Note the exchange rate: 100 rupees will buy you £1.12 or US$1.50

A week ago, the Prime Minister of India, Narendra Modi, announced that as from midnight, all 1,000 and 500 rupee notes would cease to be legal tender. These were the two highest denominations and accounted for over 85% of the currency in circulation. The reasons for this drastic move was to make “black money” worthless and to eliminate the funding of terrorist groups in the country. “Gutsiest move I ever saw, Mav” (Top Gun 1986)

“Black money” is money obtained from illegal transactions, bribes, criminal acts. There are strict limits and rules as to how one can exchange old money for new. People can deposit a limited amount of old notes into their bank accounts. Above this level, deposits will be heavily taxed as well as alerting the Indian Income Tax inspectors, who will take a keen interest into how you came to have so much cash.

India blames Pakistan for financing terrorism using counterfeit bank notes. At a stroke, the Prime Minister hopes to put an end to this. Maoist groups (Naxalites) probably use cash and don’t have bank accounts. The money they have stashed away is now worthless.

There are some problems with this bold stroke. Villains who have accumulated “black money” are not likely to keep it under the mattress. They are more likely to buy land, real estate, gold, jewels or keep their ill-gotten gains off shore in a more convenient currency, such as US dollars.


Most business transactions in India are done with cash. Electronic transfer of funds only accounts for  about 20% of sales. Most Indians do not have bank accounts, and many of them who do, don’t have debit or credit cards. So withdrawing high denomination notes from circulation has strangled trade. For example, just across the road from our clinic is the largest fruit and vegetable wholesale market in Asia. The drivers of the lorries bringing in the produce need cash to buy diesel fuel. The agents need vast quantities of lower denomination notes (100, 50, 20, 10 and 5 rupees) to buy the fruit and veg, which they will distribute and sell on to small shops and hand carts throughout the city. As everyone is hanging onto cash which is still legal tender, sales of fruit and veg have plummeted. Vendors are stuck with produce which is deteriorating in quality and they don’t have enough savings to buy new stock.


Now 2,000 rupee notes are appearing in circulation, hardly any shopkeepers can accept them as they do not have the change in lower denomination notes. Sharp criminals have even taken to photocopying the new notes, relying on the fact that few people have seen the notes, so they are more likely to be conned into accepting fakes.

Some people who are stuck with high denomination notes (tourists who changed all their currency and travellers cheques into 1,000 and 500 notes which became worthless a few days later) are desperate to exchange them for legal tender. A black market sprang up offering 60% or less of face value in lower denominations which could be spent. A group of Americans could not buy tickets (at the highly inflated tourist price) to visit the Taj Mahal, which was to be a highlight of their trip.

Savvy folks with lots of cash went directly to jewellery shops before the midnight deadline to buy gold. The gold price shot up by almost 50%. This attracted the attention of the Income Tax department, who are making further enquiries. Others bought high-priced first class air tickets which could be cashed in later.

Unfortunately, there are people who have sold land or liquidated savings for a specific purpose – this is the peak wedding season. Now they can’t afford to pay the caterers, the band, the venue, and the florists. Even more tragically there have been deaths when hospitals refused to accept patients who could only pay for treatment using old worthless notes. Almost inevitably, there have been suicides, attributed to demonetarisation. Some rural areas don’t even have banks at all, so farmers keep the proceeds of sales in cash to buy seed and fertiliser for the next crop. But now they can’t.

The Government has been secretly producing and stockpiling new notes. The new denomination 2,000 rupee note has a plastic feel to it. It has more distinguishing features making it more difficult to forge and is a different size. This week, the Government has been distributing millions of the new 500 rupee notes but I have not yet seen any.


Unfortunately, the caddies which carry notes in Automatic Telling Machines (ATMs) need to be converted physically to accept the 2,000 rupee notes. All the ATMs also need to be programmed with new software. Most ATMs only dispensed the notes which are now worthless. Many ATMs are “out of service” and waiting to be repaired.

If I find an unmodified ATM, which is loaded with legal tender, say 100 rupee notes, and I want to withdraw 5,000 rupees, instead of getting five 1000s or ten 500s, I will get fifty 100s. This wodge of cash is too thick to fit through the exit slot. So the ATMs restrict withdrawals to 1,000 rupees.

Normally, banks fill their ATMs once a day with four caddies of notes. Because ATMs have to dispense lower denomination notes, the banks would need to refill the ATMs five to ten times more frequently, just to provide the usual service. But demand has skyrocketed and 100 rupee notes are scarce.

Even if you can find a bank or ATM with funds, the Government has limited the amount of cash you can exchange or withdraw from your account. Desperate people start to queue at 4am outside banks which they hope will receive a supply of new notes. I had to give a doctor the day off work to queue outside a bank because she only had 20 rupees in legal tender.


I went to the bank four times last week. We managed to deposit our worthless notes but were not able to withdraw any funds. Today, we managed to get 10,000 rupees (five notes) from a bank in Defence Colony, by waiting for two hours with fifty others.

At our bank branch in Azadpur, it was chaos. The queuing system broke down, with senior citizens demanding their own priority queue (as they were more frail), women wanting a “ladies only” queue so they would not be molested by men, and the main queue. The queues dissolved into a mass of clamouring people, some of whom had been waiting for six hours to withdraw cash. The security guards at the bank had the metal grills in place and would only allow one or two people through at a time. People became agitated and frustrated. A dozen police officers with lathis (thick bamboo canes reinforced with metal) turned up. They explained that there was no more cash and everyone should disperse, and return tomorrow.


One man was furious. He shouted that his money was in the bank but he couldn’t get it. His mother was hungry and his father was ill. He was going to stop here until he got his cash, then he would go home. This did not go down well with the police. He was warned to leave peacefully, but he refused. Half a dozen policemen grabbed him and dragged him to a police pickup. They opened the back door and tried to manhandle him inside, but the driver had left the handbrake off, so the vehicle started moving down the road. This was dangerous. A few policemen let go of the miscreant and tried to arrest the pickup truck instead. The man saw his chance and bolted free. Which was just as well, as the mob could see the injustice of his being arrested.

“Perhaps we could get in if we say that you are a foreigner and you need your money?” said my companion. “That would cause another Mutiny,” I replied.

I went to a party 24 hours after the high denomination notes were made worthless. A middle aged man nonchalantly showed me a video on his iPhone. It showed him sitting in a black Mercedes convertible, waving a thick fan of 1,000 rupee notes in each hand. It reminded me of comedian Harry Enfield’s plasterer character, “Loadsamoney”, whose catch phrase was, “Look at my wad!” It’s only money, ehrr, it isn’t even that, now.

Here is a Facebook from a bank clerk working in a rural area which features in today’s Indian Express.


(The post has been deleted by the user and name has been changed to protect the identity.)


PS Don’t worry about me. I have got 165Rs in my purse which will keep me supplied with bread & milk for the next week.


2 Replies to “Demonetisation”

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