NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, November 29, 2016

Pakistan’s central bank Governor Ashraf Mahmood Wathra called India’s shock clampdown on cash an “extreme” step to boost financial inclusion, tax collection and battle graft, as the neighboring nation implements its own plans to double the number of people using banks within four years.

“To my imagination that is a very, very extreme measure,” Wathra, 61, said in an interview after speaking at a Bloomberg forum in Karachi on Wednesday. “It’s the enabling environment which has to get better in the economy.”

Narendra Modi, the prime minister of Pakistan’s arch-rival India, invalidated 500 rupee and 1,000 rupee bills ($15) in a single move announced Nov. 8, sucking out 86 percent of the nation’s currency in circulation.

Described as the world’s most sweeping currency policy change in decades, the step has earned India’s government both admiration for its boldness and criticism for its chaotic execution, with queues spilling from banks in a country where cash dominates day-to-day life. Opinions are mixed on the impact on tax evasion and graft.