Starting today (Nov. 9), high-denomination Indian notes will be withdrawn from India as the government moves to clamp down on corruption in the country, prompting a rush on jewelry stores in the country.
According to a report by Bloomberg, Prime Minister Narendra Modi announced Tuesday that 500-rupee ($7.50) and 1,000-rupee notes will no longer be considered legal tender. Modi made the comments during an unscheduled address to the country on television. The announcement, reported Bloomberg, resulted in a flurry of people who want to convert their cash into gold. That frenzy prompted some wholesalers to raise prices as much as 23 percent, Kumar Jain, owner of U.T. Zaveri jewelry store in Mumbai, told Bloomberg.
Indian jeweler Bachhraj Bamalwa, director of the All India Gems & Jewellery Trade Federation, said that demand for bullion will dry up as soon as the supply of cash evaporates. Rising gold prices and a move by the the Indian government to get more transparency on purchases, as well as require income disclosures, should cut the demand for bullion this year to the lowest in several years, reported Bloomberg, noting consumption should recover next year.
The jewelry market in India is considered unorganized since most of the transactions are done in cash. “I have been getting calls from customers to open our store so that they can buy gold and pay by cash, but we have refused, and we will only accept legal tenders,” said Bamalwa in an interview with Bloomberg.
According to Modi’s address to the nation, the Indian notes that are currently in circulation need to be deposited in banks by the end of the year. “Misuse of cash has led to artificial increase in property, land prices,” Modi said. “This step will strengthen the fight against corruption.”