Demonetisation and the Johnny Joker Syndrome - Vivek Kaul's Diary
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Demonetisation and the Johnny Joker Syndrome

Jun 20, 2018


Since yesterday evening we have been listening to a 25 year old pop song, Johnny Joker, sung by Shweta Shetty. And at the risk of embarrassing ourselves we need to confess that more than the song we like listening to the part where a male singer raps (from what we remember his name was Raj Bahadur).

Listening to the song has brought back old memories, but more than that it has made us wonder, where did Shweta Shetty (not to be confused with Shilpa Shetty of Baazigar and Big Boss fame) disappear? Or where do all the people who achieve moderate success in life, disappear, once their success fades?

A Wikipedia entry tells us that Shetty married a German, Christian Brandt. Did they live happily ever after?

We have no way of finding out.

In honour of Shweta Shetty and her wonderful song, let's term this phenomenon of people achieving moderate success, and then disappearing from public life, as the Johnny Joker syndrome. (We could also call it the Nikhil Bhagat syndrome, but then not many of you would know about him. Not that many of you would know who Shweta Shetty is, but then we like her song).

The Johnny Joker syndrome does not work in just case of people who achieve moderate success, it is also valid for issues that were once hot, but have now disappeared from public attention, given that the attention is limited and there is so much happening in the world around i.e. the noise that we like to pay attention to.

Take the case of demonetisation. These days no one talks about it. Now that is scandalous given that the bad decision put India's economic growth back by at least 18 months. In 2017-2018, India grew by 6.7%, which was the slowest in four years. The private consumption growth in 2017-2018 was the slowest in five years.

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Given these factors, it is a shame that demonetisation does not attract enough public attention, anymore.

One of the motives of demonetisation, as we were told, was to encourage cashless transactions. The currency in circulation (a measure of the total amount of cash in the system) has constantly been rising. As of June 8, 2018, it was at Rs 19.48 lakh crore. This is 8.4% more than the currency in circulation as on November 4, 2016, before demonetisation happened.

Of course, the economy has also grown in the meantime. Hence, it is not fair to just look at the currency in circulation in isolation. It needs to be looked at as a size of the overall economy.

In the years before demonetisation, the currency in circulation as a percentage of GDP varied between 11-12%. As of March 31, 2017, it had fallen to 8.75% of the GDP. This happened because the currency in circulation which fell dramatically after demonetisation, had not been fully replaced.

As of March 31, 2018, it had risen to 10.91% of the GDP. There was a jump of 216 basis points in a period of one year. One basis point is one hundredth of a percentage. This tells us clearly that the cash transactions are well and truly back in the system. Despite this jump, there was a huge cash shortage in large parts of the country, earlier this year.

GDP data is released only four times a year. Hence, we can't calculate the latest currency in circulation to GDP ratio, for data as of May-June 2018. Nevertheless, what can be done is that we can look at currency in circulation as a proportion of total money going around in the financial system.

There are several measures for the total amount of money in the financial system. We will look at the broadest form, which is technically referred to as M4. Before we go any further we need to understand what is M4.

M1 = currency with public + deposit money with public.

Currency with public is what remains once we subtract cash with banks from currency in circulation. As far as deposit money with public is concerned it contains demand deposits with banks and other deposits with the Reserve Bank.

M3 = M1 + time deposits with banks.

A time deposit with a bank is an interest-bearing deposit which has a specific date of maturity.

M4 = M3 + total post office deposits.

Now we understand what M4 means. Hence, we can calculate the currency in circulation as a percentage of M4 and plot it over a period of time. Take a look at Figure 1.

Figure 1:

Figure 1 plots the currency in circulation to M4 ratio for a period of more than eight years. This ratio basically measures the proportion of cash (represented by currency in circulation) in the financial system. If this ratio comes down, it signals that habits are changing, and that people are using lesser cash.

Typically, the ratio has varied between 13-14% over the years, though sometimes it has dipped below 13% as well. In end May 2018, the ratio of currency in circulation to M4 stood at 12.95%. This is well within the normal range, over the longish time frame under consideration in Figure 1.

Within a few weeks, this ratio shall cross 13% and should be well in line to cross the ratio of 13.52% before demonetisation. As the ratio moves upwards, it will basically keep indicating that more and more cash is being used in the system.

In fact, this will work well for the economy, because it will address any cash shortages that still prevail.

Of course, all this makes us wonder, how did demonetisation help in the first place? In fact, as more data comes out in the years to come, it will make demonetisation look like a terrible decision.

Nevertheless, one did not have to wait for this data to make this judgement. When 86% of the currency in circulation is made useless overnight, there are bound to be negative repercussions for the economy, irrespective of who you support politically.

The sad part is people have already forgotten about all this. The Johnny Joker syndrome is at work.

Meanwhile, we are still tripping on Shweta Shetty singing Johnny Joker and we suggest, dear reader, you might as well do that.

For us, happy days are here again! How about you, dear reader?


Vivek Kaul
Vivek Kaul
Editor, Vivek Kaul's Diary

PS: What are India's best investors doing with their portfolios in such a volatile market? Kunal Thanvi is on a mission to reveal their top picks to you. You can follow India's top 40 super investors here.

Vivek Kaul is the Editor of the Diary. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

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6 Responses to "Demonetisation and the Johnny Joker Syndrome"

Vivek Joshi

Jun 25, 2018

The ratio needs to be that of Currency with Public as a fraction of M4. Bringing money stuffed in mattresses into bank accounts was one of the key objectives of demonetization, hence Currency in Circulation in the numerator is not the best measure. Also, cash in the system spikes around elections. Given the scale and potentially long-term impact, we had identified four metrics as criteria for success, to be revisited in 2019 and 2020. So far we see partial progress in 3. As for impact on economy, our estimate in the first week of demonetization was that it would be about 1-1.5% of GDP. We also estimated then that almost all the money out there will come into the system. Instead of loosing 100% of the money in mattresses, it made sense to deposit it and take one's chances with the assessing officers, knowing that cases take a long time and a more accommodative dispensation may come in at the helm. Interested may see our publication at


N. B. Prasad

Jun 22, 2018

Whether the demonetization has achieved the many objectives it had set forth is always a matter of debate. The article says that money in circulation has increased more than it was prior to demonetization though the economy has grown at lesser pace. If you read the figures of money in circulation as given in the article it appears that the observation is true. The comparison would have looked realistic had the other things such total assets/liabilities of the RBI balance sheet, total transaction in RTGS/ NEFT been considered for such a conclusion. Here is some information. The money in circulation and total size of B/S of RBI were 17.54 and 32.79 bio respectively as on October 2016 and they were 19.05 and 35.55 bio as on May 2018. So both have grown indicating economic changes. Now the electronic transactions in the banking system particularly the NEFT outward credit transactions were 123.05 mio amounting to Rs.8807.88 bn in Nov 2016 and increased to 172.9 mio amounting to Rs.17152.00 bn. in May 2018
Now decide for yourselves.



Jun 21, 2018

Thank you VIVEK for these very informative short articles you write in the DIARY hosted by EQUITYMASTER. They are truly very educative and relates to our everyday life and helps old folks like me at 83, to take an educated and active participation in the economy and growth of our nation and the quality of life of the AAM AADMI. I actually copy some of your articles and the graphics and study them at leisure which, I use in my social encounters with like-minded buddies or even casual acquaintances. GOD BLESS YOU FOR THE GOOD AND CONSTRUCTIVE WISDOM GOD HAS GIFTED YOU WITH, AND YOU ARE USING IT WELL! I truly admire your national spirit of giving. Please keep going, you are in an old man's prayers for your health, welfare and true happiness. Amidst your success, I would like you to remember that you are living a LEGACY for our INCREDIBLE INDIA! It's a pity that good listening to wisdom is not a virtue in our country, divorced from pecuniary kickbacks.


Devang Shah

Jun 20, 2018

Unfortunately, I do not agree with the article. I come from a trading community which is the biggest in India who deal in cash. What demonetization has brought in that it has created a fear among cash hoarders , traders who used to do crores of rupees of transaction only in cash without paying any taxes have now started turning to formal ways. And the examples are not 1 or 2 but almost 100% trading community. Residential prices are stagnant from last 2 yrs which were rising beyond imagination for common public. There is a major shift in the behavior of trading community after demonetization and GST. I believe the next decade will see a major shift in India's business community and consumer behavior, towards a more formal economy. I will not be surprised if our formal economy doubles or triples in next decade(provided the current dispensation continues for next term).

As far as cash circulation is concerned, I believe people have cashed in after the rumors of LTCG started in Nov/Dec 2017. These amount has now moved to FD and Post office deposit. The interest earned from that fix deposit is now coming back to market in form of SIP. I myself have cashed out all my stock investment which I made in 2016/17 and moved it to FD and the interest earned is invested in mutual fund SIP.

Cashless transactions have definitely gone up especially through wallets , I believe you will have those statistics with you

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Jun 20, 2018

Demonetisation did have a positive effect which Mr. Kaul fails to accept as Mr. Kaul has been in the forefront spewing venom about Demon in Demonetisation. First he spoke about loss of jobs, unemployment etc etc... now that has boiled down to tardy Economic growth.Has The Demonetisation not resulted in arresting the benami cash transactions,cash transaction in real estate, the illegal hawala trade, the circulation of fake high denominations note from across the border..... ? Readers would welcome an analysis from Mr. Kaul on issues he had raised at the time of Demonetisation.

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Atma Ram Sharma

Jun 20, 2018

I am retired AGM from RBI & also worked in the currency management department.Alongwith Mr Rajan we most employees knew that the decision of demonetisation was political motivated & will cost heavily on the country & public.The forge notes detection used to be very meagre.Black money is invested in gold & property.The issue of 2000 notes has defeated that purpose also. The economy has derailed.Small& medium buissness have been crippled.Poor men have to suffer the most.The party in power due to ignorance of general public beliving the false propeganda, helped financilly by few buissness men has cheated the countrymen.GST is also crippling small buissness,which has to play a major role in economic development of the country.

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