Prime Minister NarendraModi announced demonetization of the existing notes of Rs.500 and Rs.1000. The notes got banned and are not used for any transaction. Instead of them, you have to use new 500 and 2000 rupee notes. This step was taken to eradicate the black money and corruption in the country. Just 7 million Indians in Gulf Countries remit and transfer money worth more than $70 billion every year, what about the rest of European and western countries. Most of these transaction done through exchanges.
The rule came into existence from a midnight without giving any prior notice. It affected a great extent of people in India. But what about the people who are living in abroad? What about the students who are residing in a foreign country? Did they get affected by demonetization? Does it affect International money transfer?
After demonetization, a large number drop is seen in international money transfer across the country. Some of the major reasons are:
As we know that whoever has 500 and 1000 INR denominations has to exchange the money by getting them deposited in banks.
Due to the government’s step to stop the black money, if unaccounted cash is found in exchanging or depositing money then it gets a decline.
There are many problems with the currency ratio as if any higher deposits are made then it leads to an impact on the overall money supply. It leads to deflation to the economy and decreased the remittance flow to other countries.
However, there are always two sides of a coin. Demonetization does not affect some parts of the international money transfer. Sending money to India from any other country is not limited. They just have to pay the required taxes.
When coming to transferring money from India to any other country is limited. For example, If you want to send money for your son who is in the USA, the amount is limited to $14,000 per year with tax-free transactions. Any above the limit then you are responsible for tax payment.
The shortfall of the currency notes in the banks and RBI instructions to not accept old notes lead to stop the transaction business.People are not accepting any money from others or not even paying them.
Because of RBI’s instructions to the money transfer industry of not accepting the payments from old Currency has impacted money transfer industry. A business where cash transaction is almost stopped, not able to pay abroad with their currency, also not able to accept the payments because of a shortage of physical currency notes. “Switching Charges have officially waived off. Though wallet transaction has increased over many mobile apps and services. But the question remained is can we pay a bulk amount to another party through these. Because most of the customers have not able to opt-in for these services instantly, also confidence and reliability have not increased.
Demonetization has led a negative impact on transferring money from India as most of the businesses with cash transactions are almost stopped. But there is no effect in depositing money. Also after demonetization, it was observed the many have opted in for digital methods to send money through money transfer exchange service with low fee.