Counterfeit Money (or Taking The Fight Back To The Dogs...)
There was a study released by CRISIL in 2011 that stated that Indians spent Rs.5.8 lakh crores extra between between 2008 and 2011 because inflation had been higher than the targeted 5%. that we spent 5.8 lakh crores more than we would have spent if inflation had been at 5%.[8]
That means for the same amount of goods and services, we had to shell out an additional 5.68 lakh crores. This was because of inflation higher than 5% by 3 percentage points. Imagine how much the figure would have been if inflation had been taken zero.
But.....how did we, the citizens of India, manage to shell out 5.8 lakh crores collectively in order to buy our goods and services? Where did we get this money from? Did we remove it from our savings and if so, then our savings must have substantially come down now. But that doesn't seem to be the case.
Certainly the amount of money in circulation is rapidly increasing. More and more people are earning more in a month than their fathers did in a decade. Along with this, correspondingly, prices of things are increasing though certainly not in equal proportion. Land and housing has shot up faster than the price of, say, a cup of chai at the tapri. But it has moved upwards for sure. Certainly money is getting inserted into the society through certain channels that is causing all this monetary inflation.
But how can money be inserted into the system?
But in reality, a currency note is just ‘fiat’ money. The currency is not backed by gold and there are no reserves of any valuable commodity to back the paper currency.
The only value that the piece of paper has is in the declaration and signature of the Governor of the Reserve Bank of India (RBI) that states that the note is a legal tender that can be exchanged for goods worth that amount, and that it is legally binding on everyone to accept the note as currency.
A currency note in our hands represents a portion of our own hardwork and labour that we have done in the past, and it stores it so that it can be exchanged for goods or services for which we ourselves could not labour. We work hard and earn our money. and then either spend it on what we like, or use it to earn more money, in the form of either bank interest or investment.
But the government isn't paid by anyone for its hard work and labour. It earns its money from taxes, fines/penalties, auctioning of natural resources and by dividends from public sector undertakings, in order to satisfy defense, law and order, infrastructure and other collective expenditure requirements which an individual or a community alone cannot undertake. For example, roads and dams and bridges and hospitals cannot be built by the locals themselves. The government alone can build them. Government also spends to build schools and education institutes (like IITs and Medical colleges to learn technological advancements in these fields) in order to build a workforce that can work to progress the economy and hence the living standards of the people.
But what happens when the government spends more than it earns? How does the government satisfy its demand for Indian rupees when it hasn't collected enough through taxes? Banks do not have enough money to lend to governments, so governments have to turn to the biggest bank, the Reserve Bank of India.
To raise funds, government issues bonds which bear interest and sells them in the market. Even we can buy government securities (bonds) from the market but its less than 5% of the issue size. The interest on them is guaranteed by the government so they are the safest forms of investment, and hence with lowest returns. Out of the remaining 95%, most of the binds are bought by the RBI.
The RBI does not have any source of income but prints notes and buys these bonds therewith to give cash to the cash-strapped government. Suppose if the primary school teachers' salaries get due and the government does not have funds, will we have to wait until some good Samaritan comes in and files his taxes? Obviously not. The government will ask RBI to provide it liquidity which it can then use to distribute the salaries. Just saying.
The Government is not keeping any backup like gold or dollars for printing these notes. It gets them printed at the RBI as per its own requirements. But since the RBI also belongs to the government, the bond buying and interest payment is just a methodological formality that needs to be obeyed.
In European countries, the printing of Euros in not in the hands of each member individually, and so when the bonds mature, they cannot print the Euros and pay the interest. They have to take more loans along with oaths for austerity in order to pay the interest on the old loans, on and on, until one day the interest on debt payment exceeds the GDP of the country, like it happened to Greece and Portugal. Even USA had to raise its debt ceiling recently. Since India owes its liabilities to no third party for the currency it prints, its economic mismanagement is less threatening than some other countries'.
So that is how we have been living through the yearly fiscal deficits our country has.
Many economists would say that having a fiscal deficit of 4-5% and inflation correspondingly is good for the growth of the country. The money government spends to create jobs leads to the betterment of the society. Employment brings education brings upliftment. Its brings velocity to the money which otherwise would be stagnant in the pockets of rich people who would have enough incentive to put that money to use immediately. If there were no fears about currency inflation, people would be slow into making their purchases and so economic growth, as measured by GDP, would be low because GDP calculation requires measurement of the sum total of expenditures.No fiscal deficit would mean little inflation would mean economic stagnation or at best, slow economic growth.
Once the government has its money from the RBI, it spends it on infrastructure development and education and health facilities. It builds roads and dams and bridges and stadiums. It opens primary schools and colleges and universities. It establishes hospitals in every city, town and village and provides free or subsidized medical facilities to each and every person.
As the government makes payment to the providers for theses services, the money flows into circulation and gets deposited in bank accounts and gets spent in the market and so on. It ripples out into the economy and some inflation in prices takes place to accommodate this new money. Although the value of the money already with the people decreases a little bit due to the increase in prices, they also get education, public utilities, medical care, water, roads, drainage, and so on. So its a fair bargain. Its like an indirect tax that does not need filing nor collection and which no one can evade.
But what if the government did not use this money judiciously? What if the money printed by the RBI and given to the government is not actually spent on infrastructure building and providing better services and more jobs to the people, but is embezzled by giving tenders to favourites at unprofitable rates or is siphoned out somehow by unscrupulous politicians? Then there would be little or no benefit from the government's spending. GDP growth would be low. Inflation in accordance with the new money would be high.
Nonetheless, if the corrupt politicians atleast kept their money in their bank accounts, the banks would have the money to lend out to people and there would be some respite to the low growth. But many a times that money is sent away to accounts in Swiss Banks and the government's money goes to a total waste. It is neither spent inside the economy itself, nor does it help to act as a base for the banks to lend on.
Even of the money that reaches the departments after embezzlement at different stages, its expenditure skews the distribution of money in the society. The government may spend more money in building Delhi than it may spend building Sikkim or UP. All states will not get equal sums of money. Inside those states as well, the UP state government may spend more on Lucknow than on Bareilly. So naturally the people who work in Lucknow will earn more money than the people of Bareilly. That is precisely the reason why many people want to form separate states. That is precisely why Uttarakhand was required to be separated from UP. the funds allotted to UP did not flow into the hilly areas as much as they did in the plains. After Uttarakhand became a separate state, its own people governed how the money it got from the centre was to be spend and as a result Dehradun became a big metropolitan with perhaps a better living standard of the people than Lucknow.
Even in Dehradun, the people who work closer to the sources of the government expenditure will earn more than the other people. Government gives out loans for certain agriculture, horticulture, to purchase machinery like JCBs for mines, and sets up special economic zones, and this was also the money flows to the people.
With the Sixth Pay Commission, the government had directly brought more money into the hands to the government staffers. and with it came higher inflation as people started spending this new money. Congress government gave out money in villages through rural road constructions and employment guarantee scheme and this caused inflation levels to rise in the village.
Since the new money cannot possibly ripple out to everyone at the same time, the people who are closest to this money benefit from it the most. People from Delhi will always earn more money than the people at, say, Bhowali or Nandgaon, although the latter too, for a while, can earn similar amounts when there are infrastructure or road projects or factories getting set-up. Delhites' one month's salary could exceed the yearly income of many town or village folk. Its not that the city people are smarter or more hardworking, although they clearly are more ambitious, but its also that they are closer to the new money.
If they were not ambitious, they would fall faster in their society compared to their peers than the people in the villages. That is why life in the villages is 'slower'. In cities, sitting idle will decrease your worth faster than it ever would in a village, where you could afford to lie lazily without much of anything changing. Hence the city folk are also more tensed and stressed out.
Nonetheless, all of this is required in order to keep the engines of the economy running. Economics is the new battleground and each one of us is a soldier that is helping his country fight off the enemy. We dont need physical warfare. Economic sanctions alone would be enough to bring us to our knees. So we have to keep fighting and inflation is the price we all have to pay. Even when we don't pay our taxes honestly, This is the tax every Indian pays. Its side-affect is the social turmoil it brings.
Theoretically, RBI supplies the money to the government which results in GDP growth and then controls inflation by varying interest rates. These key rates affect the amount of money that banks can lend. Even with these tools, economic control is very abstract because it is constantly being manipulated by the government's expenditure requirements.
When the general people recognize the trend of increasing salaries and incomes, they develop an 'inflationary expectation' which instigates them to raise their prices in anticipation of new money inflow. Even though the condition of the farmers has not improved much, the price of fruits and vegetables has gone off the roof. That's because the sellers raise prices to a level where they could sell off all their stock. It doesn't matter what price they by it at. They will try to sell it for the highest price that would clear all their stock.
Ever turned away scowling from a fruit shop because of the outrageous price he was asking for some fruit? 290 bucks per Kg of Apple. Go back again tomorrow and you'll see he has sold some or all of his stock. There are people out there who's current earning status makes them free from the worries of the price of apples. So if you find fruit that you used to buy too expensive now, it means you are falling back in your status and someone else has now has the rights to those fruits.
Success, on the other hand, is when you can afford more and more. When things which were earlier too expensive are now within your reach. And this is the current definition of success and failure in our society.
This is how the nature of society and morals has changed over-time. It is a by-product of the constant injection of money into the society by the government.
My income, which is a store for my hard work which i intend to use in my times of need and also for my pleasure, keeps varying in value and although it has been this way even before the time we got independence, its velocity is much more drastic now. So I, who am young and capable of working, do not feel much of a loss because my salary keeps rising and I secure my future by way of insurance and investment and I spend my excess money on my pleasure like food and entertainment and travelling. But I also feel threatened about my future.
I also now have an opportunity to enhance my social status like never before. Hence I work longer hours in order to get better appraisals, in order to keep ahead of the others. As a consequence of my motivations and the loans which came as their result, I feel more pressure to out-perform my peers, and pressure leads to stress. I give less importance to relationships than I give to my career because the latter is more important for my social status. Relationships become secondary.
If the government had used the country's money judiciously to provide medical and educational services at low cost and built infrastructure and helped improve farming, it would have been terrific for the people. But if that government mismanages the money and selectively diverts it to certain companies or people, then we end up at the losing end of the bargain. Not only do we suffer from the affects of inflation, but our salaries do not rise in conjunction with it. Housing becomes more expensive. Electricity and water supply gets privatized. Government hospitals and schools become unreliable. All this leads to fear and stress in the people about their future. Instead of building a better society, it breaks it up in jealousy and rivalry and constant competition. This is something we need to urgently realize.
Those who think otherwise, that growth is more important than anything else, see the nation as the highest entity. Those who are against it, people like me, place the individual at the highest level. And while the latter debate with the former, the government does its own thing and is predictable by none.
Black money stored in Swiss banks should not be the concern of the middle class man. But the middle class man and the poor man should fear the excess money that those notes would create if they were brought back to the country and the government spent it. It would allow the government to spend without the control of the RBI, and would only bring even more inflation than ever. It would benefit entrepreneurs more than it would benefit the common man. A righteous government can honestly borrow reasonable amounts of money from the RBI to fund its growth related activities
Neither should the public be afraid of counterfeit notes. Although they may hurt a common man and his 500 rupee note may become worthless one time, but when the RBI prints money and the government selectively diverts it, it creates an inflation and income gap that remains for all time to come. Like the CRISIL report pointed out, Indian households had to spend 5.8 lakh crores extra between 2008-2011 in order to get the same services we would have got if inflation had been 5%. So much for your new salary hike and your hopes of a new car!
Unless the governments makes judicious use of the money it borrows from the RBI, unlike spending it on a Sardar Patel statue or for making memorial gardens and parks with elephant statues in them, the end result would be similar as it would be if i took a printer and printed currency notes myself. I would be a criminal for counterfeiting currency but not too different from the unsympathetic and biased government. In a way, i would be an unelected criminal whereas they are elected criminals.
The concern of the middle and poor class man should be the people round him and their well being. Ah! Imagine the audacity!
P.S. The supply of money has been steadily increasing in our country. And this increase in supply is not because of fake currency being smuggled in to the country. It’s because of the RBI printing money. As per the RBI website, the number of fake currency notes in circulation in 2007-08 were 4 notes per million notes in circulation [4], and that is not very impressive. On the other hand, see the graph below, compiled from data personally collected from the RBI website, and see how the currency in circulation and the various money stock components have been growing, and you will find that the:
[Reserve Money = Currency in circulation + Bankers’ deposits with the RBI + ‘Other’ deposits with the RBI
That means for the same amount of goods and services, we had to shell out an additional 5.68 lakh crores. This was because of inflation higher than 5% by 3 percentage points. Imagine how much the figure would have been if inflation had been taken zero.
But.....how did we, the citizens of India, manage to shell out 5.8 lakh crores collectively in order to buy our goods and services? Where did we get this money from? Did we remove it from our savings and if so, then our savings must have substantially come down now. But that doesn't seem to be the case.
Certainly the amount of money in circulation is rapidly increasing. More and more people are earning more in a month than their fathers did in a decade. Along with this, correspondingly, prices of things are increasing though certainly not in equal proportion. Land and housing has shot up faster than the price of, say, a cup of chai at the tapri. But it has moved upwards for sure. Certainly money is getting inserted into the society through certain channels that is causing all this monetary inflation.
But how can money be inserted into the system?
But in reality, a currency note is just ‘fiat’ money. The currency is not backed by gold and there are no reserves of any valuable commodity to back the paper currency.
The only value that the piece of paper has is in the declaration and signature of the Governor of the Reserve Bank of India (RBI) that states that the note is a legal tender that can be exchanged for goods worth that amount, and that it is legally binding on everyone to accept the note as currency.
A currency note in our hands represents a portion of our own hardwork and labour that we have done in the past, and it stores it so that it can be exchanged for goods or services for which we ourselves could not labour. We work hard and earn our money. and then either spend it on what we like, or use it to earn more money, in the form of either bank interest or investment.
But the government isn't paid by anyone for its hard work and labour. It earns its money from taxes, fines/penalties, auctioning of natural resources and by dividends from public sector undertakings, in order to satisfy defense, law and order, infrastructure and other collective expenditure requirements which an individual or a community alone cannot undertake. For example, roads and dams and bridges and hospitals cannot be built by the locals themselves. The government alone can build them. Government also spends to build schools and education institutes (like IITs and Medical colleges to learn technological advancements in these fields) in order to build a workforce that can work to progress the economy and hence the living standards of the people.
But what happens when the government spends more than it earns? How does the government satisfy its demand for Indian rupees when it hasn't collected enough through taxes? Banks do not have enough money to lend to governments, so governments have to turn to the biggest bank, the Reserve Bank of India.
To raise funds, government issues bonds which bear interest and sells them in the market. Even we can buy government securities (bonds) from the market but its less than 5% of the issue size. The interest on them is guaranteed by the government so they are the safest forms of investment, and hence with lowest returns. Out of the remaining 95%, most of the binds are bought by the RBI.
The RBI does not have any source of income but prints notes and buys these bonds therewith to give cash to the cash-strapped government. Suppose if the primary school teachers' salaries get due and the government does not have funds, will we have to wait until some good Samaritan comes in and files his taxes? Obviously not. The government will ask RBI to provide it liquidity which it can then use to distribute the salaries. Just saying.
The Government is not keeping any backup like gold or dollars for printing these notes. It gets them printed at the RBI as per its own requirements. But since the RBI also belongs to the government, the bond buying and interest payment is just a methodological formality that needs to be obeyed.
In European countries, the printing of Euros in not in the hands of each member individually, and so when the bonds mature, they cannot print the Euros and pay the interest. They have to take more loans along with oaths for austerity in order to pay the interest on the old loans, on and on, until one day the interest on debt payment exceeds the GDP of the country, like it happened to Greece and Portugal. Even USA had to raise its debt ceiling recently. Since India owes its liabilities to no third party for the currency it prints, its economic mismanagement is less threatening than some other countries'.
So that is how we have been living through the yearly fiscal deficits our country has.
Many economists would say that having a fiscal deficit of 4-5% and inflation correspondingly is good for the growth of the country. The money government spends to create jobs leads to the betterment of the society. Employment brings education brings upliftment. Its brings velocity to the money which otherwise would be stagnant in the pockets of rich people who would have enough incentive to put that money to use immediately. If there were no fears about currency inflation, people would be slow into making their purchases and so economic growth, as measured by GDP, would be low because GDP calculation requires measurement of the sum total of expenditures.No fiscal deficit would mean little inflation would mean economic stagnation or at best, slow economic growth.
Once the government has its money from the RBI, it spends it on infrastructure development and education and health facilities. It builds roads and dams and bridges and stadiums. It opens primary schools and colleges and universities. It establishes hospitals in every city, town and village and provides free or subsidized medical facilities to each and every person.
As the government makes payment to the providers for theses services, the money flows into circulation and gets deposited in bank accounts and gets spent in the market and so on. It ripples out into the economy and some inflation in prices takes place to accommodate this new money. Although the value of the money already with the people decreases a little bit due to the increase in prices, they also get education, public utilities, medical care, water, roads, drainage, and so on. So its a fair bargain. Its like an indirect tax that does not need filing nor collection and which no one can evade.
But what if the government did not use this money judiciously? What if the money printed by the RBI and given to the government is not actually spent on infrastructure building and providing better services and more jobs to the people, but is embezzled by giving tenders to favourites at unprofitable rates or is siphoned out somehow by unscrupulous politicians? Then there would be little or no benefit from the government's spending. GDP growth would be low. Inflation in accordance with the new money would be high.
Nonetheless, if the corrupt politicians atleast kept their money in their bank accounts, the banks would have the money to lend out to people and there would be some respite to the low growth. But many a times that money is sent away to accounts in Swiss Banks and the government's money goes to a total waste. It is neither spent inside the economy itself, nor does it help to act as a base for the banks to lend on.
Even of the money that reaches the departments after embezzlement at different stages, its expenditure skews the distribution of money in the society. The government may spend more money in building Delhi than it may spend building Sikkim or UP. All states will not get equal sums of money. Inside those states as well, the UP state government may spend more on Lucknow than on Bareilly. So naturally the people who work in Lucknow will earn more money than the people of Bareilly. That is precisely the reason why many people want to form separate states. That is precisely why Uttarakhand was required to be separated from UP. the funds allotted to UP did not flow into the hilly areas as much as they did in the plains. After Uttarakhand became a separate state, its own people governed how the money it got from the centre was to be spend and as a result Dehradun became a big metropolitan with perhaps a better living standard of the people than Lucknow.
Even in Dehradun, the people who work closer to the sources of the government expenditure will earn more than the other people. Government gives out loans for certain agriculture, horticulture, to purchase machinery like JCBs for mines, and sets up special economic zones, and this was also the money flows to the people.
With the Sixth Pay Commission, the government had directly brought more money into the hands to the government staffers. and with it came higher inflation as people started spending this new money. Congress government gave out money in villages through rural road constructions and employment guarantee scheme and this caused inflation levels to rise in the village.
Since the new money cannot possibly ripple out to everyone at the same time, the people who are closest to this money benefit from it the most. People from Delhi will always earn more money than the people at, say, Bhowali or Nandgaon, although the latter too, for a while, can earn similar amounts when there are infrastructure or road projects or factories getting set-up. Delhites' one month's salary could exceed the yearly income of many town or village folk. Its not that the city people are smarter or more hardworking, although they clearly are more ambitious, but its also that they are closer to the new money.
If they were not ambitious, they would fall faster in their society compared to their peers than the people in the villages. That is why life in the villages is 'slower'. In cities, sitting idle will decrease your worth faster than it ever would in a village, where you could afford to lie lazily without much of anything changing. Hence the city folk are also more tensed and stressed out.
Nonetheless, all of this is required in order to keep the engines of the economy running. Economics is the new battleground and each one of us is a soldier that is helping his country fight off the enemy. We dont need physical warfare. Economic sanctions alone would be enough to bring us to our knees. So we have to keep fighting and inflation is the price we all have to pay. Even when we don't pay our taxes honestly, This is the tax every Indian pays. Its side-affect is the social turmoil it brings.
Theoretically, RBI supplies the money to the government which results in GDP growth and then controls inflation by varying interest rates. These key rates affect the amount of money that banks can lend. Even with these tools, economic control is very abstract because it is constantly being manipulated by the government's expenditure requirements.
When the general people recognize the trend of increasing salaries and incomes, they develop an 'inflationary expectation' which instigates them to raise their prices in anticipation of new money inflow. Even though the condition of the farmers has not improved much, the price of fruits and vegetables has gone off the roof. That's because the sellers raise prices to a level where they could sell off all their stock. It doesn't matter what price they by it at. They will try to sell it for the highest price that would clear all their stock.
Ever turned away scowling from a fruit shop because of the outrageous price he was asking for some fruit? 290 bucks per Kg of Apple. Go back again tomorrow and you'll see he has sold some or all of his stock. There are people out there who's current earning status makes them free from the worries of the price of apples. So if you find fruit that you used to buy too expensive now, it means you are falling back in your status and someone else has now has the rights to those fruits.
Success, on the other hand, is when you can afford more and more. When things which were earlier too expensive are now within your reach. And this is the current definition of success and failure in our society.
This is how the nature of society and morals has changed over-time. It is a by-product of the constant injection of money into the society by the government.
My income, which is a store for my hard work which i intend to use in my times of need and also for my pleasure, keeps varying in value and although it has been this way even before the time we got independence, its velocity is much more drastic now. So I, who am young and capable of working, do not feel much of a loss because my salary keeps rising and I secure my future by way of insurance and investment and I spend my excess money on my pleasure like food and entertainment and travelling. But I also feel threatened about my future.
I also now have an opportunity to enhance my social status like never before. Hence I work longer hours in order to get better appraisals, in order to keep ahead of the others. As a consequence of my motivations and the loans which came as their result, I feel more pressure to out-perform my peers, and pressure leads to stress. I give less importance to relationships than I give to my career because the latter is more important for my social status. Relationships become secondary.
If the government had used the country's money judiciously to provide medical and educational services at low cost and built infrastructure and helped improve farming, it would have been terrific for the people. But if that government mismanages the money and selectively diverts it to certain companies or people, then we end up at the losing end of the bargain. Not only do we suffer from the affects of inflation, but our salaries do not rise in conjunction with it. Housing becomes more expensive. Electricity and water supply gets privatized. Government hospitals and schools become unreliable. All this leads to fear and stress in the people about their future. Instead of building a better society, it breaks it up in jealousy and rivalry and constant competition. This is something we need to urgently realize.
Those who think otherwise, that growth is more important than anything else, see the nation as the highest entity. Those who are against it, people like me, place the individual at the highest level. And while the latter debate with the former, the government does its own thing and is predictable by none.
Black money stored in Swiss banks should not be the concern of the middle class man. But the middle class man and the poor man should fear the excess money that those notes would create if they were brought back to the country and the government spent it. It would allow the government to spend without the control of the RBI, and would only bring even more inflation than ever. It would benefit entrepreneurs more than it would benefit the common man. A righteous government can honestly borrow reasonable amounts of money from the RBI to fund its growth related activities
Neither should the public be afraid of counterfeit notes. Although they may hurt a common man and his 500 rupee note may become worthless one time, but when the RBI prints money and the government selectively diverts it, it creates an inflation and income gap that remains for all time to come. Like the CRISIL report pointed out, Indian households had to spend 5.8 lakh crores extra between 2008-2011 in order to get the same services we would have got if inflation had been 5%. So much for your new salary hike and your hopes of a new car!
Unless the governments makes judicious use of the money it borrows from the RBI, unlike spending it on a Sardar Patel statue or for making memorial gardens and parks with elephant statues in them, the end result would be similar as it would be if i took a printer and printed currency notes myself. I would be a criminal for counterfeiting currency but not too different from the unsympathetic and biased government. In a way, i would be an unelected criminal whereas they are elected criminals.
The concern of the middle and poor class man should be the people round him and their well being. Ah! Imagine the audacity!
__________________________________________________________
P.S. The supply of money has been steadily increasing in our country. And this increase in supply is not because of fake currency being smuggled in to the country. It’s because of the RBI printing money. As per the RBI website, the number of fake currency notes in circulation in 2007-08 were 4 notes per million notes in circulation [4], and that is not very impressive. On the other hand, see the graph below, compiled from data personally collected from the RBI website, and see how the currency in circulation and the various money stock components have been growing, and you will find that the:
- Notes in circulation have grown 10861% since 1980 (till March, 2014)
- Currency in circulation has increased by 496% since 2000 (till March, 2014) - so unless you're earning 5 times of what you were earning in the year 2000, you haven't kept up with the economy
- Currency in circulation has grown by 37%% in the last 3 years (2011-14)
- Broad money, M3, has grown by 398% from March 2000 till March 2014 [1].
- Net RBI credit to the government was Rs.4,41,378 crores in 2000 and in 2013-14 it became Rs.30,38,602 crores [2].
= Net RBI credit to the Government + RBI credit to the commercial sector + RBI’s claims on banks + RBI’s net foreign assets + Government’s currency liabilities to the public – RBI’s net non-monetary liabilities
Narrow Money (M1) = Currency with the public + Demand deposits with the banking system + ‘Other’ deposits with the RBI.
Broad Money (M3) = M1+ Time deposits with the banking system
= Net bank credit to the Government + Bank credit to the commercial sector + Net foreign exchange assets of the banking sector + Government’s currency liabilities to the public – Net non-monetary liabilities of the banking sector ]
__________________________________________________________
Trivia Images:
 |
| Trillion Dollar Notes of the Currency of Zimbabwe [5][7] |
 |
| 500000 Vietnam Dong note [6] |
NOTE: Examples of countries where the government’s monetary policy has gone truly overboard are Zimbabwe, Vietnam, Indonesia, Iran and Guinea, among others. [6]
NOTE: Although the media may claim that fake currency worth Rs.1,69,000 crores is in circulation in our country, the news is incorrect. Refer here for the RBI circular on the same. RBI has released figures of the number of notes in circulation, and not the value of those notes, as given below. The Nayak Committee had noted that the number of fake notes in India is estimated at 3 to 6 pieces per million, and that this was one of the lowest in the world. [4]
[3]
References:
[2] Average Monetary Statistics: (RBI website)
CRISIL Article:
[8] http://www.firstpost.com/fwire/indians-spent-rs-5-8-lakh-cr-extra-in-last-3-years-due-to-inflation-33012.html
http://timesofindia.indiatimes.com/business/india-business/Indians-spent-Rs-5-8L-crore-extra-due-to-inflation-in-last-3-years/articleshow/9031815.cms
Any leading daily of 28 June, 2011
CRISIL Article:
[8] http://www.firstpost.com/fwire/indians-spent-rs-5-8-lakh-cr-extra-in-last-3-years-due-to-inflation-33012.html
http://timesofindia.indiatimes.com/business/india-business/Indians-spent-Rs-5-8L-crore-extra-due-to-inflation-in-last-3-years/articleshow/9031815.cms
Any leading daily of 28 June, 2011
RBI Clarification on Forged Notes:
Images of Zimbabwe and Vietnam currencies:
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