Cash Crunch Lingers In India

500 Rupee and 1,000 Rupee notes eliminated

The removal of 500-rupee and 1,000-rupee notes from circulation in India have caused all sorts of unintended consequences, and those unintended consequences could be far-reaching and long-lasting across broad swaths of the economy.

As reported by a number of news outlets, there have been any number of snafus tied to the removal of the notes and the placement of new ones in circulation.

With 86 percent of the currency in India effectively out of reach, the goal may be to defeat tax evasion, but the process has been marked by confusion and, in some instances, chaos.

In fact, reported The Wall Street Journal, the barter economy has returned in some areas where 20 billion notes have disappeared. WSJ noted that rural areas in the country have been struggling with the cash shortage (hence the bartering). Cash machines are hard to find, as the ratio is quite low, at 18 machines for every 100,000 citizens.

The impact has been global in terms of a ripple effect, enough so that exchanging the rupees in the U.S. has become problematic. Banks and currency exchange providers have been unable to take the bills. In one example, Bloomberg reported that currency exchange outlets in the United States cannot accept the older 500-rupee and 1,000-rupee bills from holders who wish to exchange the notes, as they can’t be sent, as the newswire noted, in bulk back to India. Western Union, Bloomberg continued, has said that the individual who is facing a rupee shortage can get checks or can receive remittances directly to bank accounts.

The impact is being felt well beyond the bustle of cities and more densely populated areas where people are queueing up at the ATMs.

Reuters reported that the more than 263 million farmers living and working across the country live in a largely cash economy, with many of those workers located far from any banks or branches, and have been left hanging onto the old notes, which now have no value. In addition, there have been delays to the planting season that traditionally would have begun in October, meaning that new work (and new money tied to that work) may be pushed out.


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