than cash. 

Cons 

1. Minor trouble to law abiding citizens for a few days as they'll have to encounter problems and long queues at banks and other institutions.

2. Trouble at retail to shop as confusion is bound to persist on the acceptance of old notes till new ones arrive. 

3. Policy does not clearly states as to what a vendor will do on 9th November when new currency is unavailable and old one is invalid because not all own plastic money. 

4. Small and fairly uneducated poor class might be hit with their small savings. Not having enough knowledge, few people will take advantage of them and return less on their currency. 

5. Liquidity issues to remain with people dealing more in cash as withdrawal will be limited. 

6. The already under stress real estate market will take a strong hit. It might take 2-3 years to come to the current level. 

 

Future expectation 

1. ₹2000 denomination may be only for interim period of few months to reduce the stress on changing notes. They may be discontinued in relatively near future. This will discourage and make it difficult to hoard black money.

2. PM Modi has achieved an unprecedented unpredictability. This will go a long way in his fight against corruption and black money. 

3. Expect that in future similar announcements can be made in making a higher denomination defunct, encouraging not to hold and try to amass black money. Eg. He may announce a year later that ₹2000 currency notes will not be valid from a certain date and later for other denominations. 

4. People may have trouble explaining the source of funds deposited in their accounts in this period. 

I think it's a master stroke from the government and it will prove a shot in the arm for our economy. However I don't see this stopping here and we might in few years come to a point where everyone will be forced to use plastic or virtual money for all our transactions. This will not only result in growth but also massively reduce corruption.