The eve of 8th November 2016 left Indians flabbergasted when Prime Minister Narendra Modi announced that Indian currency notes of Rs 500 and Rs 1000 will become void after midnight. The sudden declaration came as a shock as nobody, including media and politicians, had any clue about this abrupt move. Mr Modi, in his televised address to the masses, confirmed that fresh, modified notes of Rs 500 and brand new series of Rs 2000 will be issued in the coming few days. He also assured that other INR notes (Rs 100, Rs 50, Rs 20, Rs 10, Rs 5, Rs 2 and Rs 1) will continue to circulate in the Indian economy unhampered. To carry out this demonetization process and recalibrate ATMs, all banks and ATM counters will remain closed on 9th, and in some places even on 10th, of November 2016.
Why this big move?
The big move by the Modi government targets three major problems in the massive cash-dependent country- Corruption, Black money, and Circulation of fake currency. The idea is simple- if the highest denomination notes, Rs 500 and Rs 1000, are withdrawn from the Indian financial system, corrupt people stocking huge bundles of notes will be left helpless. They will no more be in a position to use these notes for their daily needs or luxuries. Fake notes are circulating in large quantities in India that are produced and used by terrorists to carry out their evil activities. Introduction of fresh notes will put a stop on this circulation.
What to do with old Rs 500 and Rs 1000 notes?
All the old notes can be returned to the Reserve Bank of India or any other bank or post office between 10 November and 30 December 2016. Full value of these notes will be given. Citizens may either ask for hard cash (new Rs 500 and Rs 2000) notes from the banks in exchange of the old notes or may deposit old notes to get their account fully credited. NRIs can deposit their money in NROs. People can also deposit money using ATMs and cash-deposit-machines. Petrol pumps, government hospitals, government co-operatives and other government bodies will accept the old notes till 11 November 2016.
“To efficiently introduce the new currencies of Rs 500 & 2000, all banks are working extra hours non-stop even on weekends”
To fully and smoothly implement this policy, limitations on the number and size of withdrawals have been made. Per day (per card) only Rs 2000 can be withdrawn through ATMs. Later, the limit will be raised to Rs 4000. In case of bank withdrawals, the limit is Rs 10,000 a day and 20,000 a week.
Effects on the economy and the banking system:
Banks will get flooded with cash
People not having bank accounts will be forced to open one
Demand for cashless payment services, net banking, mobile banking, mobile wallets like Paytm, debit and credit cards will increase.
Real estate, luxury, jewellery and entertainment industries will suffer the most since these are the places where black money are generally invested.
Since the new scheme is not well-communicated, the poor and the uneducated crowds are left puzzled. Not having understood the new policy and the related banking procedures, they may lose their hard-earned money.
Many people carry fake notes unintentionally. So, they wont get any returns on exchanging/depositing these notes with the banks.
It is possible that the corrupt may have invested their black money in gold or foreign currencies. In such a case, black money cannot be brought back into the system.