India Announces Scrapping of Its Largest Bill Sparks a Race to Spend It

As India’s central bank announces the plan to withdraw the 2,000-rupee notes, each worth about $24, from circulation by early autumn, Indians start to pour into gas stations, jewelry stores, fruit stalls, and everywhere else that still accepts them. The race to spend India’s biggest bill is on, before it becomes worthless tender. While retiring the big bill may help fight corruption, bring workers into the formal economy, and improve tax collection, for those in the rural and informal economy, some are left without bank accounts or any trust in the government’s economic policies.

Following the sudden demonetisation announcement in 2016, A.T.M.s were overrun, retail outlets almost came to a standstill and the little cash people had soon vanished from circulation. Consequently, the government decided to introduce the 2,000-rupee bill as a “remonetisation” measure to ease the currency crunch. However, memories of 2016 flared up in some consumers’ minds, making them hoard their cash earnings in a tin box or purchase gold or silver instead.

While the move to withdraw the 2,000-rupee bills from circulation is causing less disruption than the demonetisation in 2016, businesses are still being affected now because the government has given Indians until Sept. 30 to either spend the bills or exchange them at banks. In the long term, removing the 2,000-rupee bills will help with a positive move toward formalisation and transparency, said an economist who studied the 2016 demonetisation program. However, in the short term, this cash rush has caused a few headaches; gas stations had been selling nearly 90% of purchases in 2,000-rupee notes since the announcement, and some retail businesses are severely short of change.

Bank association officials are planning to meet RBI Governor Shaktikanta Das to discuss the problems of the 2,000-rupee note with recipients hoarding them, causing a decline in smaller denominations needed by the economy. Das has speculated that the banknote may have “few takers” and will be gradually phased out as new notes emerge.