Postcard from India – monumental bank note upheaval

cow-mini-market in Goa by Paul Walter
Paul Walter is now back at home. As is often the case, this postcard arrived after the sender returned to Blighty!

We’ve had an enrapturing holiday in Goa, India. The welcome from the Goan people was wonderful. The beauty of the place was breathtaking.

By coincidence, we arrived just a couple days after a major monetary change by the government. To wrong-foot terrorists and criminals, there has been a monumentally huge exercise called “demonetisation”, going on across this, the second most populous nation in the world. All the old 500 and 1000 rupee notes have been withdrawn from circulation at two hours’ notice.

In the Times of India, Santosh Desai wrote: “86% of the currency in circulation becomes illegal virtually overnight”. That relates to an estimated $210 billion worth of money notes. $210 billion! That is a mind-boggling figure.

“Bold” would be a good way to describe the exercise. Imagine the UK government suddenly declaring the five pound note and ten pound note illegal. Well, what has happened in India is on a much larger scale than that UK comparison. I’m too jet-lagged to work it out, but I think the redundant bank notes involved would fill the Albert Hall from top to bottom many times over.

It has certainly involved a lot of queuing at ATMs, as people scramble to get hold of the right notes. As a positive, the use of “e-money” and plastic money is thriving, as is foreign currency such as the pound, Euro and dollar.

The reason the Indian government has done all this is to stop the use of forged notes of these denominations, and their circulation on the black market.

A wise man in front of us in the sweaty one hour queue for the ATM said that “we must support the government” and that they “are doing the right thing” but that it “will take a few days to sort out”.

There are 200,000 ATMs in India. At these devices, there have been queues of up to three or four hours long, described as “serpentine” by “oHeraldo” newspaper in Goa. Last week, people were queuing at 1.30am in the morning to withdraw money. But they were limited (at least at first) to 2,000 rupees per account – about £24. They could use up to three cards – so a maximum of about £71.

To give the government and banks credit, after a chaotic start last Friday (the Times of India headline read “ATMs play cash me if you can“), they did, as promised, appear to restore some order on Saturday with ATMs allowing some steady but limited withdrawal of money. This now seem to be stabilising.

There is a new 2,000 rupee note which has been issued, which boasts higher standards of design to stop forgery and black market dealing.

But the 2,000 rupee note can’t easily be changed for lower denomination notes, by shops and restaurants. So people are often having to withdraw 100 rupee notes – worth about £1.18 each.

In the midst of all this, happening during major national festivals, there have been reports of many deaths.

The jury is still out as to whether benefits of this exercise (in terms of hampering criminals/terrorists) will be worth the pain to ordinary, poor people. There are reports that the operations of Communist guerilla groups have been crippled. On the other hand, there are credible estimates that bank notes only account for a fraction of the “black money” held by criminals and tax-evaders. The bulk is held in assets such as property.

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