Black money is basically the accumulation of income obtained illegally. It is not declared for tax purpose. The issue of black money is prevalent in India and the government has come up with stern measures to deal with it lately.
The money earned via unlawful means is known as black money. There are various sources of generating black money and people have been practicing these since decades despite the negative impact they have on the society. Here are essays on Black Money of varying lengths to help you with the topic in your exam, class tests or competitions.
Essay on Black Money
Black Money Essay – 1 (200 words)
The problem of black money is not new to our country. Money generated via various illegal sources and the attempt to hide it from the government for the purpose of tax evasion has been a common practice here.
The problem of black money has given rise to a number of other issues in India. False information about the country’s economy is among the major issues being faced due to black money. The government is completely dependent on the tax revenue and evasion of tax to accumulate black money has a major impact on the nation’s fiscal system. Apart from the impact it has on the nation as a whole this also impacts the general public as it is the basis of social and economic disparity in the country.
There are a number of causes of accumulation of black money. The high tax rate set by the government is said to be the main reason for it. Other reasons include the different rates set for excise duty, the price control policy, the real estate market, inflation and quota system. People look for various ways to hide their income from the government and get away with it.
The need to stop this practice must be sensitized. While the government is taking steps to eliminate this problem it cannot achieve success in this direction if the public doesn’t support.
Black Money Essay – 2 (300 words)
Black money is basically the money earned in black market. It is the amount which is hidden from the government so as to avoid taxation on the same. The accumulation of black money has several negative repercussions on the society with economic and social disparity being the major ones.
Sources of Black Money
Now the question remains that when there are so many negative impacts of black money then why isn’t the government taking steps to eradicate the problem? Well, the government is making efforts to free the country of black money however the sources of this ill practice are stronger than the policies imposed to get rid of it.
It goes without saying that evasion of different types of taxes including the income tax, state taxes, corporation tax, excise duty and customs duty is the key to generating black money. Here is a look at the various other sources of black money:
- Black income via exports: A lot of black money is generated by businesses that export their goods.
- Black market: The good supplied in the black market are another source of black money.
- Stock Market: A lot of profit is generated via the stock market trade and most of it goes unaccounted. It is this unaccounted profit that makes for the accumulation of black money.
- Illegal commissions: Many government officials take illegal commissions from the general public for offering certain services. The income earned via this means is all black.
- Bribes: A lot of bribery goes on at different levels in the government as well as private sector and this also contributes to black money.
- Scams: Scams done by politicians and other people in power are undoubtedly a major source of black money.
The problem of black money has persisted in our society since decades. It is high time the government should come up with a foolproof plan to free the country from the clutches of this ill practice.
Black Money Essay – 3 (400 words)
Black Money is one of the major problems being face by our country these days. This is one of the reasons behind the economic disparity that in turn causes social inequality which is the root cause of several problems in the country. There are a number of factors that lead to this problem. Some of these include the high rate of tax, increased cost of living, inflation, different rates of excise duty and the real estate market.
Ways to Control the Problem of Black Money
It is important to control the problem of black money as it is hampering the growth and development of the country to a large extent. Here are some of the ways in which we can control this issue:
- The tax system should be realistic. People must not see it as a burden. High tax rate would only make people look for ways for tax evasion.
- The process of tax collection must be made more efficient. The government must take certain steps to award the officials who are dedicated and sincere towards this task so as to motivate more and more officials to take this seriously.
- The government must work on its price control policy as it is also one of the reasons behind the generation and accumulation of black money.
- The public sector projects must be monitored stringently so as to bring down their expenditure.
- The private sector investment expenditures must also be monitored effectively.
- The government must take action against the corrupt officials who in many ways contribute to the growth of black money.
- Administrative corruption must be controlled at various levels.
- The sale and purchase of properties must be thoroughly monitored by the IT officials to ensure that people do not hide any black money in the event.
- The politicians, celebrities, senior civil servants and media people must set an example for the general public to pay their taxes.
- Incentives should be given to those who provide voluntary disclosures of income.
- The exchange rates must be realistic and should reflect our comparative rates and position in the world economy.
While the Modi government has taken the step of demonitization to break this illegal wealth accumulation, there is still a lot that needs to be done in order to bring this problem down. People must understand the importance of paying the tax and should refrain from concentrating black money. The small contribution each citizen does in the form of taxes helps in the development of the country.
Black Money Essay – 4 (500 words)
Black money is the money on which tax is not paid. It is hidden from the government just to keep it exempted from tax. There are a number of means used by people to keep their money under wraps and escape from paying the tax. Here is a look at some of these and also the way government has tried to curb this problem in the recent past.
Black Money Deposited in Foreign Lands
Many big business men, ministers and celebrities are known to have deposited their money in foreign banks. Though the total amount deposited by Indians in foreign bank is not known, there are many reports claiming estimate amount of money deposited by Indians in their foreign accounts. As per one of these reports a whopping US$1.06 trillion has been held in Switzerland while another report claims that Swizz bank accounts of Indians includes around US$2 billion. It has also been claimed that illegal funds of Indians in foreign tax havens amount to around US$ 500 billion.
Demonetization – A Step to Eradicate Black Money
Recently, the Modi government took a major step to eradicate the problem of black money. On the 8th of November 2016, Narendra Modi announced that 500 and 1000 rupee notes would cease to be legal from midnight. ATMs all across the country were closed on 9th and 10th of November. These were refilled with 2000 rupee notes and new version of 500 rupee notes. The old notes were removed completely from circulation. As per the government this action would bring down the accumulation of black money and bring down the illegal businesses and activities that are funded by the same.
The sudden announcement of the withdrawl of old currency notes and the shortage of new notes created havoc in the country and disrupted the normal functioning across of various sectors for several weeks. The decision had mixed reactions from the public. The decision was condemned by many stating that it has only caused inconvenience to the general public. It has been criticized for being poorly planned. Public came out to protest against the government in various parts of the country.
However, the government claimed that the move is aimed at improving the overall condition of the society and people will see the positive results in the long term.
Impact of Demonetization
While the move was condemned and criticized by many here is a look at the positive impacts of demonetization:
- Black money was majorly destroyed due to this move of the Modi government.
- It came as a shock for the political parties and ministers who used black money for campaigning and other activities. It disrupted the ill practices used by these parties to win votes.
- The amount of black money floating in the real estate sector saw a huge dip.
- Hawala transactions that promote terror activities came to a halt.
- It has also impacted Maoists and their movements negatively.
The issue of black money has been eating the country like a parasite. While demonetization has helped in controlling it to some extent there is still a lot that government should do to get rid of this issue.
Black Money Essay – 5 (600 words)
People earn money from different sources and do not bring it to notice so that they can refrain from paying tax. This accumulation of money on which tax is not paid is known as black money. The problem of black money has been prevalent in our country since long. There are a number of factors that contribute to this problem.
Causes of Black Money
Here is a look at the various causes that lead to the problem of black money in India:
- High Tax Rate
The rate of tax in India is quite high. The increase in the taxes and duties has forced people to take the route to illegal wealth accumulation. Tax free income limit in the country is just Rs. 25,000/-. This amount is not sufficient to run a household these days when the cost of living is sky high. This is the reason why professionals who earn more tend to hide their income so that they don’t have to pay tax.
- Price Control Policy
The prices of certain commodities such as fertilizers, sugar, cement, etc are regulated by the government by way of its Price Control Policy. The policy is rigid and does not go by the ups and downs in the market. The private manufacturers and retailers take advantage of this policy that results in black money.
- Different Excise Duty Rates
The government has set different rates for excise duty based on the quality of products. In order to avoid paying higher rate of excise duty, the manufacturers at times downgrade a product. This leads to the generation of black money.
- Real Estate Transactions
Real estate transactions involve huge amount of money. People accumulate black money via real estate transactions. Purchasing property at a cheaper rate and selling it when the prices rise has become a lucrative business and a lot of black money is generated with this.
- Quota System
The government has set a certain quota for export, import and foreign exchange. While this is set for the benefit of the people it is often misused to accumulate black money.
High inflation rate is also known to be one of the causes of black money.
Impact of Black Money
Black money does not only have a negative impact on the country’s economic condition but also has adverse social consequences. It creates economic disparity in the country which undoubtedly is the basis of social disparity. Such practices are the reason why the rich here are getting richer and the poor are getting poorer. Social inequality leads to frustration among people and gives rise to crimes such as robbery, bribery and more.
Tax evasion also means the amount that could have been used for the country’s growth and development did not reach the government. If the government does not get enough revenue it would be unable to take up new projects for the development of the country and the uplift of the poor sections.
The countries where people pay taxes religiously are far better off as compared to those where there is huge amount of accumulation of black money.
The government has taken certain steps to eradicate the issue of black money. The recent and one of the major steps taken in this direction was demonetization. While this step helped in eliminating black money to some extent many people condemned it. However, even if it helped, it definitely was not enough. A lot more needs to be done in order to stop this ill practice. The government must look for more effective measures to curb this problem. And remember, the government alone cannot bring this issue to an end. It can only be curbed if each and every citizen of the country contributes his bit.
"Black Market" and "Black money" redirect here. For other uses, see Black Market (disambiguation) and Black money (disambiguation).
A black market, underground economy, or shadow economy is a clandestinemarket or transaction that has some aspect of illegality or is characterized by some form of noncompliant behavior with an institutional set of rules. If the rule defines the set of goods and services whose production and distribution is prohibited by law, non-compliance with the rule constitutes a black market trade since the transaction itself is illegal. Parties engaging in the production or distribution of prohibited goods and services are members of the illegal economy. Examples include the drug trade, prostitution (where prohibited), illegal currency transactions and human trafficking. Violations of the tax code involving income tax evasion constitutes membership in the unreported economy.
Because tax evasion or participation in a black market activity is illegal, participants will attempt to hide their behavior from the government or regulatory authority. Cash usage is the preferred medium of exchange in illegal transactions since cash usage does not leave a footprint. Common motives for operating in black markets are to trade contraband, avoid taxes and regulations, or skirt price controls or rationing. Typically the totality of such activity is referred to with the definite article as a complement to the official economies, by market for such goods and services, e.g. "the black market in bush meat".
The black market is distinct from the grey market, in which commodities are distributed through channels that, while legal, are unofficial, unauthorized, or unintended by the original manufacturer, and the white market.
Black money is the proceeds of an illegal transaction, on which income and other taxes have not been paid, and which can only be legitimised by some form of money laundering. Because of the clandestine nature of the black economy it is not possible to determine its size and scope.
The literature on the black market has not established a common terminology and has instead offered many synonyms including: subterranean; hidden; grey; shadow; informal; clandestine; illegal; unobserved; unreported; unrecorded; second; parallel and black.
There is no single underground economy; there are many. These underground economies are omnipresent, existing in market oriented as well as in centrally planned nations, be they developed or developing. Those engaged in underground activities circumvent, escape or are excluded from the institutional system of rules, rights, regulations and enforcement penalties that govern formal agents engaged in production and exchange. Different types of underground activities are distinguished according to the particular institutional rules that they violate. Four major underground economies can be identified:
- the illegal economy
- the unreported economy
- the unrecorded economy
- the informal economy
The "illegal economy" consists of the income produced by those economic activities pursued in violation of legal statutes defining the scope of legitimate forms of commerce. Illegal economy participants engage in the production and distribution of prohibited goods and services, such as drug trafficking, arms trafficking, and prostitution.
The "unreported economy" consists of those economic activities that circumvent or evade the institutionally established fiscal rules as codified in the tax code. A summary measure of the unreported economy is the amount of income that should be reported to the tax authority but is not so reported. A complementary measure of the unreported economy is the "tax gap", namely the difference between the amount of tax revenues due the fiscal authority and the amount of tax revenue actually collected. In the U.S. unreported income is estimated to be $2 trillion resulting in a "tax gap" of $450–$600 billion.
The "unrecorded economy" consists of those economic activities that circumvent the institutional rules that define the reporting requirements of government statistical agencies. A summary measure of the unrecorded economy is the amount of unrecorded income, namely the amount of income that should (under existing rules and conventions) be recorded in national accounting systems (e.g. National Income and Product Accounts) but is not. Unrecorded income is a particular problem in transition countries that switched from a socialist accounting system to UN standard national accounting. New methods have been proposed for estimating the size of the unrecorded (non-observed) economy. But there is still little consensus concerning the size of the unreported economies of transition countries.
The "informal economy" comprises those economic activities that circumvent the costs and are excluded from the benefits and rights incorporated in the laws and administrative rules covering property relationships, commercial licensing, labor contracts, torts, financial credit and social security systems. A summary measure of the informal economy is the income generated by economic agents that operate informally.[page needed] The informal sector is defined as the part of an economy that is not taxed, monitored by any form of government, or included in any gross national product (GNP), unlike the formal economy. In developed countries the informal sector is characterized by unreported employment. This is hidden from the state for tax, social security or labour law purposes but is legal in all other aspects. On the other hand, the term black market can be used in reference to a specific part of the economy in which contraband is traded.
Goods acquired illegally may exchange above or below the price of legal market transactions:
- They may be cheaper than legal market prices. The supplier does not have to pay for production costs or taxes. This is usually the case in the underground economy. Criminals steal goods and sell them below the legal market price, but there is no receipt, guarantee, and so forth.
- They may be more expensive than legal market prices. For example, the product is difficult to acquire or produce, dangerous to handle, or not easily available legally, if at all. If exchange of goods are made illegal by some sort of state sanction, such as is often seen with certain pharmaceutical drugs, their prices will tend to rise as a result of that sanction.
|No government, no global nonprofit, no multinational enterprise can seriously claim to be able to replace the 1.8 billion jobs created by the economic underground. In truth, the best hope for growth in most emerging economies lies in the shadows.|
|—Global Bazaar, Scientific American|
Even when the underground market offers lower prices, consumers still have an incentive to buy on the legal market when possible, because:
- They may prefer legal suppliers, as they are easier to contact and can be held accountable for faults;
- In some jurisdictions,[which?] customers may be charged with a criminal offense if they knowingly participate in the black economy, even as a consumer;
- They may feel in danger of being hurt while making the deal;
- They may have a moral dislike of black marketing;
- In some jurisdictions (such as England and Wales), consumers in possession of stolen goods will have them taken away if they are traced, even if they did not know they were stolen. Though they themselves commit no offense, they are still left with no goods and no money back. This risk may make some averse to buying goods that they think may be from the underground market, even if in fact they are legitimate (for example, items sold at a car boot sale).
However, in some situations, consumers can actually be in a better situation when using black market services, particularly when government regulations and monopolies[which?] hinder what would otherwise be a legitimate competitive service. For example:
- Unlicensed taxicabs. In Baltimore, it has been reported that many consumers actively prefer illegal taxis, citing that they are more available, convenient, and priced fairly.
Traded goods and services
Some examples of underground economic activities include:
Sexual exploitation and forced labor
Main article: Human trafficking
Main article: Illegal drug trade
From the late 19th and early 20th centuries, many countries began to ban the keeping or using of some recreational drugs, such as the United States' war on drugs. Many people nonetheless continue to use illegal drugs, and a black market exists to supply them. Despite law enforcement efforts to intercept them, demand remains high, providing a large profit motive for organized criminal groups to keep drugs supplied. The United Nations has reported that the retail market value of illegal drugs is $321.6 billion USD.
Although law enforcement agencies intercept in a fraction of the illegal drugs, and incarcerate hundreds of thousands of wholesale and retail sellers, the very stable demand for such drugs and the high profit margins encourages new distributors to enter the market without a decrease in the retail price. Many drug legalization activists draw parallels between the illegal drug trade and the Prohibition of alcohol in the United States in the 1920s.
Prostitution is illegal or highly regulated in many countries across the world. These places form a classic study of the underground economy, because of consistent high demand from customers, relatively high pay, but labor-intensive and low skilled work, which attracts a continual supply of workers. While prostitution exists in every country, studies show that it tends to flourish more in poorer countries, and in areas with large numbers of unattached men, such as around military bases. For instance, an empirical study showed that the supply of prostitutes rose abruptly in Denver and Minneapolis in 2008 when the Democratic and Republican National Conventions took place there.
Prostitutes in the black market generally operate with some degree of secrecy, sometimes negotiating prices and activities through codewords and subtle gestures. In countries such as Germany or the Netherlands, where prostitution is legal but regulated, illegal prostitutes exist whose services are offered cheaper without regard for the legal requirements or procedures—health checks, standards of accommodation, and so on.
In other countries, such as Nicaragua, where legal prostitution is regulated, hotels may require both parties to identify themselves, to prevent the rise of child prostitution.
Main article: Arms trafficking
The legislatures of many countries forbid or restrict the personal ownership of weapons. These restrictions can range from small knives to firearms, either altogether or by classification (e.g. caliber, handguns, automatic weapons, and explosives). The black market supplies the demands for weaponry that can not be obtained legally, or may only be obtained legally after obtaining permits and paying fees. This may be by smuggling the arms from countries where they were bought legally or stolen, or by stealing from arms manufacturers within the country itself, using insiders. In cases where the underground economy is unable to smuggle firearms, they can also satisfy requests by gunsmithing their own firearms. Those who may buy this way include criminals to use for illegal activities, gun collectors, and otherwise law-abiding citizens interested in protecting their dwellings, families or businesses.
In England and Wales, certain categories of weapons used for hunting may be owned by qualified residents but must be registered with the local police force and kept within a locked cabinet. Another segment of the population who may purchase weapons on the black market are individuals who are unable to pass the legal requirements for registration—convicted felons or those suffering from mental illness for example. In a few jurisdictions, collectors may legally keep antique weapons made incapable of being readily restored to a firing condition.
Illegally logged timber
Main article: Illegal logging
The illegal logging of timber has posed as an issue. According to Interpol, the illegal logging industry is worth almost as much as drug production industry, in some countries.
Animals and animal products
Main articles: Ivory trade and Wildlife trade
In many developing countries, living animals are captured in the wild and sold as pets. Wild animals are also hunted and killed for their meat, hide, and organs, the latter of which and other animal parts are sold for use in traditional medicine.
In several of the states within the United States, laws requiring the pasteurization of milk has created black market situations involving the transport and sale of raw milk, and sometimes raw milk cheese which is legal in a number of EU countries but banned in the US if aged less than 60 days
Main article: Rum-running
Rum-running, or bootlegging, is the illegal business of transporting (smuggling) alcoholic beverages where such transportation is forbidden by law. Smuggling is usually done to circumvent taxation or prohibition laws within a particular jurisdiction. The term rum-running is more commonly applied to smuggling over water; bootlegging is applied to smuggling over land. According to the PBS documentary Prohibition, the term "bootlegging" was popularized when thousands of city dwellers would sell liquor from flasks they kept in their boot leg all across major cities and rural areas. The term "rum-running" most likely originated at the start of Prohibition in the United States (1920–1933), when ships from Bimini in the western Bahamas transported cheap Caribbean rum to Florida speakeasies. But rum's cheapness made it a low-profit item for the rum-runners, and they soon moved on to smuggling Canadian whisky, French champagne, and English gin to major cities like New York City and Boston, where prices ran high. It was said that some ships carried $200,000 in contraband in a single run.
It has been reported that smuggling one truckload of cigarettes from a low-tax US state to a high-tax state can lead to a profit of up to $2 million. The low-tax states are generally the major tobacco producers, and have come under enormous criticism for their reluctance to increase taxes. North Carolina eventually agreed to raise its taxes from 5 cents to 35 cents per pack of 20 cigarettes, although this remains far below the national average. But South Carolina has so far refused to follow suit and raise taxes from seven cents per pack (the lowest in the USA).
In the UK, it has been reported that "27% of cigarettes and 68% of roll your own tobacco is purchased on the black market".
Main article: Organ trade § Illegal organ trade
According to the World Health Organization (WHO), illegal organ trade occurs when organs are removed from the body for the purpose of commercial transactions. The WHO justifies these actions by stating, "Payment for ... organs is likely to take unfair advantage of the poorest and most vulnerable groups, undermines altruistic donation and leads to profiteering and human trafficking." Despite these ordinances, it was estimated that 5% of all organ recipients engaged in commercial organ transplant in 2005. Research indicates that illegal organ trade is on the rise, with a recent report by Global Financial Integrity estimating that the illegal organ trade generates profits between $600 million and $1.2 billion per year with a span over many countries.
Main article: Racket (crime)
A racket is a service that is fraudulently offered to solve a problem, such as for a problem that does not actually exist, that will not be put into effect, or that would not otherwise exist if the racket did not exist. Conducting a racket is racketeering. Particularly, the potential problem may be caused by the same party that offers to solve it, although that fact may be concealed, with the specific intent to engender continual patronage for this party. An archetype is the protection racket, wherein a person or group (e.g., a criminal gang) indicates to a store owner that they could protect her/his store from potential damage, damage that the same person or group would otherwise inflict, while the correlation of threat and protection may be more or less deniably veiled, distinguishing it from the more direct act of extortion. Racketeering is often associated with organized crime, and the term was coined by the Employers' Association of Chicago in June 1927 in a statement about the influence of organized crime in the Teamsters union.
Main article: illegal taxicab operation
Where taxicabs, buses, and other transportation providers are strictly regulated or monopolized by government, a black market typically flourishes to provide transportation to poorly served or overpriced communities. In the United States, some cities restrict entry to the taxicab market with a medallion system that is, taxicabs must get a special license and display it on a medallion in the vehicle. In most such jurisdictions it is legal to sell the medallions, but the limited supply and resulting high prices of medallions have led to a market in unlicensed Carpooling/illegal taxicab operation. In Baltimore, Maryland, for example, it is not uncommon for private individuals to provide illegal taxicab service for city residents.
In places where there is rent control there may be a black market for housing. For instance, in the UK there is illegal subletting of social housing homes where the tenant illegally rents out the home at a higher rent. In Sweden, rental contracts with regulated rent can be bought on the black market, either from the current tenant or sometimes directly from the property owner. Specialised black-market dealers assist the property owners with such transactions. In India, places like Chennai, Bangalore, Hyderabad, Mumbai, Kolkotta, and New Delhi where students are coming from all over India, getting high rented PG (paying guests) or other forms of rented apartments without any taxation or regulations.
Counterfeit medicine, essential aircraft and automobile parts
Main article: Counterfeit consumer goods
Medicines and essential aircraft and automobile parts (e.g. brakes, motor parts, ...) are counterfeited on a large scale.
Main article: Copyright infringement
Street vendors in countries where there is little enforcement of copyright law, particularly in Asia and Latin America, often sell deeply discounted copies of films, music CDs, and computer software such as video games, sometimes even before the official release of the title. A determined counterfeiter with a few hundred dollars can make copies that are digitally identical to an original and face no loss in quality; innovations in consumer DVD and CD writers and the widespread availability of cracks on the Internet for most forms of copy protection technology make this cheap and easy to do.
Copyright-holders and other proponents of copyright laws have found this phenomenon hard to stop through the courts, as the operations are distributed and widespread, transversing national borders and thus legal systems. Since digital information can be duplicated repeatedly with no loss of quality, and passed on electronically at little to no cost, the effective underground market value of media is zero, differentiating it from nearly all other forms of underground economic activity. The issue is compounded by widespread indifference to enforcing copyright law, both with governments and the public at large. To steal a car is seen as a crime in most people's eyes, but to obtain unauthorized copies of music or a game is not. Additionally, not all people agree with 'copyright laws', as it unfairly criminalises competition, allowing the copyright-holder to effectively monopolise related industries. It also authorises copyright-holders to use region-coding to discriminate against selected populations price-wise and availability-wise.
The comparison to car-theft, although common, is not truly analogous. Automobile theft results in an item being removed from the owner with the ownership transferred to a second party. Media piracy is a crime of duplication, with no physical property being stolen. Copyright infringement law goes as far as to deem illegal "mixtapes" and other such material copied to tape or disk. Copyright holders typically attest the act of theft to be in the profits forgone to the pirates. However, this makes the unsubstantiated assumption that the pirates would have bought the copyrighted material if it had not been available through file sharing or other means. Copyright holders also say that they did some work for creating their copyrighted material and they wish to get compensated for their work. No other system than copyright has been found to compensate the artists and other creators for their work, and many artists do not have any alternative source of income or another job. Many artists and film producers have accepted the role of piracy in media distribution. The spread of material through file sharing is a major source of publicity for artists and has been shown to build fan bases that may be more inclined to see the performer live (live performances make up the bulk of successful artists' revenues, however not all artists can make live performances, for example photographers typically only have a single source of income that is the licensing of their photos).
Main article: Fixed exchange rate
Money itself is traded on the black market. This may happen for one or more of several reasons:
- The government sets ("pegs") the local currency at some arbitrary level to another currency that does not reflect its true market value.
- A government makes it difficult or illegal for its citizens to own much or any foreign currency.
- The government taxes exchanging the local currency with other currencies, either in one direction or both (e.g. foreigners are taxed to buy local currency, or residents are taxed to buy foreign currency).
- The currency is counterfeit.
- The currency has been acquired illegally and needs to be laundered before the money can be used.
A government may officially set the rate of exchange of its currency with that of other currencies, typically the US dollar. When it does, the peg often overvalues the local currency relative to what its market value would be if it were a floating currency. Those in possession of the "harder" currency, for example expatriate workers, may be able to use the black market to buy the local currency at better exchange rates than they can get officially.
In situations of financial instability and inflation, citizens may substitute a foreign currency for the local currency. The U.S. dollar is viewed as a relatively stable and safe currency and is often used abroad as a second currency. In 2012, $340 billion, roughly 37 percent of all U.S. currency, was believed to be circulating abroad. The most recent study of the amount of currency held overseas suggests that only 25 percent of U.S. currency is presently held abroad. The widespread substitution of U.S. currency for local currency is known as de factodollarisation, and has been observed in transition countries such as Cambodia and in some Latin American countries. Some countries, such as Ecuador, abandoned their local currency and now use US dollars, essentially for this reason, a process known as de jure dollarization. See also the example of the Ghanaian cedi from the 1970s and 1980s.
If foreign currency is difficult or illegal for local citizens to acquire, they will pay a premium to acquire it. U.S. currency is viewed as a relatively stable store of value and since it does not leave a paper trail,[dubious– discuss] it is also a convenient medium of exchange for both illegal transactions and for unreported income both in the U.S and abroad.
More recently cryptocurrencies such as bitcoin have been used as medium of exchange in black market transactions. Cryptocurrencies are sometimes favored over centralized currency due to their anonymous nature and their ability to be traded over the internet.
In the EU, it is not illegal for a person or business to buy fuel in one EU state for their own use in another, but as with other goods the tax will generally be payable by the final customer at the physical place of making the purchase.
Between the Republic of Ireland and Northern Ireland, there has often been a black market in petrol and diesel. The direction of smuggling can change depending on the variation of the taxes and the exchange rate between the Euro and Pound Sterling; indeed sometimes diesel will be smuggled in one direction and petrol the other.
In some countries, diesel fuel for agricultural vehicles or domestic use is taxed at a much lower rate than that for other vehicles. This is known as dyed fuel, because a coloured dye is added so it can be detected if used in other vehicles (e.g. a red dye in the UK, a green dye in Ireland). Nevertheless, the saving is attractive enough to make a black market in agricultural diesel. In 2007 it was estimated that £350 million was not gained in profit as a result of this phenomenon, in the UK.
in countries like India and Nepal, the price of fuel is set by the government, and it is illegal to sell the fuel over the set price. Due to the petrol crisis in Nepal, black marketing in fuel has been a common trend, especially during mass petrol shortage. At times, people need to queue for hours or even sometimes overnight to get the fuel. On the other hand, the petrol pump operators are alleged to hoarding the fuel, and selling it to black marketers. Black marketing in vehicle/cooking fuel became widespread during the 2015 economic blockade imposed on Nepal. Even after the economic blockade was eased, and petrol imports resumed, people are not getting the fuel as they were supposed to and are resort to buying from the black market.
Main article: Organized crime
People engaged in the black market usually run their business hidden under a front business that is legal.
Often, certain types of illegal products are traded against one another, depending on the geographical location.
Black markets flourish in most countries during wartime. States that are engaged in total war or other large-scale, extended wars often impose restrictions on home use of critical resources that are needed for the war effort, such as food, gasoline, rubber, metal, etc., typically through rationing. In most cases, a black market develops to supply rationed goods at exorbitant prices. The rationing and price controls enforced in many countries during World War II encouraged widespread black market activity. One source of black-market meat under wartime rationing was by farmers declaring fewer domestic animal births to the Ministry of Food than actually happened. Another in Britain was supplies from the US, intended only for use in US army bases on British land, but leaked into the local native British black market.
For example, in the Parliament of the United Kingdom on February 17, 1945,members said that "the whole turkey production of East Anglia had gone to the black market" and "prosecutions [for black-marketing] were like trying to stop a leak in a battleship", and it was said that official prices of such foods were set so low that their producers often sold their produce on the black market for higher prices; one such route (seen to operate at the market at Diss in Norfolk) was to sell live poultry to members of the public, and each purchaser would sign a form promising that he was buying the birds to breed from, and then take them home for eating.
During the Vietnam war, soldiers would spend Military Payment Certificates on maid service and sexual entertainment, thus supporting their partners and their families. If the Vietnamese civilian wanted something that was hard to get, he would buy it at double the price from one of the soldiers, who had a monthly ration card and thus had access to the military stores. The transactions ran through the on-base maids to the local populace. Although these activities were illegal, only flagrant or large-scale black-marketeers were prosecuted by the military.
Laws and regulations
A classic example of new regulation creating a black market is the Prohibition of alcohol. Similarly when the law disappears, so does the black market, which is why of the arguments for marijuana legalization is the elimination of the black market, and thus taxes from that economy being used by the government.
Black markets by country
Further information: Indian black money; Corruption in India; and Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Bill, 2015
In India, "black money" refers to funds earned on the black market, on which income and other taxes have not been paid. The black money market situation in India is epidemic. India currently tops the list for illegal monies in the entire world, estimated to be almost US$1,456 billion stored in Swiss banks in the form of unaccounted money. According to the data provided by the Swiss Banking Association, India has more black money than the rest of the world combined. Indian Swiss bank account assets are worth 13 times (1300%) the country’s national debt, and, if this black money is seized and brought back to the country, India has the potential to become one of the richest countries in the world. Allegations of Indians holding trillions in black money in Switzerland are, however, in dispute. Later reports, including those by Swiss Bankers Association and the Government of Switzerland, claim that these allegations are false and fabricated, and the total amount held in all Swiss banks by citizens of India is about US$2 billion.