Key Points
A strong central government, a devoted central bank and a cohort of faceless, voiceless bankers, anxious to avoid the nightmare of 2016, will quietly observe over the next few months whether the army of cash hoarders and money launderers in the country has grown, and how they behave...
The interplay of the kosher and forbidden, the official and unofficial cash, will influence macroeconomics in the short term, test the efficacy of New Delhis crusade against black money, and reflect the state of the underbelly of the money market..
This amoral lot will get into the act once they are confident that the countrys largest bank would keep to its promise, and the other banks would follow the big daddy, and ask no questions when someone walks into a branch to exchange 10 Rs 2,000 notes for bills of Rs 500..
A higher deposit base of banks would also soften short-term interest rates, though its impact on long-term rates may be muted because the decline in the currency in circulation could lower the quantum of Reserve Bank of Indias (RBI) open market operations (of buying government bonds and infusing liquidity)..
If the predominant portion of the Rs 2,000 notes pool is found to have been merely exchanged (instead of being deposited in bank accounts), it would signal business as usual for the men who had good reasons to keep the money hidden till now and have chosen to lie below the radar..
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