India Shaken by Abrupt Currency Ban

Vivek Kasubaga and Harjap Singh, News Editor and Staff Writer

On November 8th, 2016, the Indian Prime Minister Narendra Modi banned India’s two highest currency denominations, the 1000 and 500 rupee notes. Banks throughout India were closed to the public for the following two days, officials tried to collected while new currency that was being printed. When the banks reopened, millions of people rushed to try to cash in stale notes for newer, validated ones.

While many have taken the opportunity to criticize India’s seemingly rash economic decision, few acknowledge the deliberate thought and planning that went into it. A well-known flaw in the country’s financial standing is its black market, estimated by some to make upto a staggering 30% of India’s GDP. Because this money is illegally stashed in high-value notes, banks and government officials have no ability to track or tax black market deals. In an effort to eradicate its competing illegal economy, Prime Minister Modi took swift action and canceled the use of 1000 and 500 rupee notes. These notes are worth approximately 15 and 7.50 US dollars, respectively. While bills like these seem insignificant, it is worth pointing out that the US operates at a higher cadre of financial dealings than most Asian countries.

Another hopeful benefit to come out of this injunction is the improvement of India’s international appeal. As Mr. Powers, head of the History department, explains, “It is in India’s long term interest to have more of their economy, if not all of their economy, above board because investors will be able to respect the financial numbers they see coming out of India. If they do that, then the risk of investing in India is lower and if that’s the case, then more people will invest in India, and that in the long term is good for India.”

The Indian stock market has slowed down as a result of  Modi’s currency execution. This is in line  with projected economic behavior, as a ripple in the financial sector usually sends consumers into panic.

Individuals, as well as firms, are still facing the restrictions that come with cash shortages, but no industry is suffering more than banking. In the past three months, over 150 bank franchises have gone out of business due in part to the strain of demonetization.