India Scrapped Its Highest-Denomination Currency Notes
India scrapped its highest-denomination currency notes overnight, delivering a blow to black-market money launderers but plunging hundreds of millions of common citizens holding cash savings into fear and uncertainty.
Within hours of Prime Minister Narendra Modi announcing the surprise move in a televised address, people thronged to ATMs, standing in long lines in hopes of grabbing bills that might still be in circulation on Wednesday.
As of midnight Tuesday, all 500- and 1,000-rupee notes — worth about $7.50 and $15 — had no cash value. Modi assured that people holding the discontinued notes would be able to deposit them in banks and post office savings accounts before the end of the year, and that new bills for 500 and 2,000 rupees were being printed and sent quickly to banks.
He said anyone making large bank deposits in the coming weeks would find themselves the target of Indian tax authorities.
“A few people are spreading corruption for their own benefit,” he said in the speech. “There is a time when you realize that you have to bring some change in society, and this is our time.”
For a few days, the old bills would still be accepted at hospitals, petrol stations, crematoria and for other businesses and services deemed essential.
Banks applauded the move as the strongest-ever measure against the parallel, black economy, and pledged to quickly restock their cash reserves with the newly printed bills.
“It’s a good measure,” said Anuj Mathur, a banker who was among more than two dozen people lined up outside a south New Delhi ATM machine at about 10 p.m. Tuesday. It will be inconvenient for a few days, but “this will clean up the system.”
India’s economy – and its tax base – has long been hobbled by a culture of what is known here as “black money,” with business people using cash to avoid paying taxes. Raids on corrupt politicians and businesses regularly turn up people holding millions of dollars’ worth of rupees, with cash sometimes filling dozens of boxes.
Much of India’s illicit money stores are believed to be used in land purchases, or secreted away to accounts overseas.
Modi said authorities have discovered 1.25 trillion rupees, or about $18.8 billion, in illegal cash over the last two and a half years. Counterfeiting was also a major concern, he said, and, in an indirect reference to rival Pakistan, accused a neighboring country of circulating fake Indian currency to damage the Indian economy.
“We as a nation remain a cash-based economy, hence the circulation of fake rupees continues to be a menace,” the Reserve Bank of India said in a statement Tuesday night.
But many of the poor also do not have bank accounts and keep their savings in cash. Some criticized the currency measure for the suffering it would cause among common citizens, who may not have lower-currency notes available to keep themselves afloat for the next few days.
“Withdraw this draconian decision,” said Chief Minister Mamata Banerjee, the highest elected official in the eastern state of West Bengal, in a series of Twitter posts. “This is a financial chaos and disaster let loose on the common people of India.”
The government has been urging people over the past year to declare the money they are holding in cash.