Money Laundering, Financing of Terrorism, Demonetisation – is it a tool? What is the impact?

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August 11 2017

You may be aware that the Government of India demonetised the highest two denomination bills of INR1000/- and INR500/- on 8th November 2016. Whilst, the usage of demonetisation as a tool to fight corruption and money laundering is debatable, the Indian case study, as per a Reserve Bank of India memo released on 11th August 2017 mentions that an estimated INR2.8 to INR 4.3 Trillion flowed incrementally (money kept outside the banking system) into the banking system. Circa INR64=1-USD. There are costs associated to demonetisation and that includes loss of jobs in the unorganised sector. On 10th August 2017, media reported that the dividend paid by Reserve Bank of India dropped very significantly and one of the causes for the drop is demonetisation.