Big news from India as a dramtic announcement made on Trumps victory day sends clear message to terrorists, and corrupt orgnaistaions. Prime Minister Narendra Modi is removing the 500 and 1,000 rupee notes, worth about $8 and $15, to fight corruption and terrorism-related “black money”, making India not unlike in China, where the largest denomination bill is just 100 yuan ($15).
This new policy will send jitters through India’s currency and stock markets. The 500 and 1000 rupee notes will effectively remove 85% of the total value of the currency in circulation and as much as 22% of the volume of cash in circulation.
It has caught the country completely off guard. There will also be limits on cash point withdrawals over the next couple of weeks.
Financial officials like the economic affairs secretary are taking to the airwaves to assure that the authorities are there to help cushion the shock this will cause to a cash based economy.
The news channels are trying hard to interpret the news for viewers who are worried that they will not be able to get a cab, buy milk, or even have their life savings in cash. It feels they are scrambling right now.
The immediate term impact is negative for banks and ATM firms, both of which will be closed for the next day or two; the government has also announced sharp new limits on the maximum ATM withdrawal allowed per card per day. Similarly, small businesses, especially consumer goods retailers, and the construction sector are particularly cash-dependent and may suffer in the immediate to short term.
Mr Modi has set his stall out as a modernising, anti-corruption crusade.
Scrapping notes that are very, very common is his biggest offensive yet. Most transactions in daily life are in cash and 45% of those are in notes in denominations of 500 rupees and over.
Surprise Financial News
Not a single news organisation seemed to know this was coming. One news anchor produced a wad of 500s from his own pocket on air wondering whether these were now just pieces of paper - and also wondering if the bars of Delhi would see a sudden surge of business. It has caught the country completely off guard. There will also be limits on cash point withdrawals over the next couple of weeks.
"Black Money' Culture
India's economy - and its tax base - has long been hobbled by a culture of what is known here as "black money," with business people using cash to avoid paying taxes. Raids on corrupt politicians and businesses regularly turn up people holding millions of dollars' worth of rupees, with cash sometimes filling dozens of boxes.
Much of India's illicit money stores are believed to be used in land purchases, or secreted away to accounts overseas.
Modi said authorities have discovered 1.25 trillion rupees, or about $18.8 billion, in illegal cash over the last two and a half years. Counterfeiting was also a major concern, he said, and, in an indirect reference to rival Pakistan, accused a neighboring country of circulating fake Indian currency to damage the Indian economy.
"We as a nation remain a cash-based economy, hence the circulation of fake rupees continues to be a menace," the Reserve Bank of India said in a statement Tuesday night.
Trump Day Move
The new currency policy in India came on the day Donald Trump won the US presidential election early this morning in a stunning victory that sent shockwaves around the world.
The Republican took the key swing states of Florida, North Carolina and Ohio early this morning, as he marched towards the White House.
Mr Trump pledged that he would be "president for all Americans" in his New York victory speech.
He said he was "reaching out" to the people who had not supported him to "unify the country".
"Now it's time to bind the wounds of division. I say to Democrats and Republicans it is time come together as one united people," he said.
"I pledge to be president for all Americans," he said, adding: "The forgotten men and women of our country will be forgotten no longer."
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