"Counterfeit Currency & Black Money – A Practical Response"

"Counterfeit Currency & Black Money – A Practical Response"
by P.T. Choudary, Chairman IDEAz

Quotations for consideration:

  • "Men make counterfeit money; in many more cases, money makes counterfeit men” - Sydney J. Harris

Key Concepts:

  • Counterfeit Currency debases the value of the lawful currency, increases inflation and acts against economic progress.
  • Counterfeiting Currency and circulating it is a crime and, if done in a Country by another Country, is an act of War.

Key Metrics:

  • More than a quarter of the currency in the hands of the public in India currently may be counterfeit. According to an estimate made by the Intelligence Bureau (IB).
  • Fake currency dealers in Nepal had earlier projected that by 2010 nearly $ 2.2 billion worth of fake currency will be in circulation in India. It would be even more today. The Global Financial Integrity in its report said that the heavy flow of counterfeit notes has led to speculation that elements in Pakistan are trying to create confusion and destabilise India. The fake currency money is routed to the country through Bangladesh, Thailand, Dubai and Nepal.
  • The ‘Black’ or unaccounted economic transactions are nearly 50 % of the economy of the Country. Such Black Money also encourages money being taken out of the Country (See ‘Indian Money in Foreign Banks’)

War is defined as essentially a Political or Economic Act by a Nation against another Nation to secure its Aim, and a Military Act only to the extent that Military forces may be required, as a last option, to be used to achieve that Aim.

It is thus evident that the making and introducing of Counterfeit Currency by one Nation into another is an act of War and calls for a strong and immediate response. However it is a surreptitious way of warfare and hence difficult to prove and retaliate against. In such a case, the best ‘defence’ is not ‘offense’ but only a good ‘defence’.

The best defence would be to negate the entire effort of the suspected enemy in producing and distributing the counterfeit notes. The solution proposed hereunder was not feasible for the USA when its Currency was similarly targeted in the past, allegedly by Iran. It would not have been feasible for us even a decade ago. But today when:

  • The Aadhaar System identifies everyone and encourages everyone to have a Bank account to avail direct subsidy as applicable,
  • The availability of Debit / Credit Cards is extensive,
  • The spread of Banks across the Country with the ability to rapidly encash / credit Cheques is also extensive,
  • The Negotiable Instruments Act makes the use of Cheques more acceptable and effective and can be made even more effective for even greater acceptability by declaring that issuing a cheque is as good as paying cash and, except in cases of extortion which need an FIR, no other excuses will be acceptable for not honouring the cheque.
  • The lack of Capital account convertibility restricts the availability of Currency notes outside the Country,
  • The
Total votes: 0


Today the buying power of Rs 500 or Rs 1000 is very little.Even a casual labourer spends this money during the course of a week. To do away with these notes may not be the answer as categoty of people will never use debit/credit cards in the near future. I agree that one needs to generate new currency with security features which should be not only difficult but almost impossible to replicate.

These are two independent problems, though interconnected. The country is plagued additionally by corruption and money laundering. As regards counterfeit money, the best approach is to minimise cash based transactions. This can be achieved by encouraging card based and cheque based transactions. Approach is to incentivise such transactions and disincentivise cash based transactions. Since major transactions are done by the rich (presumed to be literate) such a move is not difficult. Incentives can be tax based or cost based. Also demonetisation of higher currency does help, though might cause a small problem. All cash based transactions are taxed differently irrespective of size. We are not talking of small retail outlets where transaction sizes are less than Rs200/= or total turnover a couple of lakhs a year. Regarding black money, tax rates, penalties and punishment and efficiency of administration are important. Aiding this 'black money' is corruption which is a different animal and needs a tough and rigorous approach.

Dear Ramesh Garu, Thanks for your comments. I am glad that you to see the advantage of encouraging card and cheque based transactions. This in itself will reduce opportunities for black money transactions. Demonetization will further almost completely shuts such transactions down. Best Wishes... P. T.

Dear Pawan, Thanks for your comments. Please note that at any one time even a labourer is unlikely to need to carry over Rs. 1000/-, which would be only 20 notes of Rs. 50/- which is easily practical. Others needing to carry more can resort to cards and cheques. It is a good idea to have long lasting and secure currency notes but since the aim is to make it near impossible to carryout Black money (Cash) transactions it is necessary to demonetize all high value currency notes. Best Wishes... P. T. Choudhary
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