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In India, Citizens Rush To Exchange Defunct Rupee Notes

Nov 23, 2016
Originally published on November 23, 2016 5:08 pm
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KELLY MCEVERS, HOST:

Imagine if the U.S. government suddenly got rid of the $20 bill, said you couldn't buy anything with it anymore. People would have wallets full of worthless money. This is what's happening in India right now.

The prime minister made a surprise announcement earlier this month. He said the 500 and 1,000 rupee notes, most of the cash in the country, has to be traded in at the bank for other bills. And the move has disrupted the Indian economy in a lot of ways. Stacey Vanek Smith from our Planet Money team has the story.

STACEY VANEK SMITH, BYLINE: A couple of weeks ago, Mohit Dobhal got home late from work. He teaches music in New Delhi. And when he walked in the door, his whole family was deep in discussion. Mohit's cousin is getting married next month, and his family had been amassing piles of cash for the caterers and the florists.

MOHIT DOBHAL: You can't pay everyone by check here. You can't rely on cards. So you have to have the cash.

SMITH: Five hundred people are coming to this wedding in December, and the family had saved up 350,000 rupees - 350,000 rupees that are now unusable. Mohit's family needed to trade them all in at the bank for smaller bills. But there is a limit on how much you can change out - 4,000 rupees per person per day.

So you've got about 350,000 rupees. That's, like, 87 trips to the bank.

DOBELLE: Yes.

SMITH: This whole thing is supposed to be a way for the government to fight crime. Criminals operate in cash, and they use these larger bills. Abruptly making them worthless meant the criminals had no time to move their money into something else.

And the daily cash limit of 4,000 rupees is low. It's about $60. And the idea was that criminals would be stuck with these piles of worthless rupee notes, and everyone else would just experience a minor inconvenience. The morning after the announcement, Mohit went to the bank to change all the cash he could for the day.

DOBELLE: As soon as I got to the bank, the very first thing I was watching was the huge queue, the longest queue I could ever imagine.

SMITH: How long?

DOBELLE: (Laughter) Let's say 300 people in a queue.

DOBELLE: Mohit was in line for three hours. For the last two weeks, pretty much all of India has been standing in line.

SUNIL KHILNANI: It's a massive shock, and it's a very big gamble.

SMITH: Sunil Khilnani is a professor of Indian studies at King's College in London. He says up until now, a huge part of India's economy has happened off the books. Many people don't have bank accounts, and a lot of businesses, especially small businesses, operate only in cash.

KHILNANI: Those transactions don't generate any revenue for the Indian state. There's no tax payable on them. And it's also what fuels corruption in India. People pay bribes. Terrorism is funded through this money as well.

SMITH: The Indian government feels that if you force everyone to go to the banks, all of that shadow money will move into the light where it can be taxed. But Sunil says this move has caused a lot more chaos than anyone predicted. Small businesses have been closing their doors because they're not making any sales.

Also, it's wedding season in India. Mohit Dobelle, cousin of the groom, the guy with the piles of cash, realized his family needed a plan if this wedding was going to happen. They decided to spread the cash out over a bunch of relatives and ask each person to convert what they could each day.

DOBELLE: So we have around eight to nine cousins.

SMITH: So you had, like, 10 people working together to get this cash back.

DOBELLE: Yes.

SMITH: So far, Mohit's family has changed out about half the cash, and it looks like they will just make it for the wedding. Stacey Vanek Smith, NPR News. Transcript provided by NPR, Copyright NPR.