Elephant Bonds vs Dragon Bonds

Just 2 days back, I sent following email to Madam Nirmala Sitharamanji, urging her to announce launch of the Elephant Bonds recommended by a High Powered committee headed by Shri Surjit Bhallaji ( with some modifications )   :

Congratulations, Shri Surjit Bhallaji 

Now it seems China’s Central Bank ( PBOC ) is about to launch its  Dragon Bonds – in the form of a digitized domestic currency ( - a kind of Crypto Currency ) – as reported in the following news report :

China's proposed digital currency more about policing than progress 

Highlights :

Ø   it is a testament to both financial innovation and Beijing's desire to have fail-safe control over its cash economy

Ø  the DCEP [ Digital Currency Electronic Payment ], will be powered partially by blockchain technology and dispersed through digital wallets

Ø  What sets it somewhat apart, however, are features that allow the central bank to track the movement of the currency and even supervise transactions

Ø  The digital currency's design seemingly provides Beijing with unprecedented oversight over money flows

Ø  Authorities have, however, made no bones about their disapproval of Facebook's Libra, labeling it a threat to the sovereignty of China and other emerging economies and insisting that digital currencies should only be issued by governments and central banks.

Ø  Mu hinted at these fears and desire to preserve control in his lectures.  " Just imagine, if we acquiesce, that yuan can be converted into Libra, there will definitely be a massive currency exchange, triggering yuan depreciation “

Ø  PBOC plans to distribute the digital currency through commercial banks, much like how it does currently with physical yuan…………. requiring commercial banks to distribute the cash via digital wallets that can be downloaded on phones.

Ø  But unlike physical cash, one patent filed shows that the bank is exploring a tracking system that would make the digital currency's movements traceable between transactions and people.

Ø  "Theoretically, with digital currency, you could do away with bank accounts,"

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May be this ( proposed launch of Digital Currency ) , is China’s equivalent to our own de-monetization of 06 Nov 2016 – only far superior

Could we conclude as follows ?

Ø  Whereas India’s de-monetization managed to bring into the official banking system , all the tax-evaded CASH lying in safe deposit vaults, it failed to bring down corruption and Black Money . If anything, by introduction of Rs 2,000 currency note, it made it easier for bribe givers and takers !

Ø  It failed to unearth the BLACK MONEY locked up in land / gold / property etc . Once again, one needed a fewer number of notes for buying / selling same physical asset !

Ø  Our own efforts over the past 3 / 4 years to encourage people to use Digital Payments , has failed to reduce the “ Face Value “ of the paper currency in circulation . This, despite a huge increase in number of Credit / Debit cards and Mobile based payment apps launched by dozens of companies ( incl BHIM launched by Govt )

Ø  After years of compiling all kinds of data, we have no good/reliable estimate of the size of our BLACK ECONOMY , nor any idea of the amount of our Black Money, stashed abroad

Ø  Our past Amnesty Schemes for getting people to declare their Undisclosed Assets, have yielded very poor results

Ø  I get a feeling that the China’s Digital Currency will effectively address all these issues , considering that :

#  There is no option for the people / nothing like “ voluntary disclosure “ . Mandatory switch-over

#  With commercial banks stopping receipt / issue of paper currency, switch-over will be real fast

#  Banks will convert all your deposits into Digital Currency ( without needing your permission )

#  No one will have option of buying / selling any GOODS or SERVICES , using paper currency

#  Since all Sale / Purchase transactions will take place in Digital Currency, Govt would get a very

    accurate idea of the price-rise / inflation , in real time and commodity / region-wise

#  Of course, Govt would need to declare daily “ Exchange Rates “, for enabling payments for imports and

    for receipts for exports

#  With all sale / purchase ( of Goods and Services ) taking place using Digital Currency, Government will

    have a life-time record of every citizen ( WHO purchased WHAT and WHEN , at WHAT price and from

    WHOM ).

    So the Chinese Govt would have data on the PURCHASE BEHAVIOUR TRENDS of its citizens , in real

    time.

   This will help the Govt to adjust its policies to take care of changes in DEMAND and SUPPLY of

   everything

   Besides, tax collection ( GST ? ) will be automatic and there will be no need for any seller to file any GST

   Returns !

To know how else this will affect the Chinese Economy, read :

               Will China Reign Supreme ?               [ 15 Oct 2019 ]

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04  Nov  2019

hcp@RecruitGuru.com