#India Is Scrapping Rs 2,000 note. Critics call it ham-handed, saying it has shaken consumer confidence & damaged rupee. Others noted that while 2016 #demonetization helped gov't claw back nearly all of withdrawn bills, it didn't eliminate black money.
https://www.nytimes.com/2023/05/31/business/india-2000-rs-rupee-notes.html?smid=tw-share
The move to retire 2,000-rupee notes, worth $24, has triggered bad memories of a similar campaign in 2016. It has also left some businesses short of change.
Indians have been filing into gas stations, jewelry stores, fruit stands and any other businesses that still accept soon-to-be-withdrawn 2,000-rupee notes, each worth about $24.
The race to spend India’s biggest bill has been on since its central bank announced this month that they would be removed from circulation by early fall.
India’s vast economy remains heavily reliant on cash, and many businesses have welcomed the surge in traffic, even if it has left them a bit short of change. Economists say retiring the big bill may help fight corruption, bring workers into the formal economy, improve tax collection and accelerate India’s push for digital payments.
But for some consumers, the move has dredged up unpleasant memories of 2016, when Prime Minister Narendra Modi’s sudden ban on large notes left them without enough cash for basic transactions. In an economy that is driven by rural and informal workers, some do not own bank accounts — or trust the government’s economic policies.
“It is better to buy gold or silver and keep it,” said Meenu Kevat, 32, a cleaner in New Delhi who does not have a bank account and hoards her cash earnings in a tin box. After the recent ban was announced, she said, it took her four days to cajole shopkeepers into converting 12 of her 2,000-rupee notes into smaller dominations.
“I don’t trust cash now the government can do anything it wants,” Ms. Kevat said, standing outside a grocery store in south Delhi. “It can cancel a note anytime, no matter how small or big.”
The fine print
In 2016, Mr. Modi’s government announced without warning that it was withdrawing India’s two largest denominations at the time — the 500- and 1,000-rupee bills — to expose and penalize people who held huge amounts of money that could not be accounted for.
After that sudden demonetization, A.T.M.s were overrun, and some retail businesses came to a standstill because customers were hoarding the little cash they had. And because the withdrawn notes amounted to about 86 percent of the cash in circulation at the time, the government decided to introduce the 2,000-rupee bill as a “remonetization” measure to ease the currency crunch.
So far, the move to withdraw the 2,000-rupee bills from circulation is causing far less disruption. That may be because they account for less than 11 percent of the currency in circulation. India’s 1.4 billion citizens also have until Sept. 30 to either spend the bills or exchange them at banks. (The bills will remain legal tender after that, but many Indians are taking the deadline seriously, because they worry that government policy could change.)
In the long term, removing the 2,000-rupee bills will probably help with a gradual, positive move toward formalization and transparency, said Phyllis Papadavid, an economist who studied the 2016 demonetization program. More workers should be able to formally register and claim benefits, for example, and there will be higher barriers to tax evasion.
“I can’t think of any aspect of an economy that is worse off by digitalization or formalization, because, basically, you have better usage and management of information, and accountability,” said Ms. Papadavid, the director of research and advisory at Asia House, a research outfit in London.
In the short term, though, the cash rush has caused a few headaches.
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. Russia can buy clothes from Bangladesh in Indian rupees and Bangladesh will then pay India back in Indian rupees for it's imports. Hence the arrangement with Bangladesh, Nepal and Sri Lanka recently. It's good for all countries involved as it increases their trade with Russia and reduces dependency of dollars in our trade. Please before commenting think through what is happening.
