In an effort to abolish corruption and crime throughout the country, India’s Prime Minister Narendra Modi banned the largest bills on Nov. 8 from being in circulation and printed throughout the country.
How would this stop corruption, you ask? A lot of crime organizations throughout Indian benefit from the country not being able to account for all of the bills in circulation. So it’s a basic thought, if India bans these bills, then they can account for the bills that are counterfeit. These rupee bills are equivalent to $8 and $15 in the dollar but bring significant more value to the Indian citizens as cash is extremely important to their everyday lives. The bills that are being banned account for 80% of the currency in circulation so it is truly a profound impact. The New York Times writers Geeta Anand and Hari Kumar brought up an interesting point about how much more important cash is to Indian citizens than United States citizens.
“About 78 percent of transactions in India last year were made in cash, compared with 20 percent to 25 percent in the United States, Britain and other countries, according to a report by Google India and the Boston Consulting Group.” Anand and Kumar said.
As you can imagine, the demand for smaller bills skyrocketed and the New York Times notes that hundreds of people were waiting outside ATM’s, trying to receive or exchange the cash. The banks were closed the Wednesday the 9th and then re-opened the next day so people could exchange their larger bills. It’s a nightmare situation in the short-term, but if it can combat the corruption in the long-term, then it is a fantastic plan.
Modi’s campaign in 2014 was based on anti-corruption and this certainly a way to go forward with it. The NYT notes that India may have lost almost $344 billion up to 2011 because of the money moving outwards.
The impacts will be something to watch in the near-future.