Finance and Economics > Economic News, the Global Economy and all Things Monetary

Chaos as India eliminates two largest banknotes without warning

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Canadian Prepper:
That's provided for some interesting reading.

Incidentally, I had just been chatting with my mother last night about how people managed in Europe at the war's end once their money became worthless.  Rural farmers couldn't go into the city to purchase supplies, but city people had to go out to the country and barter their personal belongings for barely enough food to subsist upon. The situation probably lasted for at least several months if not for a year or two before the new currency was established.

Whatever the real reasons, India's demonitization policy is significantly different from the currency collapse of a post war, bombed out and occupied country, but it goes to show that things needn't necessarily be that far fetched before the government can step in and mess around with peoples' savings and plans.

Mr. Bill:
Thanks, bigbear.

Indian numbers for the befuddled:

* Lakh = one hundred thousand
* Crore = ten million
* Lakh crore = one trillion

Mr. Bill:
Update:

NPR, 9/24/19: What Happens When A Country Suddenly Gets Rid Of Most Of Its Cash?


--- Quote ---...Gabriel Chodorow-Reich is an economist at Harvard University, and he and his colleagues quickly saw demonetization as a perfect "natural experiment," a rare opportunity to look at how economic theory plays out in the real world.

You might think that Chodorow-Reich and his team could have just looked at official statistics, like GDP, to get the story. But GDP misses a lot, especially in a country like India, where there is a massive underground economy. To get around this problem, Chodorow-Reich and his colleagues used other measures, like satellite imagery of lights at night. ...

The new bills were sent to districts at different speeds and in different batches, and Chodorow-Reich says that this wasn't done with much recognition of where the old notes came from. As a result, some districts became much more starved for cash than others, and the economists used data on these cash shortfalls to measure the effect of cash on economic growth.

Chodorow-Reich and his team find the policy of rapid demonetization caused a two percentage point crash in economic growth during the first few months after the policy was announced. To put that in perspective, the Indian economy was growing just over 2 percentage points per quarter during this period. So essentially, the policy halted economic growth. ...
--- End quote ---

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