Recently the Prime Minister of India, a guy named Modi, announced that all the 500 and 1000 rupee Indian banknotes would become worthless. That’s 85% of India’s cash, and most people don’t have credit cards. People had just 30 days to trade their cash in, and only a certain amount a day—a high amount by most Indians’ standards, but not for the wealthy. And the lines to do so were long.
This sucked hard for a lot of people. A man found 3000 Rupees in his dead wife’s Sari, weeks or months of farm work for him, and couldn’t trade it in because the deadline had passed. The bank was allowed to make exceptions but didn’t. A baby died because its parents didn’t have cash for a taxi.
The point was to get black money used by the mafia out of the economy. An engineer named Anil came up with it, along with his engineer buddies. They did run it by some economists too, who broadly thought it was a good idea. Then Anil quit his job and formed a sort of collective devoted to promoting this idea. He gave a talk on it thousands of times, to politicians, professors, businessmen, whoever would listen. Eventually he gave it to Modi, before Modi became Prime Minister but when Modi already had a reputation for being able to get shit done. It was supposed to be a nine minute meeting, it turned into ninety, and Modi said he’d make it happen if he became PM.
Economist criticizes: yes it’s a good plan but it’s an engineer’s plan, you need more data. Anil responds: this is why nothing gets better, you keep asking for more data when you need to do things. This will hurt at first but improve things in the long run.
2019 update: demonetization slowed India’s economic growth by 2 percentage points in the early months, which was almost all of its growth. You could see the effects from space as fewer lights were turned on. Since then growth has recovered. (This is not a very detailed update, annoyingly.)
Planet Money: The Day India’s Cash Disappeared
2019 rerun of a 2017 episode.
Recently the Prime Minister of India, a guy named Modi, announced that all the 500 and 1000 rupee Indian banknotes would become worthless. That’s 85% of India’s cash, and most people don’t have credit cards. People had just 30 days to trade their cash in, and only a certain amount a day—a high amount by most Indians’ standards, but not for the wealthy. And the lines to do so were long.
This sucked hard for a lot of people. A man found 3000 Rupees in his dead wife’s Sari, weeks or months of farm work for him, and couldn’t trade it in because the deadline had passed. The bank was allowed to make exceptions but didn’t. A baby died because its parents didn’t have cash for a taxi.
The point was to get black money used by the mafia out of the economy. An engineer named Anil came up with it, along with his engineer buddies. They did run it by some economists too, who broadly thought it was a good idea. Then Anil quit his job and formed a sort of collective devoted to promoting this idea. He gave a talk on it thousands of times, to politicians, professors, businessmen, whoever would listen. Eventually he gave it to Modi, before Modi became Prime Minister but when Modi already had a reputation for being able to get shit done. It was supposed to be a nine minute meeting, it turned into ninety, and Modi said he’d make it happen if he became PM.
Economist criticizes: yes it’s a good plan but it’s an engineer’s plan, you need more data. Anil responds: this is why nothing gets better, you keep asking for more data when you need to do things. This will hurt at first but improve things in the long run.
2019 update: demonetization slowed India’s economic growth by 2 percentage points in the early months, which was almost all of its growth. You could see the effects from space as fewer lights were turned on. Since then growth has recovered. (This is not a very detailed update, annoyingly.)