The blowback from the world's latest strike in the war on cash is unraveling fast in India. This week's decision by PM Modi to ban some high-denomination banknotes (on the premise of fighting corruption) has left “chaos everywhere” according to one official who accused the prmeier of wreaking havoc on the poorest Indians. As Reuters reports, nearly half of India's 202,000 ATMs were shut on Friday and those that operated quickly ran out of the new notes as scores of people descended upon them.
Bloomberg's somewhat calming perspective on the events taking place in India…
India’s banks have been caught out by Prime Minister Narendra Modi’s unexpected and widely-praised announcement late on Tuesday of the withdrawal of 500-rupee and 1,000-rupee notes, part of a crackdown on tax evasion and the underground economy. Jaitley urged people not to rush to banks immediately and wait for a few days and to conduct financial transactions using electronic transfers, cheques and credit and debit cards.
“A big regret is that people are getting inconvenienced, but currency replacement of this magnitude will cause some problems,” said Jaitley. “There are long, but orderly queues. Such a big currency replacement can’t be done overnight.”
Indians rushed to deposit 478.68 billion rupees ($7.1 billion) of cash at State Bank of India after the government’s surprise move to abolish high-denomination banknotes, as customers queued for hours to deposit or exchange the old bills and ATMs ran dry.
Are very different from the more frantic scenes described on social media and reported on by Reuters…
Anger intensified in India on Saturday as banks struggled to dispense cash following the government's decision to withdraw large denomination notes in an attempt to uncover billions of dollars in undeclared wealth.
Tempers frayed as hundreds of thousands of people queued for hours outside banks for a third day to swap 500 and 1,000 rupee bank notes after the notes were abolished earlier in the week.
The banned bills made up more than 80 percent of the currency in circulation, leaving millions of people without cash and threatening to bring much of the cash-driven economy to a halt.
“There's chaos everywhere,” said Delhi Chief Minister Arvind Kejriwal, a rival of Prime Minister Narendra Modi, accusing the premier of wreaking havoc on poor and working Indians while the wealthy found ways to skirt the new rules.
Customers argued and banged the glass doors at a Standard Chartered branch in southern Delhi after security guards blocked the entrance, saying there were too many people inside already.
But the crackdown by the government is affecting the real economy already…
Nearly half of India's 202,000 ATMs were shut on Friday and those that operated quickly ran out of the new notes as scores of people descended upon them.
Finance minister Arun Jaitley said ATMs had not been adjusted to handle new currency notes prior to the announcement in order to keep it under wraps. “Recalibration of ATMs will be completed within two weeks,” he added.
Traders in Delhi's vegetable market said they were considering shutting down the market as cash was running out and banks were dispensing a limited amount.
“We might have to close down until the situation stabilizes,” said Metharam Kriplani, president of the Chambers of Azadpur Fruit and Vegetable Traders.
People in Mumbai said grocers were charging 10 times the price of salt in return for accepting the old cash notes.
Much of India's rural economy is powered by cash, with few people regularly using a bank account.
In Dudko, about 75 kms (45 miles) from Delhi, villagers said they were finding it difficult to pay for food and fuel four days into the cash crunch.
“Bank officials are saying they will give the money on Monday. How will we make purchases?” said Sunita, a woman who was preparing for her daughter's wedding later this month.
Finally, as GoldMoney's Alasdair Macleod notes, due to many Indians’ deep suspicion of government motives around monetary and banking policy generally, it also has the potential to lead to a sudden surge in Indian gold demand that could more than offset any weakness due to the tax. Our sources report that the surprise move has turned the Indian retail market into a frenzy. As seen elsewhere in gold’s most important price drivers: energy prices and real interest rate expectations, the asymmetry in Indian gold demand has now shifted to the upside.