India’s currency crisis wreaks havoc

On November 8, Indian Prime Minister Narendra Modi surprised his country with an announcement banning 500- and 1,000-rupee notes-worth about $7 and $15 respectively - in a move to crack down on tax evasion, black money, corruption and terrorism funding.

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The unexpected move stunned the country, with over 23 billion notes -- or 86% of the country's cash -- suddenly rendered worthless. The government has given people until Dec 30 to trade their old currency for the new cash, or deposit them in into a bank account. But as the supply of new banknotes is far smaller than the supply of old ones, the government placed strict regulations on the quantity of new banknotes that people can withdraw at any given moment.  

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Many blame poor planning for the currency crisis.

People are still flocking to banks and ATMs to withdraw cash or exchange the old notes. Foreign tourists are also struggling to change their defunct banknotes. Many of them have appealed their government embassies for financial assistance. The rules and regulations on what and how to change money are also changing as the government is reacting to the crisis.  

More than half of Indians still don't have a bank account, and some millions have no government identification. People are short of cash to buy daily use essentials. Small businesses which mainly deal in cash are worst hit.

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The move, many economists believe, will not curb corruption because people will start hoarding new currency when it becomes freely available. Former Indian Prime Minister, Manmohan Singh, who is also well-known economist, called demonetization "organised loot and legalised plunder." It was called as a "monumental management failure" as banks are short of cash and people are struggling to withdraw money.

Others, however, say the move will boost the economy because banks will be flush with money. After the ban, in the first four days alone, Indian banks had received three trillion rupees ($44.4bn) in cash.  By this, the Indian government expects to bring billions of dollars of unaccounted cash into the economy. The government has urged the people to give it until the end of the year to get things back on track.

Copyright: DataLEADS/ Asia News Network