Black money is major problem in developing countries and black money is the root cause of terrorism. So it is a problem that has to be handled by every country in the world.
Black money is the accumulation of currency over a long period of time. Because currency has not changed for so long, it got accumulated with many people. Though currency gets changed once in a while, the old currency is also valid. It gives enough time for black money to get converted to new currency. The illegally earned money is getting used for illegal purpose.
Changing currency is the simplest solution to clean black money. If a country decides to change the currency, it should not give much time for people to convert it to new currency. Give, may be, just one month time. Don't announce the plan of currency change. Plan properly, estimate the currency requirement, print all required currency, decide the date and announce. Request people to deposit all the currency in banks and withdraw only required amount as new currency. When they go to bank for depositing currency, everybody needs to give their PAN number or social security number or some way to identify themselves.
People cannot just exchange the currency. They cannot give old currency and take new currency. They need to deposit the money in bank account. After that they can withdraw depending on their requirement. There is upper limit for withdrawal per day. If anybody is depositing huge amount, keep track of that person. With this process, all the currency will get converted. Because time given is less, people that are having black money need to decide quickly whether to convert to the new currency or lose the money. With this way, currency part of black money will be cleared completely.
Foreigners who came on trip can get their money converted at any bank. Foreign exchanges will be having different procedure for currency conversion. People living in foreign countries have to deposit the currency in foreign banks.
For poor people who are not reading news or unaware of this change, we can relax time for a longer period. They will be having very less currency with them. For them, give monthly one day for currency conversion. Set maximum conversion limit to 10,000 rupees or less. This process can go for about one year. With this poor people are not getting affected. They can change the currency within one year. Nobody is living without using money for one year. If they go to any shop, the shop keeper will not allow the old currency. Then this person will understand the change and how to convert. If they are earning, they will see new currency and understand why they got new currency. Even if poor people are away from media, they will get the information very soon. But the limit of currency that can be converted after one month is very less. Banks will not allow anybody who tries to deposit more cash with old currency after one month. The time limit has to be very strict.
With this process, we can find people that are having black money. If they don't show up the money, they are under loss because they cannot use that money later. They will be losing the money permanently. Government will have the full details of which country is having what amount of currency. This information is useful for economy planning and to find country supported terrorism.
If a person withdraws huge currency, government can track the person and his/her activities along with the currency distribution. As all the banks are connected worldwide, if any huge transaction happens, that information should reach government immediately. Government can keep a system (computer) just to track this information and set limits on transactions within country and across countries. Whenever transaction crosses the limit, a log is generated in government system. That is up to CBI to decide on how to utilise that information.
If all governments join hands to tackle terrorism, tracking of money movements will be very easy with current technology. Governments can even predict where the terrorist accumulation is happening and even their activities with money movements. If a person is suspected of having links with terrorists, that person's accounts and all the accounts transacting with those accounts can be monitored all over the world. That gives an idea of where the money is moving to. When each person's all bank accounts are linked with PAN number or social security number, all the accounts of the person all over the world also can be linked.
All the banks in the world can do one time review of account holders, especially for those with large bank balance. Banks can check whether they can identify a person or an organisation as the owner of the account. They can update account holders' latest address and other identity details. If they cannot trace an account owner, that account can be seized and the bank balance can be transferred to the government. The people who earn large amounts illegally will be depositing everything in foreign banks. With this process, if they cannot show up and link those accounts with their identity, they lose that money to government. Public money goes back to public. Terrorists and criminals will be under trouble with this process. If they show up, they will be caught. Otherwise they lose money. This process of verification can be done once in a while to find out accumulation of large amounts in illegal hands.
If we track both currency and electronic money, there is no escape route for terrorists. Terrorism cannot live without money.
The cost of this process is very less compared to the black money and the damage it is causing. The money spent by the government to control terrorism and the damage caused by terrorism can be saved. One time printing and distribution of new currency is not a costly affair for any country where majority of people use electronic money for all transactions.
If all the countries do currency conversion once in this technological era, complete black money will be cleaned from the world. It is not necessary for all countries to do it together. But if all does it within a year, the effect will be very high.
Countries like India, with huge number of poor people who work for daily wages, may feel that they cannot reduce currency usage. Because building construction workers or road construction workers work for daily wages. So the contractor needs to withdraw huge amounts of currency to give their wages. Because that is valid reason, banks allow them to withdraw huge currency. Government can stop this and improve lives of poor people along with reduction of currency usage. Let all poor people get savings bank account with an ATM card, with zero balance and without any penalty for keeping no balance in their accounts. Like corporate companies, construction contractors will also deposit workers' wages into their accounts directly. There are many uses of this.
If poor people start using bank accounts and ATMs, there will not be any requirement for rich people to withdraw huge amounts of currency. After few years government can set maximum limit for cash withdrawal. That reduces possibility of future black money accumulation.