Why India Banned 86% of its Currency

This video is sponsored by Brilliant. The first 200 to use the link in the description
get 20% off the annual subscription. On November 8th, 2016 at 8:15 PM, TVs across
India flickered in unison. Dramas, cricket matches, and game shows were
all replaced with the face of Prime Minister Modi. In this unscheduled, surprise address, he
announced the 500 and 1,000 rupee banknotes – worth about 7 and 14 US Dollars, respectively
– would soon lose their status as legal tender. Without any monetary value, they would become
nothing but pieces of paper, useless for any and all transactions. ”Soon” meant in 3 hours and 45 minutes
– effective immediately at midnight. And those 500 and 1,000 rupee bills constituted
no less than 86% of all cash in circulation. It was as if the U.S. president suddenly announced
all 10, and $20 bills were worthless, only with a population 4 times bigger and
far more reliant on cash. The next few months were the result of a fascinating,
unintended experiment, as 1.3 billion people scrambled to replace their cash, the government
rushed to print new bills, and dozens of people died in the process. India runs on cash. It’s estimated that, measured by volume,
90-98% of all transactions in the country involve physical currency. and 85% of workers are paid in cash, while
only about half the population owns a bank account. These are optimal conditions for tax theft,
making it extremely easy and extremely common for earnings to go unreported, and, thus,
unknown and untracked by the government. The informal, underground economy makes up
something like 25 to 40% of the nation’s GDP. While salaried workers have taxes automatically
withheld from their paychecks, they represent only a tenth of all organized workers. Farmers, meanwhile, who make up about half
the nation’s workforce, are largely exempt – protected from politicians by their large
voting power, not unlike seniors in the United States. In 2016, only 37 million Indians filed tax
returns, 10 million of which were exempt, leaving only a tiny 27 million payers in a
country of 1.3 billion. Modi’s solution was simple: force everyone
to report their earnings. From November 9th, Indians had until December
30th to take their 500 and 1,000 rupee notes to the bank. There, they could be deposited for their full
value, or exchanged for other notes at the counter, for a maximum of 4,000 rupees per
person per day, later increased to 4,500 and then reduced to 2,000. Tax avoiders, big and small, now had no choice
but to declare their wealth or lose it all come January. Any strange, large deposits without explanatory
paperwork would be an instant red flag for the government. But here’s where everything went wrong: The central bank couldn’t prepare millions
of new, replacement banknotes in secret. Printing them in advance would therefore attract
attention, potentially cause chaos, and alert the very criminals the policy was meant to
target. For this reason, the Reserve Bank could only
start printing the new 500 and 2,000 rupee notes after the announcement – leaving it
with just under 4 hours to reprint the vast majority of the second-most populous nation’s
currency. Clearly, it was an impossible task. Now, having to bring cash to deposit or exchange
would’ve been disruptive enough for many Indians, but because the new banknotes were in such
short supply, long lines formed outside banks and ATMs for months. On top of that, the replacement bills were
slightly smaller, requiring ATMs to be retrofitted to use them. There were lawsuits, strikes, and protests
against what many saw as an unreasonable interference by the government in daily life. And despite all that, there’s good reason
to be skeptical the policy achieved its intended effects. Broadly speaking, there were two goals of
demonetization: First, to weaken terrorist funding, and second, to target the informal, black
economy. Both of which are hard to measure. Whether terrorist groups suffered any significant
losses as a result of demonetization, no one knows with certainty. And the black market is problematic precisely
because it can’t be measured. What we do know, according to the Reserve
Bank of India itself, is that 99.3% of the demonetized notes were later returned. In other words, the policy removed only a
tiny amount of money from circulation. Experts largely agree black money is mostly
stored in the form of gold, silver, real estate, and overseas bank accounts, not bills worth
7 or 14 US Dollars each. It’s true that demonetization added a record
9 million new taxpayers, but the mass disruption it caused also removed nearly the same amount
– 8.8 million people stopped paying that year, likely as a result of lost income. And while digital payments experienced a significant
spike in usage, there was no lasting effect after the new banknotes were fully distributed. Three years later, the only certain outcome
of demonetization was the immediate chaos it created across the nation: Hours wasted
at the bank, financial uncertainty for those most vulnerable, lost wages, and at least
several innocent lives. Worse, it came out of nowhere, not as a response
to inflation or unrest. So, why, then, given all that we now know,
is the policy still so popular in India, among those who personally paid its costs? Like Xi Jinping’s consolidation of power
in China, Modi successfully sold a story of unfairness, of targeting corruption and criminals,
to ultimately gain political support. Soon after, Modi’s party won the 2017 elections
of its 200-million person, most populous state in India, thanks, in part, to the popular
belief that demonetization was a collective sacrifice necessary to make the rich pay their
fair share. Anyone who protested the policy could easily
be labeled as a criminal trying to hide black money. Rather than turning the population against
the government, demonetization enlisted it, making people feel they were personally doing
their part to help fight crime. Modi’s party could’ve passed just as effective
but less disruptive laws targeting black money and explained them to gain support. Instead, he knew the most effective way to
convey information is by showing people, firsthand. Demonetization achieved its real goal of driving
political support by making a faraway, abstract concept tangible and interactive. Likewise, Brilliant is a math, science, and
computer-science website that uses interactive teaching, but, for good! If you’ve ever wondered how Google can search
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this video.

Maurice Vega

100 Responses

  1. The holidays are here and you finally have time off. Use it to learn something new with Brilliant: https://brilliant.org/Polymatter

  2. You have no idea what happened. Terror funding went up as the new notes were easy to duplicate. And 98% of cash came back. It was a blunder by modi. Don't try to justify it sitting in the US. You know nothing.

  3. It was a very dumb move by their leadership as it did far more harm than good.
    Modi must be an idiot who thinks the very rich keep their wealth a vault filled with money like Scrooge McDuck.
    Besides even if it did work all the black market would do is switch to a different currency.

  4. Brother your answer is wrong .. India country prime minister does not have knowledge about economy still today that effect continued

  5. This is why so many people like (whether smart or not) gold and silver. India couldn't make gold and silver useless even if it was the law. Paper money can be made useless at any time.

  6. The economy is fucked thanks to him. Straight from 8% to less than 4.5% GDP growth in just three years. Btw, the growth has to be much lesser than 4.5 bc that's the govt's report say and modi govt is notoriously infamous for lying in official statements. It's really a shame, what a few powerful greedy people can do to meet their wants without regarding the people or the system. As long as there are politicians like him (constituting about 70% of the parliament) in the game, India will never ever be able to be a developed and strong nation at par with USA . These guys have made corupption a necessity in the country.

  7. POOR
    P= Passing O=Over O=Opportunities R=Repeatedly
    I saw a comment where some people talked about how they earned money by investing in Mr Rogan Colbert's platform and i didn't hesitate to give it a try, now i'm getting paid $20,000 weekly.
    Just imagine a situation whereby i skipped the opportunity.
    If you want to make good use of the opportunity like i did you can communicate him for möre infö on

  8. In India, people don't properly wash their hands, or at all, after taking a shit. All of those bills were coated in fecal matter and e coli after being handled by a billion germ-infested savages. Replacing the bills prevented a poo-related public health crisis and millions of corpses, which would been floated and clogged the toilet that is the Ganges.

  9. Banned it because our pm is dickhead honestly he is an uneducated guy we are paying for this moron's step
    GDP decreasing unemployment increasing
    People dying hungry
    This what we see when we give power to an uneducated who is murderer of 5k people for his vote bank of Hindu

  10. The dude says :- A guy on pot woke up the next day & thought let’s “TRY” this
    Cause I can
    Result will be benefit
    And it was
    To Reliance

  11. Nice and unbiased case study about demonetisation and i liked it as an Indian. You revealed true facts without bias

  12. This is what happens when you let a tea seller become a PM. Its like letting a school kid do open heart surgery. India needs a revolution to overthrow its corrupt foplish leaders now more than ever before !

  13. It's disheartening to say the fact that my PM is ultimate MORON
    He has failed in each and every dimension.
    No one in the country can claim he has done anything good. He wins Election by fooling people, playing with emotions and his Ultimate Trump Card of RELIGION.
    We Educated Indian compare his regime is Moussilini, Hitler or Mugabe.

  14. wrong wrong wrong,,,wow how can you get so many facts wrong…dont read western news media while preparing videos like this..

  15. I think u should analyse the point that terrorism faced a huge funding crunch sometime.bcz of which naxal terrorism and kashmir terror ecosystem went silent during this period completely

  16. Criminals don't use the smallest notes, they always use $100 US federal reserve notes….. Always….
    Ok except for treasury bills, the criminal bankers love those.

  17. Indias is the new age Nazi state, hindus worship a penis(shiv leng),
    Death to all Hindutva leaders.
    hindustan murdabaad

  18. Demonetization is criticized because it broke the spine of many illegal & black money….

    Reason of GDP drop is the black money which is now hard yo circulate….. it was a Hard step…. & i appreciate it…. People will criticize it & blame it for GDP slowdown…….. Like seriously… ?

  19. I also praise Demonetization because it helped to go people Digital…. U can see the stats of Mobile banking user….

  20. Brilliant. You seem biased, like most main stream media. Looks like you don't like the fact that indians are competent ..you need to stop crying about India and show the positive side instead of the same old cows on street. It's like only focusing on violence in America. Would you dare show it ?

  21. Funny that everybody was happy to accept these papers as a means of exchanging value until some random guy's head pops up in TV and says that they are worthless.. and then suddenly they are worthless.. What exactly has changed about these worthless FIAT-sheets?

    Fuck FIAT, go crypto (or gold if that's your fancy)

  22. Digital payments increased 11800%
    UPI has became most developed payment with having less than 1s payment.
    The new notes were so powerful, search for it in YouTube, a American ytber did that, it even has UV rays protection.
    Duplicating the notes are reduced so much.

  23. And to make things worse, they banned Bitcoin and other cryptocurrencies this september… Fuck this shithole…

  24. when fools rules the country they do all kind of foolish things..i m an indian i feel y indians have selected such useless politicians

  25. I was an undergrad student living in one of the metropolitan cities in the country and it was only my 3 rd year and I just came back from a beautiful relaxing trip from the mountains with little to no cash. And I lived by myself- 5 to 9 of all my friends had to rely on each others' food.
    The closest bank that gave out cash was at least a 30 mins drive from my college. I had to offer to pay for my friends' petrol to drop me every 5-10 days to stand in queue from 8 AM till the bank opens which is at 10:30AM.
    Little did we know, it continued to affect us all in the next 2 months.
    I have lived to tell the story.

  26. Waiting in line at 12am to withdraw cash was a common sight in the first few months. Waited in line for 3 days spanning hours just to see the ATM run out of cash.
    Nothing compared to how most people slept outside the banks just to change their money.

  27. The reason why only 37M out of 1.3B pay tax because they are dirt poor and only earn to sustain themselves. They hardly even save any money so paying tax is unquestionable.

  28. You did not tell why India banned the note instead you are only talking about suffer to changes notes but the think is not only for black money but also about fake notes and accountability of your notes.
    This little suffer is nothing if compared to congress rule in India

  29. Kindly request to all pls …never support such a stupid idea…it has damaged our economy and our economy gone down to 8.5% GDP growth to 1.5 % very bad experiment ….never try it is lithal

  30. Dear YouTuber. No Indian had died during the process. The one that u know died a normal death but opposition and media linked it to the process to criticise govt and get views and trp

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