Impact of Bigger Denomination Notes on Economy

Impact of Bigger Denomination Notes on Economy

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Many countries around the world have higher denominations currency in circulation, India too issued 2000 Rs. note in 2016.

India issued 2000 Rs note after the demonetization in 2016, bigger notes have a reciprocal effect on the economy, bigger notes means higher intrinsic value on notes, which implies to the cost in respect to the note issued. Higher denominations also implies that people in the country will be spending more smaller denominations currency and on the account of only bigger payments will be needing bigger notes which is less in comparison to the smaller notes.

Denomination effect- The denomination effect is a form of cognitive bias relating to currency, suggesting people may be less likely to spend larger currency denominations than their equivalent value in smaller denominations. It was proposed by Priya Raghubir, professor at the New York University School of Business and Joydeep Srivastava, professor at the University of Maryland in their 2009 paper "Denomination Effect".

Relative impact on Indian currency Denominations

The majority of our population do not even use these high denominations and these are causing such detrimental impacts as corruption, weakening of banking, official economy and this ugly fake currency! Realizing the detrimental effects, such currency cut down steps had been taken in the past even by other countries from time to time, like the US in 1969, they brought down their highest currency to $100. So it is very obvious that we should remove these denominations higher than Rs. 50/-.

Effect/Role and Impact on Indian and World Economy

The European Union Central Bank recently voted to stop production of the large denomination 500 Euro bill. While the bills currently in play will continue to be honored, the bank stated that the concern was the use of large denomination bills for illicit activity. The call for the elimination of large denomination currency is growing across the world and should have a significant effect on banking systems, especially those who have products and services that are trying to bring the unbanked population into the financial mainstream. There are valid reasons for the move to eliminate large-denomination currency, but this may be a first step toward developing a global monetary system for the unbanked and underserved populations across the world, changes in the informal cash economy will hit particularly hard.

2000 Rs Note-A study

Rs 2000 note was a compulsion. If we have to block 1000 notes. We have to have higher currency to replace it. Imagine someone has black money of 100000 and breaks into 10 bundles of 1000x10 each. He goes to the bank and gets a replacement for 10000 with assume 10000px10 new notes. Now 2nd day he goes with 2nd bundle of 10000 and gets replacement and so on and finally replaces all 100000. Now he declared to govt. That he was de-listing the same new notes and govt. cannot find if the notes were new or old. So a separate denomination needed because he then gets new 2000 notes but has to declare 1000 Rs note only. Thus govt. very cleverly introduced the 2000 denomination currency.


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