The Rupee will become strong with this biggest Reform in the country

De-monetisation of the Rs 500 and Rs 1000 notes is a massive blow for those who have Black Money. Simultaneously, it’ll effect the common man but this move is a very powerful measure to curb black money. It is a the biggest reform which no one expected and will have a huge impact on people who are hoarding money and not disclosing it for tax purposes. This will be a big push towards digital, cashless economy.

I personally congratulate the government’s move to demonetise the Rs 500 and Rs 1,000 notes as “a bold and revolutionary” step and affirm their commitment to smoothen the transition. With a clear vision of the Modi Government, for moving towards the vision of a cashless economy, this seems be done in a structured manner. First, there was the Pradhan Mantri Jan-Dhan Yojana launched on August 28, 2014. The move was essentially to set the foundation of creating bank accounts for the unbanked and bringing them under the gamut of financial inclusion.

Today, over 220 million bank accounts have been opened and Rs 384 billion ($5.7 billion) deposited under the scheme (as of June 2016). Then came the much awaited Unified Payment Interface (UPI), which allowed individuals to make payments through a single identifier like Aadhaar number or virtual address. This, along with the Bharat Bill Payment System (BBPS) launched in September 2016, was an effort to institutionalise digital payments in the country.

The Income Disclosure Scheme 2016 running between June and September gave tax defaulters an opportunity to wilfully disclose their incomes. With all efforts the scheme may not have worked out as planned, but this mega announcement on Tuesday has landed defaulters in a bigger soup.

Solid reason behind this transformation

(1) As on today total banking transaction is more than 2.7 lakh crores per day say more than 800 lakh crores annually. (2) Less than 20% transaction is made through banking system as on today and more than 80% transaction made in cash only, which is not traceable. (3) Black money will be either converted to white or will vanish as billions of 1000/500/100 currency notes hidden in bags and without its use will become simple pieces of papers. (4) Unaccounted hidden huge cash is skyrocketing the prices of properties, land, houses, jewellery etc and hard earned money is loosing its value; this trend will stop immediately. (5) Terrorism supported by cash transaction will stop. (6) Cannot buy high value property in cash showing very less registry prices. (7) Circulation of  "Fake Currency" will stop because fake currency printing for less value notes will not be viable.

Indian economy has started the curve of becoming a credit economy like the US. Demonetization would impact the terror financing, It will be a blow to the main sponsors of fake currency suppliers. The terror funding module in place right now, will be affected as the terrorist operatives always store money in the form of big currency notes. That money has become a piece of paper now.

Will we see four lakh crores deposited in banks or eight lakh crores? This movement will push the electronics transaction to grow into multi-fold like (10x when it comes to digital payments). There will be rise in digital transactions will lead to a digital exhaust where better credit risk scoring will happen, catapulting into exponential growth. Expert says, we might have taken 20 years to transact digitally but the next wave of growth and adoption will happen in the next two to three years and the bulk will come from the 500 million mobile users in the country.

With all efforts if it will handle properly, it can unearth huge volumes of black money which can help bridge the fiscal gap as the governments revenue collections can go up. Logic behind this was people who have a lot of cash, legally earned, will deposit it in the bank. This will increase bank’s deposits by a huge margin.This will also increase the lending activity because banks have a CRR (cash reserve ratio) to maintain and with more deposits they can do more lending.

In the emerging cashless transaction environment the government and the business will have to be on their feet to guard against cyberattacks as they are carried out not merely by criminals. With more electronic transactions and monitored cash disbursals the government will have better control on who has access to money. With the massive growth of electronic transactions are likely to witness in the months to come will come with new risks. With the recent debit card breaches are a major example of how criminals can exploit vulnerabilities in processes and IT systems of our financial institutions. These data breach revealed that the ATM networks and electronic systems. There is an immediate need for banks to get proactive about information security and beef up their IT infrastructure against potential cyberattacks. Going forward, if Rs.2000 notes are limited in supply, will they command a premium? Exciting times ahead.