Why India wiped out 86% of its cash overnight
On 8 November, Prime Minister Narendra Modi gave only four hours' notice that virtually all the cash in the world's seventh-largest economy would be effectively worthless.
The Indian government likes to use the technical term "demonetisation" to describe the move, which makes it sound rather dull. It isn't. This is the economic equivalent of "shock and awe". ...
Mr Modi's "shock and awe" declaration meant that 1,000 and 500 rupee notes would no longer be valid. These may be the largest denomination Indian notes but they are not high value by international standards - 1,000 rupees is only £12. But together the two notes represent 86% of the currency in circulation.
Think of that, at a stroke 86% of the cash in India now cannot be used. What is more, India is overwhelmingly a cash economy, with 90% of all transactions taking place that way. And that is the target of Mr Modi's dramatic move.
Because so much business is done in cash, very few people pay tax on the money they earn. According to figures published by the government earlier this year, in 2013 only 1% of the population paid any income tax at all. As a result huge numbers of Indians have stashes of tax-free cash hidden away - known here as "black money".Anger rising over India's bungled cash exchange
Banks are out of cash. ATMs are broken. Frustration has given way to anger.
Five days ago India suddenly banned more than 80% of its rupee notes, launching a currency exchange program that has been dogged by logistics snafus, poor banking infrastructure and intense demand for the new money.
Prime Minister Narendra Modi said last week the ban on old 500 and 1,000 rupee notes would strike a blow against corruption and tax evasion. The shock move has been hailed by supporters as a "masterstroke."
Citizens rushed to swap the banned notes -- India's largest -- for new bills issued by the Reserve Bank of India. But demand has overwhelmed the country's banks, which stayed open over the weekend in an attempt to process more transactions. On Monday, lines to exchange money were again thousands deep and anger was mounting.
Comment: Image source.
There are different layers of blackmoney and this is how we should deal with it . Dr @JP_LOKSATTA explains. #IndiaFightsBlackMoney pic.twitter.com/jduaU7xSr1— Loksatta Party (@Loksatta_Party) November 13, 2016
Talked about 1000 & 500 rupee notes ceasing to be legal tender & assured farmers that they won’t face difficulties. https://t.co/gk6wklsx6G— Narendra Modi (@narendramodi) November 13, 2016
Our fight against corruption & black money will continue. We can’t tolerate these evils any more. pic.twitter.com/bQIhfwq7J9— Narendra Modi (@narendramodi) November 13, 2016
ATM staff working 18 hrs a day but proud of what they r doing for their country #IndiaFirst #IndiaFightsBlackMoney https://t.co/LlG0SHy8NR— Divya Kumar Soti (@DivyaSoti) November 14, 2016
@ArtofLiving volunteers providing chana and jaggery to people standing in queues in Mumbai.#IndiaFightsBlackMoney #DeMonetisation pic.twitter.com/qrvt25pYER— Honest Indians (@Honest_Indians) November 13, 2016
Narendra Modi wants to crack down on “black money”. Will his crackdown actually work? https://t.co/huRXsPc6tL— Financial Times (@FT) November 18, 2016