How is bringing back black money different from printing more money?
We hear a lot of fuss happening about enormous amounts of black money stashed abroad and how bringing it back would supposedly solve most of our economic problems. But how different is it really, from printing in more money? Won't the black money now in market have the same kind of inflationary affect?
Answer by Balaji Viswanathan:
Direct Economic impact:
- If RBI were to print 100 billion rupees it won't increase our GDP one bit. In general, when you print your currency you will not cause your economy to go up.
- If the black money stashed were in rupees, then it might not matter as much. However, most of the black money is in foreign currency – USD or Francs. RBI cannot print them and having them back will cause our GDP to go up.
Indirect economic benefit:
The money stashed away in Swiss banks does nothing good to India or any place else. That money should be in the market generating more products and investments. Thus, releasing them and putting them back to work in markets will have multiplier effects. Economists call this the multiplier effect. Money introduced in one part of the economy keeps snowballing.
Black money begets more black money. The politician who is stashing that much needs to keep paying bribes to cops, tax collectors, assistants and other politicians to keep quiet. All this is black money and this spirals. Corruption is a highly infectious disease.