The government of India decided to ban the Indian rupees notes of rupees 500 and 1000 on Wednesday to combat corruption and shrink the "black money."
The old notes will now be out of circulation but they can be exchanged at the banks by the end of December. Black money is the illegal money which needs to be reduced from the economy in order to promote growth and reduce unemployment rate.
According to Nirmal Jain, "It will have a deflationary impact in general and more specifically on real estate prices and make homes affordable.” The prices of real estate in India have sky-rocketed over a past few years and deflation can help to bring the prices down.
The article also stated how "banks are set to see a jump in deposits, boosting liquidity in the financial system even as cash in circulation sees an immediate contraction, economists said. " It is expected that the ban on the notes will reduce the cash flow in the short run but in the long run liquidity will increase and the economy will benefit from the decision of putting a ban on the notes.
Source : http://www.bloomberg.com/news/articles/2016-11-08/india-abolishes-inr500-1-000-rupee-notes-to-fight-corruption
It is great to know that the Indian Government has finally taken a huge step to fight corruption and 'black money' by banning the 500 and 1000 rupee notes. This will definitely help banks since a jump in their deposits boosts liquidity in the economy in the long run. Black money is illegal and putting a ban helps the Indian economy to grow, along with rising employment.
ReplyDeleteAn additional reason for this ban on larger notes could be because India's main trade deal with the European Union is set to expire in 2017 and will are in a period of evaluation by the Union that makes up a lot of the market India, as a country, serves.
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