Demonetization in india

A month into India’s demonetization initiative, long lines of people looking to exchange notes still spew out of banks, some sectors of the economy continue struggling with the lack of readily available cash, grassroots businesses are still being revolutionized with electronic payment capabilities, and masses of people continue transitioning towards new ways of paying for basic goods and services.

On Nov. 8, 86% of India’s currency was nullified in a great demonetization effort that aimed to clean out the black market's cash supply and counterfeit notes which completely disrupted the social, political, and economic spheres of the world’s second largest emerging market. All 500 and 1,000 rupee notes were instantaneously voided, and a 50 day period ensued where the population could (ideally) redeem their canceled cash for newly designed 500 and 2,000 rupee notes or deposit them into bank accounts.

India has done this before. In 1946, all 1,000 and 10,000 rupee notes were recalled. In 1978, 1,000, 5,000, and 10,000 rupee notes were demonetized.

This recent bout of demonetization was planned in secret by a small, tight-knit group led by Prime Minister Modi, and it overtook the country like a flash flood. This surprise was by design, as it was feared that if the black market caught wind of what the government was planning they would find ways to rapidly unload their illicit cash, and the initiative would flop on one of its initially-stated goals.

Of course, this meant that the rest of Indian society was also caught in the demonetization crossfire. Not even the banks — who would be required to do the heavy lifting on the ground — were in the loop. In the days following Modi’s announcement, the banks didn’t have enough of the newly designed banknotes on-hand to distribute in exchange for the canceled notes, and there simply wasn’t an adequate supply of smaller denominations in circulation to run the cash economy. Far from being a 50 day transition, it is estimated that even if India’s printing presses were to run 24/7 it would take upwards of four months to a year before the currency supply was adequately restored.