Viewpoint: The end of money
On November 8, 2016, Indian Prime Minister Narendra Modi launched the biggest financial experiment in the nation’s history. In a televised announcement, Modi gave his citizens just four hours’ notice of his controversial ruling: that virtually all the nation’s cash would be immediately taken out of circulation. All 500 and 1,000 rupee notes were instantaneously declared worthless, and the Indian population were given just 50 days to deposit their newly voided notes in their bank accounts.
In the weeks that followed, chaos flared throughout urban and rural India. Equating to around $7.50 and $15 respectively, the invalidated 500 and 1,000 rupee notes had previously accounted for approximately 86 percent of the currency in circulation in India – a nation where 90 percent of all transactions are carried out in cash.
With the main media of exchange suddenly removed, Indian consumers faced long lines at local banks, empty ATMs and a barrage of ever-changing information as they struggled to adjust to their new near-cash-free economy. Markets took a drastic hit as workers abandoned their jobs to wait in line at the bank, desperately hoping to deposit or exchange their cancelled notes.
Now, less than half a year on from Modi’s dramatic demonetisation, the long-term effects of the decision are becoming clear. The nation’s expansive informal market has borne the brunt of the surprise policy, with many small businesses folding under the prolonged financial pressure. With home and car sales plummeting and investments drying up, the IMF has slashed India’s growth rate by a full percentage point.