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Indian Currency Ban Sends Country Into Panic


There has been chaos at banks across India this week as people try to exchange notes that are suddenly no longer valid. The government unexpectedly declared the nation's largest bills illegal. It's part of an anti-corruption effort to crack down on black money and get people to pay their taxes. From New Delhi, NPR's Julie McCarthy reports.

JULIE MCCARTHY, BYLINE: Imagine that the 50 and $100 notes were declared illegal overnight. That's pretty much what happened in India this week when Prime Minister Narendra Modi declared at the stroke of midnight Wednesday the 500 and 1,000 rupee notes were no longer legal tender. The sudden step, including the closure of banks Wednesday, took the nation by surprise.


MCCARTHY: By the time banks reopened Thursday, long lines formed with Indians across the country queuing hours to exchange their old notes for new ones. The government will be looking for large depositors and scrutinizing that money. No matter what you turn in, there are strict limitations on what you can take out, and there's now a cash crunch.

This woman, who asked to be identified only by her first name, Soma, is scrambling for cash to pay for her daughter's wedding this month.

SOMA: (Speaking Hindi).

MCCARTHY: Soma says her family has been fanned out to banks across the city in an effort to cobble together a fraction of what she needs.

She's saying that she's not so hopeful.

The wedding costs 300,000 rupees. The banks are only issuing 4,000 rupees, some $60 per customer. She's not the only mother fretting. It's wedding season and normally boom time for jewelers, but not this year. Jewelry is believed to be one of the most attractive assets into which hoarders convert their black money. And jeweler Rakesh Saraf says business dried up immediately after the government's crackdown.

RAKESH SARAF: Most of the marriage seasons in India starts in October, and it goes up to February. And this step has been taken in November, and we are going to lose total sales.

MCCARTHY: Despite the inconveniences at the bank, many online support Modi's crackdown on black money. Untaxed cash cheats the government and also artificially inflates the price of everything from real estate to gold to automobiles, making life even more difficult for the poor and the middle class.

Milan Vaishnav with the Carnegie Endowment for International Peace says the government's move to curb black money is one of Modi's chief campaign promises that needed to be redeemed. But he says the measure could also significantly disrupt the Indian economy.

MILAN VAISHNAV: This is a largely cash-based economy, and we have to remember that not all black money is held in cash. And on the same token, not all cash is black money, so we don't quite know what the impacts are going to be. And frankly, it's a big political gamble that this government has made.

MCCARTHY: Indians have until December 31 to deposit their old bank notes. And if those deposits exceed the equivalent of $3,600, they will be on the radar of India's tax collectors. Julie McCarthy, NPR News, New Delhi. Transcript provided by NPR, Copyright NPR.