The Government has also moved the printing of notes from overseas to new plants set up in Mysuru and Hoshanabad which has allowed for heightened security features and safety of movement of notes from the mills to the banking system with clear accountability. Demonetization will eliminate counterfeit notes, but the production of new notes in-house will be a better promise to keep such counterfeits out of our economy for a prolonged period. If proven successful, we can expect withdrawal and replacement of other denominations to increase security in paper money altogether.
If old notes are not converted in time, the RBI can write-off its liability in-part on the foregone currency notes. The government doesn’t have a clear picture on how much will not be converted, but no matter what the amount, the reduction in liability will help the RBI and the government to repay some of its foreign debt which will help clean the balance sheet of the nation and reduce the country risk premium international investors demand. Moreover, initiatives like Make in India, Digital India and Start-up India will receive their push to propel the economy at a faster pace.
Lastly, demonetization will bring about a behavioral change in people with respect to the digital medium for transacting using digital wallets, payment banking and plastic money.
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About the Authors:
Sankeerth Bondugula and Anoop Prakash (Members, Finance Club, IIM Shillong)
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