Why India Banned 86% of its Currency

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
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100 comments

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

  2. Are you kidding?
    Fight black money?
    Cashless society has the same target like war against terrorism, get control over the masses.
    What real criminal doesn’t have insider knowledge? They got their safe heavens anyway

  3. It's so funny when you see all the non Indians that know so much about India in the comments section.. lol i don't even know that much about my own country forget India.

  4. the black money holder paid corrupted banker who took money and dispersed in other accounts and turned them white and took part of their percent (fee for doing dirty work) and gave the rest to the black money holder.

    many corrupted bank officials were rich and left their job after demonitization.

  5. Summary from an Indian here :
    It was the stupidest move. The intention was right but the execution of the move was very wrong.

  6. Just after the demonetisation was announced, one of my friends father distributed his money to his employees to submit to their bank accounts and return them when the notes are exchanged.

  7. Now, the Union of India is planning to release Elephant Bonds which aims to bring in 35 lakh crores ($500 billion dollars) which were stashed abroad by the assesses to evade taxes. Let’s see, how it goes.

  8. RBI governor said “ unaccounted money which was lying in hands of corrupt ppl where able to manage to put those black money in banks earning interest”
    Modi did this purely for political gains in UP state elections which is why he never talks about advantage of demonetization.
    Over 100 ppl died ,disrupted and destroyed informal sectors, 2% gdp dropped and recents reports says 2000 new notes are favorites among black money hoarders.

    N yet modi was able to sell how great n success this program was largely due to paid media,useless opposition and fake WhatsApp forwards.
    Anyway great analysis 👍

  9. You're wrong , only us indian know we faced during that time. Innocent people were struggled while the illegal easily changed it easily.

  10. Too late video on demonitization
    Main aim of demonitization was to reduce percentage of high value currency note circulation in the socity to less than 30% from 86%

  11. And post-traumatic scene is , even the new printed 2000 rupee currency note struggles for circulating in retail market. But Modi got emotional support from people while economists kept justifying the failure of the scheme.

  12. Governments that ban currency are criminal. They want to be able to destroy your money with the click of a mouse at the central bank and control it better with inflation. Germans know better and have defended 500 euro note printing. Giving the government your big bills is giving your financial security away to the central banks who want to destroy its value with inflation.

  13. The answer is stopping tax evasion, not attacking the cash itself. India should also stop its government waste and grotesque levels of corruption to bring back confidence in government. "terrorism" and "dark economy" is an excuse to destroy your purchasing power and economic freedom.

  14. Why india banned 86% of our currency?? Short answer – because our politicians are totally dumb…. This move along with bad implementation of GST has brought recession in our country… Check the latest GDP to debt ratio

  15. Demonization total fail 🤣🤣🤣🤣, low car sales, finance minister blames millennials, they are using ola Uber 🤣🤣🤣🤣, do they give such excuses in USA, information technology minister says economy of India is good look at the cinema ticket sales more than 1cr 🤣🤣🤣🤣

  16. For subbed and views your content must be related to india and their you goes millions of views with millions subbed lol… this trick is working as well though many came to india with 100k 50k 200k subbed but wen the times comes they flew out with the 1millions subbed damn thats win win for the vloggers and the chnnel…kudos to them… ✌👍😂😂

  17. You have no idea how many people save their black money in the form of these notes and you should research India's purchasing power. Because the $7 & $14 are worth a lot in India. Businessmen have been known to store black money in fucking sacks and if you read up, you'll find news of how post demonetisation, sacks filled with crores of rupees or should I say, millions of dollars were found lying around or were burnt. Indians can literally store millions of dollars in cash. You have no idea how cash-driven the Indian economy is.

  18. Yet another reason it failed is people found innovative ways to have their money exchanged without having to declare it, like purchasing appreciating assets like gold, using multiple workers to get the money exchanged in their name, even banks took bribes to exchange large sums without reporting it to the government. While innocent people waited in queue, those who bribed the corrupt officials enjoyed their luxuries.

  19. You didn't show how digital payments spiked and many startups were created and now pride of India. I totally support Modi Government and Demonitization move

  20. 😠😠😠😠Demonetization happened not just for black money but to destruct the parallel economic structure( Although it will emerge again but for a while economy could a be conduct a 1 peice of machine)!!!! STOP!! BEING AN ECONOMIST WHEN YOU HAD JUST SEEN READ THOSE LEFTIST & LIBERAL SITES!!!

  21. Some governments are so silly. Why did they ban crypto in the country? Don't they realise there is no way to defeat crypto? If they don't want to get ass raped by crypto in the future and don't want their country to fall behind even more, they should try to cooperate and work alongside crypto and blockchain, stop taking the country backwards modi.

  22. You stupid or what? Just like oil money paid for dubai, Bitcoin will be doing the same within the coming years. If you stupid 3rd world governments want to build a thriving country you need to unban crypto and stack up on it, it will make your country more successful

  23. They did it to win Uttar Pradesh state elections. Being our most populus state, he who controls UP, controls the feds for the next half decade.

    By announcing demonetization just shortly before UP elections, the ruling govt put the opposition parties out of commission cos the opposition found themselves unable to finance election campaigns.

    The ruling party candidates could easily stash their money apriori the ban was announced.

  24. Why did they ban the currency ? Because our pm was a fool nothing happened all big time tax frauds changed their money all it did was make normal people like me stand in line for 4 hours now that 2000 rs note is here it will be easy for those people to hide thier money

  25. the war on terrorism and climate change transfers wealth from the serfs and commoners to the nobility, banks, global industrialists.

  26. lesson 1: don't trust your government
    lesson 2: don't store your wealth in a bank or under your mattress they can confiscate in either way.

  27. The thing people don't understand is you have more than ₹10000 with you only if you want to hide it
    Or you would use some modern way of transaction (cheques and cards included)

  28. Actual title should be: Why India banned 86% of its currency due to megalomania of its illiterate Prime Minister and Fucked-up her Economy.

    This succinctly explains the entire video. You’re welcome 😁

  29. Here in India's neighbouring country, Indonesia, we have a slightly similar problem, our tax payer ratio was quite small too and the rich (some currupt) people tend to deposit their money abroad. But no, the govn didn't pull the same tactics like our Indian friend, the first move was to have a tax sunset policy… this was meant to make the people report their actual tax returm and guarantee who ever misslead the tax report are free from any persecution and will not have their financial/tax history checked. We later have increasing number in tax payer ratio and wealth reported. The second move was to force the people to have tax ID by restricting those who didnt have Tax ID from having vehicle lisence, bank account, some public services, purchasing property etc… it would takes time as most of our population are living in rural areas and unfamiliar with taxation matters and not to mention we are the fourth most populous countrynon earth (India holds the 2nd) but this policy seems like working and we manage to minimize the impact on social and economy turmoil. The president realize that we can't build our country without the participation of its people by paying taxes, we must rely on our own strenght not from loan anymore…

    Low tax ratio is a problem for many countries, we must find a solution for boosting the tax to GDP ratio without distrupting the social and its economy

  30. There was so much to it but in general good for explanation..
    To build YouTube subscribers target India, the best method 👏👏✨

  31. I hope the Patriot act host is going to quit he knows that California made him a target from American traditionalists

  32. Demonetization from Indian's perspective:
    i. A lot of inconvenience – Yes
    ii. People lost jobs? Probably
    iii. Fake Indian currency notes phased out? Yes
    iv. Black money? People declared black money secretly; those who didn't , threw or burnt the money
    v. Terrorism? badly affected terror funding, stone pelting who were paid by Pak proxies reduced. Left wing extremist (Maoists) finances were crippled.
    vi. New bank accounts were opened for marginalized population.
    vii. It failed? Yes, due to bankers who changed black into white using fake new accounts opened in the name of marginalized people for a commission.
    viii. Brought down inflation rate.

    Now the 2000 INR notes have been stopped printing, slowly that will also be phased out.

  33. You didn't mention that during all of this, the Indian Gov't. forced enrolled every one into a personal ID #, this number is a product of the UN, not the Indian Government. The USA gets theirs in 2020. It's not coming folks, it's here.

  34. looks like lot of your information is based on the fake news propagated by the opposition, the people who lost their black money and lot of left leaning news agencies across the globe including the few in the US. I admire your videos usually, but this, I must say, is poorly researched.

  35. He fucked entire economy of India. Fascism is on the rise here. Everyone who condemns his govt and him is termed as anti national.

  36. Therefore India is the Best COUNTRY in the world🇮🇳🇮🇳🇮🇳
    #PROUD TO BE INDIAN
    After Demonetization terrorist don't supply any type of anmo

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