India On the Brink: More ATMs Dry Up and Government Withholding Cash From Banks as Dec. 30th Deadline Draws Near
It’s a term that is thrown around by those in the finance sector from time to time – “Cashless” – but was never seriously considered. What was once just talked about in theoretical papers and peer-reviewed journals has become reality for India’s 1.1 billion residents.
The 1000 and 500 Rupee bills, which make up about 87% of circulated currency, are being phased out and can only be exchanged for up to 4000 Rupees in smaller denominations. Any 1000 or 500 Rupee bills left in a citizen’s hand on Dec. 31, 2016 will become as worthless as the paper on which it’s printed.
Massive lines at banks were projected by some government officials and economists, which materialized to a much greater extent than most insiders had imagined. The constant lines have been an everyday sight for most Indians, pulling a workforce that is already struggling with an average income of about $9.50/day into hours-long ATM and bank lines.
Things started to look very bad on Thursday when many citizens, dependent on at least some amount of cash to pay for their monthly bills, found extremely long lines at almost every ATM in major cities. Long lines were a welcome sight for some people who also discovered that many ATMs had run out of cash before they even had a chance to hop in the queue.
Banks were faring worse as many of them reported severe cash shortages, primarily from the lack of new government banknotes. This may be an attempt by the government to push people into traceable electronic transactions even moreso than just taking the 500 and 1000 Rupee notes out of circulation.
As the December 30th deadline looms for old banknote convertibility, the government has seen massive pushback, leading to a few carve out exemptions on both converting old notes and withdrawing large amounts of cash. Last week, the announcement was made that farmers would be allowed to use old banknotes to purchase seed, fertilizer and other farming accessories for the winter growing season.
Tim Worstall of Forbes may have put it best when he said: “…we also have to recall the great lesson of economics. Which is that there are no answers, there are only trade offs.”
Indian governmental authorities have warned that it will likely get worse for most citizens before it gets better. No word yet on when the Ministry of Finance will be rolling out enough new bills to cover all the conversion requests.