Is modi eligible for PM from India
India starts radical cash reform
New Delhi - Indian Prime Minister Narendra Modi was supposed to be giving a rather unspectacular address to the nation on Tuesday evening. But what he said triggered an economic quake, the consequences of which cannot yet be foreseen. Around 8:30 p.m. local time, the most powerful man in India announced that just a few hours later, most of the cash in the country would be worthless.
"In order to free ourselves from the grip of corruption and black money, we decided that the current 500 and 1,000 rupee notes are no longer valid," said Modi. A 1,000 rupee note, so far the largest banknote in the country, is worth just 13.60 euros. By midnight it should be worth nothing. The largest legal banknote in the country is now the 100 rupee note - around 1.36 euros.
On Wednesday, the cars jammed in front of the state gas stations and pharmacies, which were one of the few places that were allowed to accept large bills for a few days. Most of them ran out of change early in the morning, which often led to loud arguments. Smaller shops and street vendors clearly had fewer customers - which, given the lack of devices for cashless payment, should stay that way for the time being.
Cash holders now have until December 30th to bring their money to the bank or to exchange it for newly developed banknotes worth 500 or 2,000 rupees, which the Indian central bank RBI promised from Thursday. However, cash should remain scarce even after that: Only 4,000 rupees (54 euros) can be exchanged directly, the rest must be paid into an Indian account. Subsequently, withdrawals from ATMs are limited to 4,000 rupees per day, and those who go directly to the branch may initially not withdraw more than 20,000 rupees per week.
Half of Indians without a bank account
"Exchanging an entire currency in this way will slow the economy in the short term," writes fund manager Sandip Sabharwal on Twitter. "But bank deposits will rise by leaps and bounds and interest rates will fall noticeably." Above all, the Indian government hopes that the compulsion to paperless money will put an end to the shadow economy, which according to various estimates makes up a fifth to a quarter of India's economic power.
The transition is likely to be particularly painful for those who do not have a bank account. According to the World Bank, that was almost half of all Indians in 2014. "India remains a cash-based economy," even the Indian central bank begins its statement on the action.
Tourists are also among those who do not have an Indian bank account. The RBI allows them to exchange up to 5,000 rupees back into their own currency up to and including Friday, but only at exchange offices at airports. Afterwards you will probably only see from a distance how big the economic tremor will actually be as a result of the surprise reform. (APA, November 9, 2016)
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