Getting rid of a unit of currency is a step usually only taken in extreme circumstances or after long, careful planning — Zimbabwe’s battle with hyperinflation is an example of the former, the transition to the euro the latter.
India’s recent experiment with demonetisation was something altogether different.
At 8pm on November 8 2016, without any prior warning or expectation, prime minister Narendra Modi dramatically announced that all 500 and 1000 rupee banknotes would be invalid after midnight – just four hours after the announcement. These were the two highest value notes and accounted for 86% of all the cash in the Indian economy. The notes would be replaced by new 500 and 2000 rupee notes, Modi said, and the public would have a few months to exchange their now defunct currency in banks, albeit only in small allotments.
So began the saga of India’s “2016 demonetisation” – a move now almost universally considered woefully short-sighted and high-handed.
One of the main aims of the policy, according to the government, was to curb the influence of “black money” in the shadow economy and stop wealthy Indians evading taxes. It was a classic political tactic – convincing large sections of the working class who were facing most of the inconveniences that the “rich” were the ones being punished.