Decoding demonetisation for dummies

A good write by my friend Majid Hassan- must read

Friends ….. nobles…. countrymen… lend me your ears… I speak to praise his decision while I hate Modi I am a Great FAN of his… oops am I sounding like a politician….

Read till the end and then decide ….

Simple Economics, which will give a good idea on why Taxes are more important not only for Government but also how beneficial it is to its citizens…..

A Government should invariably need GOLD to run the country for their day to day business…. Since the Gold cannot be pumped into market, it chose to use the Notes/Currency instead!

And printing the notes/currency is done under the watchful eye of the IMF ( International Monitory Fund). A Govt. cannot print notes left & right! It has to be approved by IMF, however it can print any denomination of notes but it should be equivalent to the total weight of the Gold, the Government owns.

Let us compare two countries! I have taken America and India because we always compare our country with America!

For calculation purpose let us assume that , Government of America holds 1 Ton of Gold and Government India holds same 1 Ton of Gold

Now Then :

America printed $ 1 dollar notes of 1000 nos which is worth $1000. So, 1 gram of gold is equivalent to 1 Dollar (1000 grams=1000 notes)

India Printed Rs. 1 notes of 1000 nos which is worth Rs. 1000. So here 1 gram of gold is equivalent to 1 Rs. ( 1000 grams=1000 notes)
Now the value of Dollar and Rupee are same, which is $1 equivalent to Rs.1

American government releases $1000 notes into the market and sets 20% as tax for each transaction. And it receives back $ 200 in the form of taxes. Now, the American Government, with that $200, buy more 200 grams of Gold with that money and release another $200 worth of notes in the market. So now the American Government hold 1 Ton and 200 Gms of Gold and American Market has $1200 worth of notes. And still 1 Gram of Gold is $1. And this will keep on going and the 1 Gram of Gold is $1 always as long as Government receives 100 % tax amount in return as it buys gold for the worth of tax received and printing more notes equivalent to the gold and releasing in the market!!

Now in India, the Indian Government too releases Rs. 1000 in the market and sets 20% as tax. But it only receive back Rs. 50 in the form of taxes….Which means only Rs. 250 of the released amount were transacted officially…. Because balance of tax for Rs. 750 is till rotating in the hands of unwanted elements in the market, who does not want to pay tax! This amount is “unaccounted black money”…. Though this Rs. 750 still in the market, it is not accounted in the books of government officially. So, the money in the market is only Rs. 250 as per government records….. Whereas Rs. 750 is also being used in the market… This is called parallel economy…… At the same time the government now can only buy 50 Gms of gold from the tax amount it received. So the Govt buys that 50 Gms gold and release Rs. 50 worth of notes into the market. Now the money in market is Rs 300 (250 + 50) only officially, whereas it is supposed to be 1050. At the same time the Govt. has to meet the demand for more notes, because those Rs 750 has gone into unaccounted…
So the government then decided to print more 750 rupees and to release them in the market. Here comes the IMF which does NOT allow this ….. ” Hey hey hey you can’t do this”… It asks the government to reduce the value of the rupee because the government is injecting more notes against the same weight of Gold it holds that is 1 ton 50 Gms…. The poor Government has no choice (because it did not receive 100% tax return for the amount it released and it could not buy more gold) and hence reduces the value of Rupee and pumps 750 more notes into the market. So the market has now Rs 1800 whereas Govt still only hold 1 ton 50 grams….

So now the value of the Rupeya has gone down to 1.71 against 1 Rs

So when compare to US Dollar as above, which was $1 to Rs.1, it is now $1 to rupees 1.71 !!!

The notes are pumped into the market regularly to meet the demand of the market and the value of the Rs is depreciated every time when Gold reserves are same. That the reason why the Rupee is 67.80 to a Dollar today….

Had the Indian Government receives 100% tax in return, the value of Rupee would have NOT gone down drastically…..

If Rupee is strong and stable then the value of your assets will be strong 2…

That is the reason why the America is the richest country as 95% of citizens are paying their taxes… this is possible only through digitalization which Uncle Modi is pushing for…. Whereas in India it is less than 10% ( including politicians)… which means they all were cheating the govt… oops am I sounding pessimist…

We talk of so many things, demands benefits and badly compare us with those Western Countries for all that infrastructure, system, cleanliness, ever lighting cities with no power cuts etc..etc… We praise them We appreciate them… holiness we even want their nationality… Whereas nobody, I repeat nobody, compare and raise voices on how much are we contributing to our own country as part of tax..

I am not a Modi fan but what he is doing for India is a proactive step…supporting Modi OR whosever talks against demonetization is not my agenda….This is just to bring about on how the Black Money damages and ruins A Country… I wish we all stand together and first thing we stop paying cash … infact we should all push this govt to stop donations to political parties….

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