India’s startling announcement last month to swap out most banknotes in circulation — possibly the biggest currency change in decades anywhere in the world — went largely unnoticed outside the country. It was Nov. 8 and most people were captivated by a little election taking place on the other side of the planet.
But the move to flush out banknotes of the largest denominations, 1,000 rupees, worth about $15, and 500 rupees, had stunning reverberations in India, a country of 1.2 billion people, well over twice the size of the European Union and four times the size of the U.S.
Not surprisingly, chaos followed. Endless lines snaked out of ATMs, banks ran out of cash in a matter of hours. Millions of small businesses were disrupted. Strict limits of withdrawals left many more millions short of money. There were reports of dozens of people who died while waiting in line.
Prime Minister Narendra Modi says he introduced the so-called “demonetization” drive to root out corruption in India, one of his campaign promises. The move is aimed at bringing money that’s unaccounted for back into the system. Already, Indian banks received $44 billion worth of Indian rupees within four days of the shock announcement.
There is no overestimating the stakes in India, which is still largely a cash economy. Most work, even perfectly legitimate work, is done in cash that fuels more than one-fifth of the economy. From shopkeepers and newspaper-sellers to farmers and domestic help, few have bank accounts. And yet, so far, Modi appears to be getting more nods of approval than the kind of hunger strike protests that are a hallmark of India’s democracy. Poor and middle-class Indians are chinning up to take the punches. Many believe that the short-term suffering will be worth it if graft is reduced, and politicians and businessmen with stashes of illicit cash are forced to come clean. You can bet your last rupee they will do their best to avoid it.