On Nov. 8, the Narendra Modi government surprised India with a declaration banning 500- and 1,000-rupee notes (Rs500 and Rs1, 000) to tackle black money and corruption. The demonetization policy may be well intentioned, but it has brought up unintended consequences over the domestic economy in India.

Rs500 and Rs1, 000 were India’s two biggest notes that and accounted for 86 percent of the money in circulation by value. According to the announcement, all citizens will have until Dec. 30, 2016 to exchange the old banknotes at bank branches. People seeking to replace more than Rs250,000 (about $3,650) must explain why they hold the cash. Those who fail to do so must pay a penalty.

Due to the large number of notes and the short replacement period, Indian banks and ATMs have long queues as people rush to exchange old notes for new ones. The government can’t print enough new notes to fulfill the demand. Till Dec. 10, the banks have received Rs12.4 trillion as deposits but only released Rs4 trillion back into the system as of 5 December.

People queue as they wait to exchange or deposit their old high denomination banknotes in Jammu, India. Photograph: Mukesh Gupta/Reuters

As a normal economy influence, the lack of cash led to a soft inflation on the market. Food inflation in November softened to 2.11 percent from 3.32 percent a month ago, according to data released by the Central Statistics Office. Retail inflation also decreased from 4.2 percent a month ago to 3.63 percent.

However, the demonetization of high-value currency notes has had a negative impact on the Indian economy. The lack of electronic bank accessibility and wireless payment in India has magnified the effect of insufficient cash on the business activities of investors and consumers. The overall industrial output decreased by 1.9 percent compared to before demonetization, according to the industrial production data.

There are worries about the money liquidity problem. “The Reserve Bank of India is likely to outline measures to manage the systemic liquidity, which would be of interest to the banks, and provide some timeframe by which cash liquidity would increase, that would be of significance to the public,” said Naresh Takkar, managing director at ICRA Ltd., the local unit of Moody’s Investors Service.

The original goal for the government’s demonetization policy is to tackle black money — cash that is not declared to avoid taxation or that is obtained via corrupt practices. But according to the New York Times, the vast majority of black money in India isn’t money at all. It’s held in gold and silver, real estate and overseas bank accounts. The requirement also stimulated a new black market where people can break old notes into smaller ones by illegal couriers.

Demonetization alone can’t tackle the issues of black money and corruption. More actions toward improving policies for administration transparency, tax regulation and the modern online bank tracing system are needed.

Work Cited:

India pulled 86% of its cash out of circulation. It’s not going well.

http://www.vox.com/world/2016/11/29/13763070/india-modi-cash-demonetization-protests

Cash-Crisis India Looks Likely to Cut Rates

https://www.bloomberg.com/news/articles/2016-12-06/india-decision-day-guide-seeking-clarity-on-the-cash-clampdown

In India, Black Money Makes for Bad Policy

http://www.nytimes.com/2016/11/27/opinion/in-india-black-money-makes-for-bad-policy.html

How India’s Cash Chaos Is Shaking Everyone From Families to Banks

https://www.bloomberg.com/news/articles/2016-11-21/india-s-cash-chaos-by-the-numbers-guide-to-banknote-revamp

New note ban rules and regulations as of 14 December

http://www.livemint.com/Politics/p1VV2avZvT2hWIrc07PBfJ/New-note-ban-rules-and-regulations-as-of-14-December.html

In 1961 the U.S. severed diplomatic ties with Cuba. As of December 2014, the U.S. and Cuba started to restore formal diplomatic relations for the first time in more than half a century. The U.S. moved to relax restrictions on trade, commerce and financial transactions with Cuba, though the comprehensive trade embargo for years is unlikely to be lifted at once.

Since the 1960s, the U.S. administrations have maintained the policy of economic sanctions of Cuba. Cuba depends primarily on three suppliers to meet its import needs. In 2014, Venezuela was the leading supplier of Cuban imports, with 35 percent share. The EU supplied 23 percent of total Cuban imports, while China accounted for 11 percent. Venezuela, the EU, and China together accounted for 69 percent of total Cuban imports in 2014. By contrast, before initiating trade restrictions, the United States alone accounted for 70 percent of Cuba’s total imports in 1958. In 2014, the U.S. share was just 3 percent.

As the political relation normalized in 2014, the trade advancement is still feeble to see. The total amount of Cuba imports from the U.S. in 2015 was $180 million, down 40% ($119 million) from 2014 and down 51% from 2005. The top export categories in 2015 were meat, food waste, grain and chemical products. The agricultural products importing from the U.S. totaled $150 million, which is the leading import category.

Compared to Cuba’s import, there was no goods export to the U.S. in 2015. The EU still remains the leading partner of Cuba’s export destination.

But after the Cuba policy changes announced by the President in December 2014, the U.S. government made some regulatory changes to allow the importation of certain goods and services produced by independent Cuban entrepreneurs. The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) have made five sets of amendments to their respective Cuba sanctions regulations. OFAC introduced a provision in January 2015 authorizing the importation of certain goods and services produced by independent Cuban entrepreneurs.

Other changes are expected to benefit the economy in both countries. American banks can now do business with Cuban customers without brokering through a third nation. It means Cuban Americans can send money to family members in back in Cuba easier than before. In 2015, Annual funds sent from the U.S. back to Cuba nearly doubled to $1.4 billion.

US citizens are now able to use their credit cards in Cuba. They can also take home up to $100 in alcohol and tobacco from the island. Still, most US travelers to Cuba will continue to be family members, academics, journalists, cultural ambassadors, and medical professionals. But US citizens don’t need to obtain permission from the US government as previous required. About 150 thousand Americans traveled to Cuba in 2015, up from 91 thousand the year before.

Though two countries has made progress toward trade and commerce, the future remains ambiguous. Fidel Castro, Cuba’s communist leader who had been in power for five decades, died on Nov. 25, 2016. Two days later, the U.S. President-elect Donald J. Trump warned that“If Cuba is unwilling to make a better deal for the Cuban people, the Cuban/American people and the U.S. as a whole, I will terminate deal.”

Chinese residential developers in L.A. are expecting Chinese buyers to constitute up to 40 percent of their clients. Since 2014, Chinese real estate companies have been involved in at least seven of 18 land deals in Los Angeles.  Greenland, a Shanghai-based real estate company, bought a property called “Metropolis” in downtown L.A. near the 110 freeway. This mixed-use project with three towers and 1500 residential units is now under construction. Greenland, the property owner, has the marketing skills to attract the Chinese buyers. The realtor for the Metropolis project said 75 percent of units in one tower had already been sold. Many of those units are going to buyers from China.

The Metropolis project model 

First, Greenland targets Chinese buyers through real estate agents from both China and the U.S. The L’ands Corporation is a Beijing-based company and has years of experience selling luxury houses in China. The advertisements for the Metropolis condominiums have appeared during the Beijing company’s marketing to Chinese buyers. “We are quite confident about the overseas market because more and more Chinese clients consult with us about houses in the U.S., especially California,” said Eason Wang, one of the sales agents in the L’ands Corporation. After Wang posted the Metropolis information in his Wechat account (a Chinese popular social networking account similar to Twitter), several customers were interested, and Wang planned to put the potential buyers in contact with the Los Angeles partner — Douglas Elliman. The main roles of the Chinese real estate agents are the advertiser, the promoter and the connector between the Chinese buyers and the L.A. market. Only the U.S. real estate agents are authorized to sell American houses. The L’ands Corporation will help the potential Chinese buyers arrange the property visits with Douglas Elliman’s L.A. branch in Greenland’s office near the Metropolis project. Douglas Elliman’s team for Greenland, of course, has several Chinese employees who can speak fluent Mandarin.

A screenshot of L’ands Corporation house selling advertisements in Wechat

Greenland, the company behind Metropolis, tries to make its properties more attractive to potential Chinese buyers by linking ownership to citizenship.

It’s called the EB-5 Immigrant Investor Program. According to the U.S. Citizenship and Immigration Services, foreign investors are eligible to apply for permanent residence if they invest $500,000 in a company like Greenland in a way that helps create or preserve 10 permanent full-time jobs for qualified U.S. workers. Greenland will return the money to investors once the properties they invested in are sold. The Chinese buyer gets to stay in the U.S.

In 2015, more than $25 billion from China flowed into residential real estate in the United States. Chinese consumers bought more U.S. properties than people from any other country. “People move with capital nowadays. If you go to a university in the U.S., you will also consume goods including investment in property. It’s the mobility of capital,” said Yasheng Huang, associate dean of the MIT Sloan School of Management.  “The houses built by Chinese real estate companies could easily own the Chinese buyers’ attention and trust.” But behind the big boom in American real estate investment are worries about the depreciation of China’s currency and an economic slowdown. “There are right reasons for capital movement such as increasing globalization, the mobility of capital and the ability of entrepreneurs,” Huang said. What he worried about were the “wrong reasons” for capital movement such as the lack of confidence in the future of China’s economy.

http://www.latimes.com/business/la-fi-0825-china-dtla-snap-story.html

http://www.latimes.com/business/la-fi-chinese-us-investment-20150520-story.html