Modi vs black money

November 8, 2016 9:06 AM

Centre scraps Rs. 500, 1000 notes. Indian Prime Minister Narendra Modi announced the immediate abolition of the 500 and 1000 rupee notes.

Key points:
* All existing 500 & 1000 rupee notes have to be turned over to the bank brefore December 30th
* New 2000 and 500 rupee notes will be brought into circulation "soon"
* We need to take a new solid step to fight black money. From now on, Rs. 500 and Rs. 1000 notes will not be used. Have 50 days to turn them into banks and post offices.
* On November 9 and in some places on November 10, ATMs will not work.
* Respite for people for the initial 72 hours, government hospitals will accept old Rs. 500 and 1000 notes till 11 November midnight.
* Petrol pumps and retail outlets will have to keep every single entry of cash transaction with 500 and 1000 notes till November 11.
* Crematoriums and cemeteries will also be allowed to transact 500 and 1000 notes till November 11.
* There will be no change in any other form of currency exchange be it cheque, DD, payment via credit or debit cards etc.
* Those unable to deposit Rs. 1000, Rs. 500 notes by December 30 for some reason, can change them till March 31, 2017 by furnishing ID proof
* Notes of Rs. 2000 and Rs. 500 will be circulated soon, RBI has decided to limit the notes with higher value

Thanks to the Reddit India forum for most of this information. Reddit India

posted by KaizenSoze (48 comments total)

I don't know about you guys, but my primary concern is whether this is going to effect the prices of armor and items in the next Legend Of Zelda game! :)

No but seriously, this seems like a sound move. I only wish we could get rid of pennies and other silly things in the USA.
posted by trackofalljades at 9:14 AM on November 8, 2016 [2 favorites]

This kinda sucks for people that are overseas. Now I gotta hope I can exchange these before I'm stuck with worthless money. Yay.
posted by aramaic at 9:17 AM on November 8, 2016 [1 favorite]

I have always thought that using the word "rupee" as some kind of fantasy money was shitty on Nintendo's part.

I wonder how this method of currency modification compares to others that have been used in the past. I can see this causing all kinds of chaos and it would be interesting to know if this plan is based on any kind of "best" practices that have worked in other countries before.
posted by sparklemotion at 9:19 AM on November 8, 2016 [3 favorites]

As of today, Google reports: "500 Indian Rupee equals 7.535 US Dollar"

So this is like the US government saying that all extant Hamiltons and Jacksons are abolished. Use 5s and 50s for a while. Pretty damn bold.
posted by explosion at 9:22 AM on November 8, 2016

I don't see the point yet. But I'm willing to sit back and observe to be enlightened.
posted by infini at 9:25 AM on November 8, 2016

I don't see the point yet. But I'm willing to sit back and observe to be enlightened.

From reddit:
Eli5: What the abolition of 500 and 1000 rupee notes means?

What happens now that old ₹500 and ₹1000 notes are discontinued in India?

Let's see this situation from the eyes of a corrupt person.

There is a guy, Bunny. Bunny is corrupt and has a lot of black money. Let's say he has about 10 crores. Now he cannot store this money in banks. (Banks ask for income source, tax and other issues)

So to store his money safely Bunny creates some secret lockers behind walls of his house.

But 10 crores is massive amount. He can't manage this money in small currency notes. So he converts his money into 1000 rupees notes and then keeps it safe in his secret lockers.

Bunny is happy. He can do corruption. Can safeguard his money. And Government had not a single clue about his activities because there are lots of bunnies out there. Government can't keep a close eye on every one of them.

So, bunny has 100,000,000 rupees. That is 100,000 notes of 1000 rupees.

Now comes the TWIST in bunny's life.

Government demonitizes all 1000 and 500 rupee notes.

Bunny has a big problem. His all money worths zero now. He must exchange his 1000 rupees notes with the new ₹500 or ₹2000 [ which he can't because for exchanging all his money, he must give a proof about source of 10 crore rupees. (to government)

Story ends.

Demonitizing 1000 and 500 rupee notes can be very effective in reducing general corruption in the country which will lead to price drops of goods and services ultimately.

Also this will also affect bribe problems,as RBI has said they would curb the circulation of the new Rs 500 and Rs 2000 notes.
posted by KaizenSoze at 9:28 AM on November 8, 2016 [21 favorites]

This not only seems absurdly disruptive, it seems it will hurt the poor the most. The government wants to get rid of a cash economy?
posted by Bee'sWing at 9:28 AM on November 8, 2016 [6 favorites]

I have always thought that using the word "rupee" as some kind of fantasy money was shitty on Nintendo's part.

There was a lot of confusion because ruby and rupee look extremely similar in Katakana and the pronunciation of b and p are also very close in Japanese.

Ruby - ルビ
Rupee - ルピ
posted by Talez at 9:29 AM on November 8, 2016 [12 favorites]

I don't see the point yet. But I'm willing to sit back and observe to be enlightened.

This is about taking old currency out as fast as possible, so that people sitting on undeclared money (which would be stacks and stacks of the now old currency) will have to do something with it and fast (i.e. little time to launder it or take other countermeasures), and anything not brought to light just becomes worthless.

It would also have knock-on effects on counterfeiting, as it does whenever any new bills are introduced, but that doesn't seem to be a real factor in this decision.
posted by Palindromedary at 9:31 AM on November 8, 2016 [1 favorite]

OK, now this is making more sense. The government is trying to flush out huge stashes of cash. They will only be able to do this once, I think. Criminals will buy gold or dollars or houses in Vancouver in the future.
posted by Bee'sWing at 9:37 AM on November 8, 2016 [3 favorites]

What happens to poor people who work day jobs for cash?
posted by 1adam12 at 9:40 AM on November 8, 2016 [2 favorites]

What happens to poor people who work day jobs for cash?

Poor people rarely have a large amounts of 500 and 1000 rupee bills.

There will be extra 100 and below notes printed.
posted by KaizenSoze at 9:44 AM on November 8, 2016 [6 favorites]

Average monthly salary in India is ₹18,117, or about ₹600/day. Poor people working cash jobs are by definition earning below average, so this will effect them very little.
posted by explosion at 9:47 AM on November 8, 2016 [2 favorites]

Looks like a way to decapitate large stores of cash - good against criminals, but knowing Modi, he's doing this to fuck over legit groups opposed to him (naxalites, etc)
posted by yonation at 9:48 AM on November 8, 2016

I think this is going to hurt middle class criminals the most. These bills are too big for poor people and the really rich already have Swiss bank accounts.
posted by Bee'sWing at 9:48 AM on November 8, 2016 [4 favorites]

Couldn't criminals just exchange their cash for goods, services, and/or other currencies? It'd be legit earnings for the merchants, right? And if the criminals are merchants, they suddenly have an excuse for a big pile of cash: Everyone wants to get rid of it, so business is booming.

For an anti-corruption measure, it sure looks a lot like streamlined money laundering.
posted by Sys Rq at 10:07 AM on November 8, 2016

(To say nothing of how swamped authorities are going to be with a sudden influx of a jillion iffy cases all at once.)
posted by Sys Rq at 10:16 AM on November 8, 2016 [1 favorite]

This would seem to make the rupee unsuited to use as a de facto medium of exchange outside India, which might have been expected regionally at least as the Indian economy strengthens.

What would you do if you were one of these people with 100,000,000 rupees starting to rot like so much fish in the freezer when the grid goes down?

How about a feast? Find as many people as you can and give each of them as much as they can credibly possess and exchange and tell them they have to give 80% of it back to you -- or else.
posted by jamjam at 10:26 AM on November 8, 2016

Couldn't criminals just exchange their cash for goods, services, and/or other currencies?

I believe the government controls foreign currency exchange in India so there are pretty hard limits on that. I have Indian friends in the US who routinely complain about the difficulty of moving money out of India (getting stock options in a company that's only traded on the NSE is apparently a mixed blessing)
posted by GuyZero at 10:38 AM on November 8, 2016 [1 favorite]

Couldn't criminals just exchange their cash for goods, services, and/or other currencies? It'd be legit earnings for the merchants, right?

No, there wasn't enough time. The old bills are already (as of 30 seconds ago) invalid for anything except government hospitals and depositing in banks. If a merchant suddenly deposits a huge amount of cash, they'll need to account for it (especially if it's far more than they'd normally have access to). A few thousand bucks is probably fine, but once you get into the 10s and 100s of thousands of US dollars worth, eyebrows will be raised. The most a merchant could help launder this way is the entirety of their inventory, and they'd have to lie and say that the sale happened before 11/8.

How about a feast? Find as many people as you can and give each of them as much as they can credibly possess and exchange and tell them they have to give 80% of it back to you -- or else.

The median income in India is ~93k rupees (~$1400USD). If you have even US$100,000 to launder, and you assume that the government won't bat eyes at people depositing their entire annual salary at once, you'd need to find 71 people willing to play that game, AND not rat you out. Plus they can only withdraw 20k rupees per week. That's a lot of people to trust for not a huge amount of money.

I mean, I'm sure that A LOT of freezer money is going to get spent on gold and silks in the next day or so, but I doubt that it's going to to soak up a significant percentage of all of the "black money" that's out there. And even if it does, "goods and services" aren't super liquid, and while you can buy drugs and politicians with gold and diamonds, there's a limit to the amount of precious commodities in the country.
posted by sparklemotion at 10:40 AM on November 8, 2016 [10 favorites]

So... this is more or less like when the European Central Bank softly discontinued production of the €500 note because it was suspected their only use was illicit trade?
posted by lmfsilva at 10:56 AM on November 8, 2016

So... this is more or less like when the European Central Bank softly discontinued production of the €500 note because it was suspected their only use was illicit trade?

No, it's quite different. They aren't just ceasing production, they are declaring them value-less except when turned in to government sources. This means if you're sitting on a pile of ill-gotten cash, either you're about to lose it or you have to try to explain to the government where it came from.
posted by tocts at 11:01 AM on November 8, 2016 [5 favorites]

I'm currently in India on a business trip. We found out about this when we tried to pay for our drinks at the hotel bar and were told our money was worthless. :P First order of business tomorrow is to find a bank - though it will probably be too jam-packed to do anything.
posted by Zarkonnen at 11:06 AM on November 8, 2016 [4 favorites]

they are declaring them value-less except when turned in to government sources.

Oh. This makes a lot more sense now.
posted by lmfsilva at 11:07 AM on November 8, 2016

I can only assume that this will effect the unconnected money hoarders. Surely this move would have been telegraphed in a way that non-lazy criminals would have been aware of?
posted by asok at 11:17 AM on November 8, 2016

The hashtag to follow for this is #blackmoney BTW. Though personally I think #thanksnarendra has more zing.
posted by Zarkonnen at 11:26 AM on November 8, 2016

I couldn't figure out the precise meaning of the Indian English term "black money", but this Wikipedia article is helpful. Money that's been illicitly gained and hasn't been properly taxed as income. Do we have an exact word for this in American English? I'd describe it as "informal income" or "untaxed income" or maybe "corrupt money" or "crooked money", but none of those feel idiomatic. Maybe "dirty money"?

It's important to note that India isn't eliminating cash entirely, new notes will be issued. It's just requiring people with lots of cash bring it to a bank and deposit / exchange it. A one-time thing to get people's informal money on the books. One wonders if they're going after everyone's gold jewelry, too.

North Korea did a similar currency move back in 2009, for similar reasons. Only in North Korea there was no legal private enterprise, officially no private wealth. So no one was allowed to exchange more than ~$40 worth of won in total. Anything more than that you had was forfeit. It was widely reported as a disaster at the time, but since then North Korea has made some peace with the grey market economy and it's a big part of why the country hasn't collapsed in economic ruin.
posted by Nelson at 11:29 AM on November 8, 2016 [1 favorite]

Wrt concern over people with large numbers of 1000 Rupee notes, even though at current exchange that's less than a $20 (just barely 15 it seems) its shockingly hard to use them, to the point that most ATMs ive used in india seem to default to 500s unless you are pulling out a lot of cash.

tocts, thanks for making the clarification about how this works . . . interesting.
posted by Exceptional_Hubris at 11:36 AM on November 8, 2016 [1 favorite]

Actually, since the banks are closed, we won't be going there tomorrow. It'll be interesting to see how much concretely visible disruption this will cause. I am hoping that it will not cause too much suffering to anyone who, well, doesn't deserve it!
posted by Zarkonnen at 11:41 AM on November 8, 2016

In Mumbai, as described by The Hindu:

Many guards at the automated teller machines (ATMs) downed their shutters following the surprise announcement by the PM to make Rs. 500 and Rs. 1,000 notes invalid, while in many cases, where machines have the capability to accept cash, anxious customers were keen to deposit the high value notes into the accounts.

The unease reached such proportions across the city that police had to take a decision to deploy its personnel outside every operational ATM. Joint Commissioner of (Law and Order) Deven Bharati issued instructions to police stations to this effect and beat marshalls were deployed for patrolling, officials said. The beat marshals, who patrol the mean streets to curb any untoward incidents, were proactively telling the citizens not to worry, assuring them that they will be able to withdraw their money from the day after.

Although Prime Minister Narendra Modi stressed that emergency services would not be affected and gave medical units up to 72 hours to accept the high value notes of older series, chemists in suburban Mulund were not accepting the notes for the obvious reasons.

There were long queues of motorists outside the fuel stations, which have also been given exemption under the 72 hour window, in the hope of spending the remaining Rs. 500 and Rs. 1,000 bills.

However, in Kamothe node of satellite city of Navi Mumbai, petrol pump owners were seen either rejecting the high value currency or insisting on filling up fuel of Rs. 500 or Rs. 1,000 without having to return the change in a Rs. 100 note.

posted by cynical pinnacle at 11:51 AM on November 8, 2016 [3 favorites]

My India feed is raving about how stealthy this was, how the news didn't leak 24 hours in advance, etc. But I think this only catches out the mid-level black money, the off-the-books small businesses and builders and minor neighborhood bosses.

Anyone higher up already had their black money in assets (gold, apartments, land) and the corrupt elite have their money safely outside the country in Swiss bank accounts or Vancouver apartments.

So - points to Modi for a populist gesture, and even more points for appearing to do something that won't affect the real holders of power. Cynical but clever.
posted by RedOrGreen at 12:27 PM on November 8, 2016 [6 favorites]

Once again, I am mildly in awe of a country that needs the word crore on a regular basis.
posted by GenjiandProust at 1:13 PM on November 8, 2016 [3 favorites]

> I am mildly in awe of a country that needs the word crore on a regular basis.

It's not even just Crores (1,00,00,000s) or Lakhs (100,000s) - they're talking about lakh-crores! How do you even write that, "100,000,00,00,000"?

(e.g., "According to Reserve Bank of India data, the total outstanding currency in circulation in the Indian economy as on October 28 stood at Rs 17.77 lakh crore. We don’t know how much of this comprises Rs 500 and Rs 1,000 notes.")
posted by RedOrGreen at 1:23 PM on November 8, 2016 [2 favorites]

Coming back in to second RedorGreen - just had this conversation with my Indian colleague and I came to a very similar conclusion - this is really squeezing chaiwallas and low-level folks who primarily get paid in cash (and may not be super diligent at paying taxes when they do) and not touching major scammers.

It was also very telling that his defense of this action started with "must stop terrorism" and devolved to tax-dodging chaiwallas in less than a minute.
posted by Exceptional_Hubris at 2:17 PM on November 8, 2016 [2 favorites]

Since literally every single thing I know about this issue I just learned in this thread, I've had quite a roller coaster of opinions on this topic in the last two minutes of reading!
posted by latkes at 3:16 PM on November 8, 2016 [9 favorites]

A roll-lakh crore-ster.
posted by rhizome at 5:56 PM on November 8, 2016 [6 favorites]

“Looks like a way to decapitate large stores of cash - good against criminals, but knowing Modi, he's doing this to fuck over legit groups opposed to him (naxalites, etc)”

I know very little about this, but just today I read a back-article of National Geographic which did very not represent the Naxalites as a legitimate group. And neither it nor myself are very pro-Modi. Do you have a different perspective?
posted by traveler_ at 7:39 PM on November 8, 2016 [1 favorite]

The Naxalites have been waging a maoist people's war for decades. They're legitimate serious communists, they're fighting with the avadasi to protect their land and economic democracy, and the government is fighting them with contras and all the nasty counter-insurgency tricks in the book. They're the only actually major revolutionary communist party in India--the CPI and CPI(marxist) act more as social democratic parties.

A sympathetic look from the famous writer
https://www.theguardian.com/books/2010/mar/27/arundhati-roy-india-tribal-maoists-1

A recent documentary film
https://en.wikipedia.org/wiki/Red_Ant_Dream

One of the best recent marxist/revolutionary feminist works, from one of their cadres, the late Anuradha Ghandy.
https://rsmtoronto.files.wordpress.com/2011/09/brave-new-world-philosophical-trends-in-the-feminist-movement-by-avanti.pdf
posted by thug unicorn at 4:12 AM on November 10, 2016

I keep mulling over the reaction here if the government was to nix the 10 and 20 for new versions. It wouldn't be pleasant.
posted by Mitheral at 9:25 AM on November 11, 2016

Whatever, y'all should know that I am now officially broke when I go for the next spring wedding barring the 2 100 rupee notes tucked into the bundle of 500s and a 1000

I note the price of gold is going up.

/I need to call mom and get teh scoop
posted by infini at 12:02 PM on November 11, 2016 [1 favorite]

I think this is a good policy, assuming the government intends to couple it with other measures to chase down other forms of money laundering. They've set the denominations high enough that people who genuinely can't afford bank accounts and who rely on small scale cash transactions won't be affected, while still making tax evasion suddenly much harder for the wealthy. It fuels my hope that I will one day see a functional welfare state created in India; massive tax evasion is a huge obstacle to that, however much GDP goes up, and this seems like a step towards knocking it down. I'm not a fan of Modi, at all, but this is the first economic policy of his that I can see having a real positive impact on the country.
posted by Aravis76 at 5:18 AM on November 12, 2016

Also, on Naxalites - certainly they are pursuing some legitimate aims and challenging some real injustices, but I don't know of a government in the world that would treat their methods as a form of legitimate opposition. You can legitimately oppose government policy in India in a number of ways, it is a flawed but functional democracy with a thriving culture of protest and civil advocacy. Bombs and assassinations don't count as legitimate opposition, in India or anywhere else.
posted by Aravis76 at 5:23 AM on November 12, 2016 [1 favorite]

Currency crisis: shops in Kerala to down shutters from Tuesday:

Talking to media persons here, KVVES state general secretary Joby V. Chungath said the currency crisis has crippled trade and commerce in the state and the normal life has largely been affected. Alleging that the union government had failed to anticipate the crisis created by the demonetization, he said traders across the state are struggling hard to keep the shops open because of the lack of customers. “Only the privileged class using plastic money can buy things. Majority are in extreme penury because their banking needs remaining unmaterialised. We have no option other than keeping the shops closed,” he said.

Meanwhile, Kerala Lorry Owners Federation expressed extreme anxiety over the sudden decrease in the number of trucks carrying essential commodities to the state from outside. Federation general convener M. Nandakumar said very few trucks are now carrying goods to Kerala. He has demanded acceptance of demonetized high-end currencies at each fuel station in the country at least for the next three months to ensure smooth flow of essential commodities.

posted by cynical pinnacle at 9:21 AM on November 12, 2016

In the latest episode of The Bugle, a comedy podcast, Andy Zaltzman discusses the bank note situation in India with Indian comedian Anuvab Pal.
posted by Kattullus at 8:22 AM on November 21, 2016

Bombs and assassinations don't count as legitimate opposition, in India or anywhere else.

History very much disagrees.
posted by Sys Rq at 10:08 AM on November 21, 2016 [1 favorite]

The Economist has been full of reporting of how poorly the rupee re-issue has been going in India. This week there's India’s currency reform was botched in execution and Modi’s attempt to crush the black economy is hurting the poor. The economic slowdown is so big that ratings agencies are forecasting an 0.5% to India's GDP.

The main problem seems to be that the new cash notes are not being distributed quickly enough. Kerala and Bengala haven't received enough cash to pay its government employees. Private employees in Agra are getting paid in supermarket coupons (!). Also the new notes are a different physical size and ATM machines require a retrofit.
posted by Nelson at 7:11 AM on December 7, 2016 [2 favorites]

"Also the new notes are a different physical size and ATM machines require a retrofit."

Wait, what? Ignoring all the other issues, how does that screw up happen? The different size means that everything that accepts bills of that denomination will need to be retrofitted. Wow.
posted by I-baLL at 7:37 AM on December 7, 2016

It's probably intentional to prevent counterfeiting by washing the old bills. Getting good paper is usually the hardest part.
posted by Mitheral at 11:00 AM on December 7, 2016 [1 favorite]