INDIA’S SURPRISE DEMONETIZATION OF HIGH-VALUE NOTES RESULTS IN BANK RUN
India’s government increased the limit on cash withdrawals from bank accounts on Sunday to calm public anger as millions of people clamored for new rupee bills after a shock abolishment of large denomination notes.
Large crowds were again gathered at banks across the country trying to change 500 and 1,000 rupee bills, demonetized by the government on Tuesday, in an effort to crack down on corruption.
Indian banks received 3 trillion rupees ($44.4 billion) of 500- and 1,000-rupee notes over the last four days, the Finance Ministry said in a statement, in a surge in liquidity in the banking system. Short term interest rates are expected to fall as a result.
— Anirban Mukerji (@anirmukerji) November 12, 2016
The government relaxed cash withdrawal limits including removing a per-day cap of 10,000 rupees, increasing the weekly limit to 24,000 rupees from 20,000 and allowed exchange of bills over the counter at banks to reach 4,500 rupees instead of 4,000.
The move to demonetize the large bills is designed to bring billions of dollars’ worth of cash in unaccounted wealth into the mainstream economy, as well as dent the finances of Islamist militants who target India and are suspected of using fake 500 rupee notes to fund operations.
The banned rupee notes made up more than 80 percent of the currency in circulation, leaving millions without cash and threatening to bring much of the cash-driven economy to a halt.
The Reserve Bank of India said small denomination currency notes were available with both the central bank and with other lenders.
People “need not be anxious” and should not hoard bank notes because “cash is available when they need it”, the RBI said in a statement. It also asked banks to provide details of cash withdrawn and exchanged daily, in contrast to fortnightly, to provide a better idea on circulation.
The measures came as people complained of lack of access to their accounts despite hours of waiting at banks as well as over the non-functioning of tens of thousands of ATMs not yet reconfigured for the new series of smaller-sized 2000 rupee bills.
The Times of India reported that the central bank’s office in the western city of Ahmedabad was handing out coins in return for the old notes because it didn’t have enough valid tender.
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