Demonetisation is good, for many reasons: Surat CA's video explaining velocity of money goes viral

A chartered accountant from Surat, who penned an open letter to Delhi Chief Minister Arvind Kejriwal explaining Prime Minister Narendra Modi's demonetisation move using two imaginary, but interesting scenarios, is back with another video on note ban.

Mehul Shah in the video, produced by Tax Origin, explains how the decision to demonetise will increase 'velocity of money'. Velocity of money denotes the number of times a unit of money in an economy changes hands during a certain period. Shah says that cash is not supposed to be hoarded because it is not a commodity, instead, cash is meant to be used as a "medium of exchange" for goods and services to be received. "A single note of Rs 1,000 is worth Rs 10,00,000 if it passes through 1,000 citizens across the country in a year and is worth only Rs 1,000 if it is kept idle in a locker. This is called the velocity of money."

Asserting that demonetisation will increase veloctiy of money, Shah adds a rider.

"It is true that the economy may surely be benefited if the velocity of money increases and theoretically the move of demonetization and move towards cashless economy should help to increase the Velocity of Money but it cannot be proved with certainty because we never knew the velocity of money in parallel economy because those transactions were never captured in accounts or public records."

The video strictly advises people not to sell notes at discounted prices or deposit cash into benaami accounts in fear of penalty. Shah further tells not to claim any bogus expenses or bogus loss to gain more trouble. "Do not manipulate accounts by creating bogus cash on hand. Be sporty and pay tax honestly to buy peace of building capital."

Even though Shah's blog is ridden with jargons, the video will help you understand the concept and benefits of a cashless economy better. If we had to cut through the jargon and explain the concept in a gist, it would be this:

Since cash leaves no trails and it is hard to pinpoint black money hoarders in a parallel economy, a cashless economy is probably the best way to cut through all the corruption.

"...the task of the Government as well as citizens is not going to be easy because as I said earlier, Cash leaves no trails. Hence it is in the interest of the Government as well as we common man to adopt to cashless means of doing business and encourage everyone to use banking route as much as possible."

Updated Date: Dec 17, 2016 16:28:38 IST