Indian currency demonetization: How it could have been done better?

  • Should have been done in phases, first the 1000 could be banned and an effective new 2000 can be introduced in limited amounts so as to ensure an effective shift in to digital, curbing big black money transactions, ensuring cash deposits, not causing so much of inconvenience, not hinder economic activity, not affect our growth momentum too much.
  • Size of the new currency could have been designed to be of the same size of the old 1000 and 500 notes, so as to ensure easy distribution of cash from all the cash machines/ATMs without any delay in technical adjustments to all the machines because of a different size. The delay in economic activity every day in India has a considerable effect on our future compounded growth.
  • Ensuring more number of 100s were printed and distributed in advance. Discouraging big notes before banning would not give the game away, considering that black money hoarders wouldnt jump to 100s so easily as it would increase volume of storage by 5 to 10 times.
  • By not modifying this demonetization every few days. The present ban imposed from the 25th of November on over the counter currency exchange will only be making it tougher to dispense the new currency among the masses.
  • By not devising policy to merely to improve numbers on the paper, but by devising policy intended to boost economic activity without adding bureaucratic constraints to transactions. Cash deposits, increase in digital transactions  should have been encouraged without disrupting the momentum of economic activity. In aiming to increase deposits to tackle the NPA issue, the banks are now risking increased NPAs due to the loss of economic activity. This effects will be added to the banks later. I personally find it an absurd way to fight the NPA issue by further endangering future cash flows from provided loans.


Why was demonetization done?

  • To recapitalize our banks at any costs. The desperation to ban exchange of 500 & 1000 notes from the 24th of November further hints to the government wanting to widen the gap of issued and collected notes so as to write of some obligations. Hindering actual economic growth to gain an edge on accounting is what this looks like though. Yes, India does have its share of cyclical big industries that may face the brunt often and need to be supported during tough times. To be done like this, not only seems too ambitious but also too fishy.
  • To curb black money dealing in the real estate market, the present demonetization should have left a dent in the realty sector. Will this ensure cheap real estate for every one, is to be observed.
  • The ban of OTC currency exchange at banks is a sign that a difference in currency issued and collected is being targeted here at any costs. Even the possibilities of genuine cash not returning by the deadline seems to be aimed here.

As an Indian staying abroad, I may have to preserve my 2 X 1000rs + 1 X 500 rs notes as souvenirs of the old time. Have only seen the pictures of the new notes for now, looking forward to get my hands on some of those big Indian currency.


Facebook Debates on demonetization

Milan Ka Raja vs Liege ka Akula

Pro demonetisation reaction
Pro demonetization reaction
Reply to supporters of Demonetisation
Reply to supporters of Demonetization

Milan Ka Raja vs old colleague from collage



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Hi, I’m Vineeth Naik

Liberal part time Blogger and full time Researcher with a broad range of experience, professionally and personally in Austria, Italy, UAE & India. Loves Finance, Business & Technology. Cares about society.

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