The Indian government shocked the nation by declaring the top two largest denomination currency notes will be invalidated starting midnight today. Narendra Modi, the current Prime Minister of India, confirmed the news and insisted the drastic measure was necessary to arrest the free-flow of black money and counterfeit currency, among other money-related troubles the country has been facing.
The government of the largest democracy in the world surprised its population of 1.25 billion citizens by scrapping the 500 and 1,000 Rupee denomination notes with immediate effect. Prime Minister Narendra Modi spoke to the nation via an emergency televised address to confirm the news. Throughout the speech he attempted to ensure the populace that the move is aimed at the betterment of the financial situation of the country and to curb the menace of black market money, corruption, and terrorism that has been financed by the hordes of currency bundles of large denomination, reported Quartz.
Incidentally, the government isn’t completely doing away with large denomination currency. While the 1,000 Rupee note will indeed be scrapped permanently, the government is merely collecting the 500 Rupee ($7.50) notes, and at a later date, will introduce newly designed replacements, along with a 2000 Rupee ($30) note. While details are sketchy, the new currency notes are expected to contain additional anti-counterfeiting technologies as well as a unique GPS-based tracking feature.
Surprisingly, India’s largest currency notes, valued at 500 and 1,000 will be discontinued from midnight 8 November. The country’s apex banking body, the Reserve Bank of India, will officially deny legal tender status to these denomination notes.
Mr. Modi stressed that the move, although it will put a lot of strain on the economy for a short amount of time, is absolutely necessary to unearth the staggering amount of black money stashed away by multiple entities. By invalidating the large denomination Rupee notes, the large stashes of money squirreled away will suddenly become useless, unless the hoarder comes forth and deposits the money with any of the officially recognized financial institutions or the post office.
The Indian Government has made several provisions to ensure all the legal and authentic 500 and 1,000 Rupee notes in circulation today, are safely returned and exchanged for lesser denomination notes, reported the Hindustan Times. Barring a few additional days and certain outlets, as of November 9, only 1, 5, 10, 20, 50, and 100 Rupee notes will be considered as valid legal currency. Needless to say, a country where the majority of the financial transactions are executed using cash, the drastic change is going to cause a huge inconvenience, noted several experts. However, those in support of the decision pointed out several benefits.
The predominance of cash transactions has ensured the banking sector never truly matured. Moreover, since cash doesn’t leave a trail, even large financial transactions, including real estate and land deals, were often conducted in cash. Pure monetary exchanges ensured no evidence would ever exist with the government, and hence, the need for paying taxes didn’t arise. Needless to add, India has long faced a losing battle against tax evasion running into billions of Rupees primarily because large denomination currency notes were available, claimed the government.
Apart from the forcing businessmen to come forth and declare their hidden cash, thereby bolstering the banking sector, Mr. Modi noted that suddenly invalidating these currency notes would severely choke the rampant corruption. Additionally, elections in the largest democracy were predominantly the occasions when huge amount of black market money, notably in large denominations, would surface.
According to official statistics, there are about 2.3 billion 500 and 1,000 Rupee notes legally in circulation today. Additionally, the present quantity of 1,000 and 500 rupees notes contribute 80 percent of total currency in the country. While addressing the nation, Mr. Modi acknowledged the inconvenience that Indians would undeniably be facing in the upcoming weeks due to the abrupt decision and implementation. However, he stressed that the nation is moving ahead with the government’s promise of eradicating corruption and recovering black market currency.
India is no stranger to such decisions. Last year, the government had taken similar steps to stem the flood of counterfeit 500 Rupee notes orchestrated by the nations that are known to harbor and fund terrorism. However, the seventh largest economy in the world will undeniably have to brace itself for a barrage of confused and angry citizens who will now be queuing in banks and post offices to exchange their large denomination notes, which Mr. Modi said now have only as much value as the paper they are printed on.
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