The Case for the Vanishing Notes

No one anticipated yesterday’s announcement, even though the war on counterfeit currency had been on the BJP’s election manifesto in 2014. While I can’t help feel that the news about the new 2000-rupee note and the ban-that-never-was on NDTV was orchestrated to distract everyone until the government had everything in place, it seems fantastic that they were planning this for six whole months without a single leak! If that is true, then I have to give full marks (and more!) for statecraft; if not, this was a happy coincidence.

While the move has generally been received positively, even enthusiastically by those who’ve been critical of the NDA so far, there are still some who remain unconvinced. This is not for all of them, but only for those whose doubts are genuine. For the others, there is really no hope.

Remember. This isn’t a move to control black money (although that will be a positive side-effect). It’s to wipe out counterfeit currency flooding our pockets and being pushed into the country by Pak and China.

Why only 500- and 1000-rupee notes?

It doesn’t make sense for the counterfeiters to copy smaller denominations – between paying for distribution and protection, the efforts being the same in each case, the margins are infinitely smaller (at least 5 times smaller) for smaller denominations. The profusion of 500s and 1000s in our lives, aided by the fact that even ATMs dispense only such large notes, is such that few people rarely bother checking for counterfeits; even those that do aren’t experts nor are they up-to-date with the latest variant.

As the saying goes, every time you build a better mouse-trap, God builds a better mouse (Yeah, I think it’s an awesome statement!). Similarly, no country that has high-value notes has been able to avoid counterfeit currency with a magical catch-all, a one-time bullet. This move of Modi’s isn’t a magic bullet either, but the first shot in the war against counterfeit currency. It will be effective only if we play by the rules, and the Governments keep changing those very rules. Expect the new 2000-rupee notes to be replaced by the time their first counterfeits start hitting our shores…

NB: xMoney = counterfeit currencyCurrency Replacement

Why wasn’t more notice given?

The reason an overnight ban was effected instead of a phased or extended deadline was so that innocent holders of good currency notes aren’t cheated by counterfeit-holders looking to swap their bad money for our good ones. I’ve heard people argue that a later deadline would not have made a difference, but that’s failing to take into account human nature. How many of us would take the trouble to go to the bank to exchange our notes until the very last moment, figuring that we will find some way to swap the notes on actual transactions before then?

How many of you had to fight the urge to go out and effect a transaction just so you could break your 500- or 1000-rupee notes?

The counterfeiters would, if time had been given, conned us into exchanging our good 100s and 50s for their Pak-issued 500s and 1000s (“Boss, do you have some change?”). They would have been the first to go to the bank, deposit the clean currencies and sit back, enjoying the moment; meanwhile, we’ll pay for cabs, food, groceries; we’ll pass on the currency to our maids, drivers, gardeners, barbers; Good-faith transactions, as I call them.

We’ll hold on to the rest, figuring it’s good money anyway. And then, on a really really bad day, we will find out that the money we hold in our hands – and the ones people we paid are holding – are more worthless than Kejriwal’s tweets. Meanwhile, there’s no way to trace the bad money back to the original criminals – the money has passed through so many hands, and we never keep records (that will hold up in a court of law) of the notes’ custodies. The buggers will get away scot-free, while the buggered will have to fight every inch of the way to prove their innocence.

A final note: this isn’t the bother some people would like you to think it is.

The notes in question are no longer legal tender, which means that the receiver can choose to accept or reject your payments, but there will be no recourse to a court of law because no court of law will recognize those payments as valid.

But until Dec 30, 2016, the RBI (and by extension, every bank recognized by the RBI) is bound to honor the contract on the note, “I promise to pay the bearer the sum of…So your money, as long as it’s legal and a genuine made-in-Indian-mint article, is still as good as it was yesterday morning. 

Perhaps even more one day in the not so distant future.