Saturday, May 28, 2011

Banning large denomination currency notes

I just watched an interview of Swami Ramdev to NDTV. He had an incredible idea that we must ban notes of rupees 100, 500 and 1000. Before I could finish laughing at it, something did seem rational in the argument. His argument is that all shady deals are carried out with cash. Once large denomination currency notes are out of circulation, it would be very hard to make those deals under the table. Regarding the inconvenience to the public, he had a point that most of the poor anyways do not make use of such large denomination currency notes. While those who use such notes very frequently also do have a bank account along with a cheque book, credit and a debit card. Thus, all it would do is to make every financial deal leave a trace in the system. It does not seem a bad idea at all. May banning 100 rupee notes is too much but I do find some merit in banning 500 and 1000 rupee notes. Rather as a beneficial side effect the greater use of electronic cash will help bring down the cost of such transactions and make banking more accessible to the poor. It is an idea worth thinking about just as the one from Dr. Basu to tackle corruption by making giving a harassment bribe legal. Dont let the saffron robe color your opinion about the merit of the argument.

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