Why India withdrew a huge number of circulating notes
- Published: Nov 21, 2016, 3 AM
The news that India’s 500- and 1,000-rupee ($7.50 and $15) bank notes were suddenly withdrawn from circulation overnight on Nov. 8 hit the nation like a bombshell. The decision by Prime Minister Narendra Modi was shrouded in secrecy and resulted in 80 percent of the cash in circulation evaporating in an instant.
Modi’s unprecedented action was directed at a cash market that the New York Times said constitutes up to 35 percent of gross domestic product and was used for both bribery and tax evasion. It was also said to be a move against counterfeiting and the funding of terrorist activities. The only exception to the edict was a 72-hour delay to allow for payments of funeral expenses and airline tickets.
India is the seventh largest economy in the world, and unlike most of its counterparts in size, its economy is dominated by cash. One example cited in news reports by the Times and the BBC was the Old Delhi Market, one of Asia’s largest, that functions entirely in cash. Other stories told of people who had their entire life savings in suddenly obsolete currency.
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People will be able to exchange notes valued at up to 4,000 rupees (about $60) a day at banks between Nov. 10 and Dec. 30, but any amounts larger than that will have to declared to the tax authorities. The Bank of India website added that “anything over and above that will be receivable by way of credit to bank account,” and redirected the home page of its website to instructions on how to open one.
Among the immediate results of the announcement were brawls in the streets outside banks, a doubling of the price for 10 ounces of gold, and a rush to buy gold jewelry. Money launderers profited, as well, charging 500 rupees to exchange 1,000-rupee notes for smaller, still legal 100 rupees.
New 500- and 2,000-rupee notes were immediately issued as replacements. They both maintain the portrait of Mahatma Gandhi, but are otherwise entirely different.
The stone grey 500-rupee measures 66 by 150 millimeters in size. On its back is Delhi’s Red Fort with an Indian flag flying on top. The World Heritage site was the home of the Mughal emperors for 200 years.
The 2,000-rupee note is magenta in color and measures 66 by 166 millimeters. It has the Mangalayan spacecraft on the reverse, depicting the Mars Orbiter Mission, India’s first venture into interplanetary space
Both new issues have the usual range of expected modern security features, such as shifting ink, watermarks, windowed security threads, and intaglio printing.
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