The Special Bearer Bonds Scheme
FOR the purpose of this note, illegitimate1 assets are defined as all assets that are held outside the revenue earning structure of the government. Illegitimate money is the most liquid form of these assets. This relates mainly to that part of illegitimate money and other assets that is held witli a "transactions" motive, that is, that part which is held, at any given point of time, in order to enter into transactions that result in tangible gains. This note by and large ignores that pait of illegitimate assets in any form that is held for use only at a time of pressing need. It is recognized that illegitimate money by its nature is limited in its use insofar as it is difficult—ssuming a reasonably efficient tax machinery—to use it for undertaking investment in productive assets. This has led, over a period of time, to the emergence and growth of a "parallel" economy within which illegitimate assets enter into transactions, generally of a speculative nature. Goods and money are perpetually engaged in the process of movement from legitimate to illegitimate status. Thus although the "legitimate" and "parallel" economies are distinct entities, they are neither totally isolated nor totally insulated from one another.
The existence of the parallel economy presents three distinct problems to the system as a whole, the magnitude of each of which increases in proportion to the weight of illegitimate transactions in total transactions. First, by definition, the presence of illegitimate money represents a certain revenue forgone by the government, and as such repicsents a potential loss to the exchequer. In the same context, the continuation and proliferation of transactions of an illegitimate nature deliberately seek to flout the law. Second, since most transactions in the parallel economy arc speculative in nature, the operations of the parallel economy tend to push prices upward over time, with the corresponding ill effects upon the economy. If the parallel economy is large enough and