Black money, terrror financing, fake notes: Why Modi banned Rs 500 and 1000 notes

These drastic moves are aimed at fighting black money and the circulation of fake notes, reports Tech in Asia

Higher denomination currency notes of INR 500 (US$0.75) and INR 1,000 (US$1.5) are suddenly just pieces of paper from today. They are no longer legal tender.

These drastic moves are aimed at fighting black money and the circulation of fake notes. It will also give a push towards a digital economy that lowers transaction costs and fosters innovation and growth.

Four main objectives
 

Given the possible public backlash of force-feeding cashless transactions down the throats of such a large population, this is a huge move by the Modi government. It has multiple objectives.

It’s an attack on black money by channeling cash into bank accounts. It aims to change the culture of off-the-book transactions in the country. This is expected to give a boost to tax collections and the country’s revenue.

It aims to pull the rug from under the feet of those circulating counterfeit notes, which destabilize the economy. Terrorist groups are believed to be behind the flood of fake notes in the system.

It puts a spanner in the works of corruption by making it hard to hand out cash.

It gives a push to the move toward a cashless society and digital economy, which is more efficient. It reduces transaction costs in a range of areas from payments to loans. This can contribute toward innovation and growth.

Commitment to Digital India vision
 

The push to go cashless comes on top of the Unified Payments Interface (UPI) that is being rolled out by the RBI and other government bodies. This facilitates digital money transfer between banks, especially on mobile devices.

Narendra Modi’s withdrawal of currency notes at the midnight hour may not fall in that historic category, but it may well have just as big an impact in signalling the government’s commitment to its Digital India vision.

This is an excerpt from Tech in Asia. You can read the full article here