The State Minister for Finance, recently informed Lok Sabha that the government had stopped printing of the currency notes of Rs2000 denomination in 2019 itself. This step has been taken to prevent hoarding of currency and curb the circulation of black money in the economy. It is pertinent to note in this context that Rs2000 denomination notes were introduced in 2016 post cancellation of the then prevalent currency notes of Rs1000 and Rs500 denomination. That step, in the first place, was also apparently taken to curb the circulation of black money in the economy.
Besides, the color of money {white, black, pink
(Rs2000), green (INRUSD) etc.} which remains an active topic of discussions, the
temperature of money is also becoming a topic of interest. Rise in the stock
and flow of “hot money” is becoming a worry for authorities. “Hot money” could
be loosely defined as the liquid money that flows very fast across asset class
and jurisdictions in search of short term trading opportunities. This money
usually has no commitment to any asset class (debt, equity, commodities etc.)
category (emerging markets, developed markets etc.) or country. Both, the entry
and exit of hot money to any class, category or country usually are disruptive,
due to high speed and force of such flows.
Multiple bouts of stimulus provided by
governments and central banks to counter the slowdown induced by the pandemic
related safety measures, seems to have created billions of dollars in “hot”
money. This hot money is apparently fueling the asset prices world over. The
prices of most liquid assets, like publically traded equities, crypto
currencies, precious metals have gained maximum; though the prices of physical
assets like metals, real estate etc. have also gained materially.
As per some reports, recently “Beijing
officials and policy advisers have been highly critical of US President Joe
Biden’s newly signed US$1.9 trillion American Rescue Plan, warning that it
could cause massive capital flows and imported inflation that could exacerbate
domestic financial risks from already high debt levels."
Zhang Xiaohui, former assistant governor of the
central bank, was reported to have said that “The [US Treasury bond] yield hike
driven by inflation expectations will lead to a revaluation of asset prices, or
even turmoil in financial markets. Domestic markets are unlikely to remain
unresponsive.” This is seen as a caution that Chinese domestic markets will
respond to rising rates, and should rates spike even more, Chinese
assets face a world of pain.
Relative to China, India has not received much
of hot money in 2020 and 2021 (YTD). The total FPI flow in India in past
12months (net flows in equity plus debt in secondary markets) is less than US$5bn.
Much of this flows are apparently through ETF route, which is usually not hot
money.
