India’s Currency Denominations: A Rumination
I want to discuss a policy move carried out by PM Modi of India yesterday to ban large currency denominations. Yesterday, Modi effectively banned the 500 and 1,000 rupee notes (RM35 and RM70 value) in an attempt to flush out corruption by making it harder to physically pay bribes. This is a simple but brilliant move. Imagine having to bribe a politician RM1 million using all RM10 notes. Imagine for the Sabah Water case, you will need an entire house to hoard all the cash in RM10 notes. This move also forces the corrupt and tax evaders to move into electronic money transactions which leave digital footprints for audits and investigations.
The idea is actually not alien to Malaysia. I remember in the 1997/1998 Asian Financial Crisis, the RM1,000 note was also banned. But the ban was not to stop corruption but to stop currency and capital flight.
Can we implement a policy like Modi, where we move to ban our RM100 notes? I am not sure it will work but it does merit some considerations.
A major problem is it does not stop corruption being paid in other currencies such as US or Singaporean dollars.
In fact, there is talk that for Malaysian bribes, the preferred currency is Singapore dollars where the infamous S$10,000 denomination allows a politician to be paid RM1 million with a mere 30 pieces of notes. Imagine a sizeable bribe transacted literally by a handshake.
Maybe banning the RM100 notes will catch the smaller localised fish but we also need Singapore to do their bit and ban their larger notes too, to enable us to catch our really big sharks.
Electronic transfers will definitely offer greater transparency and traceability. But then again in Malaysia, even if we force people to do more electronic transfers, these digital footprints may be ignored. Like the case of when the then Bank Governor Zeti, took a tak apa attitude when RM2.6 billion was transferred to MO1’s account.
Bottomline, congrats to India for having the political will to carry this very interesting policy. It remains to be seen if we can replicate this. I have assigned my researchers to look into this.