Prime Minister Narendra Modi has made a shock move banning the country’s largest currency bills with immediate effect (Wednesday, November 11) in a major clamp down on the ‘black market’.
The ban is intended both to curb the flow of counterfeit money and to take aim at terrorist organizations that rely on unaccounted-for cash. It is also expected to help the government clean up a system that has relied on cash to pay bribes and to avoid taxes.
The announcement was made on national television in both Hindi and English. Abolishing the current version of the 500 and 1,000 rupee notes, worth about $8 and $15, will effectively remove 80 percent of the currency in circulation.
Mr Modi said banks would be closed on Wednesday. After that, people can exchange the banned notes through the end of the year for those of smaller denominations or new bills that are being created.
ATMs around the country were overrun Tuesday night with people confused about the plan and trying to complete financial transactions before the machines closed the following day. In some places, hundreds stood in line in front of a single A.T.M.
Cash is so prevalent in Indian society that the ban came with a 72-hour exception for paying for hospital bills and airline tickets.
The decision amounted to a “surgical strike” on the country’s vast amount of unaccounted-for cash, said Manish Kejriwal, founder of Kedaara Capital Advisors, a Mumbai private equity firm.
“This is Modi’s transformational reform,” said Deepak Parekh, chairman of Housing Development Finance Corporation, one of India’s largest mortgage lenders. “It will be disruptive, it will be inconvenient, but in the medium term, it will be very good.”
Mr Modi was elected in 2014 after running on an anticorruption platform that included a pledge to fight unaccounted-for cash, also referred to as “black money.”