Why Modi’s move to ban Rs500 and Rs1,000 notes is such a big deal, explained in one chart

Ok, bye.
Ok, bye.
Image: Reuters/Vivek Prakash
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The Narendra Modi government has made its big move against black money.

By making the present Rs500 and Rs1,000 currency notes illegal from Nov. 09 onwards, the government has effectively forced the entire country to go to the banks (or post offices) and have their cash (in those denominations) added to their accounts.

It’s still too early to gauge how well the entire replacement mechanism will work, despite the 50-day window the government has announced. But this much is clear: The move will have a massive impact on the black money and counterfeiting ecosystem.

That’s simply because the monetary value of Rs500 and Rs1,000 notes in circulation far outstrips any other denomination, as the chart below shows:

With these notes now going out of circulation overnight, the government has created a solid opportunity to clean up the system. Those hoarding cash at home—which in all likelihood will involve Rs500 and Rs1,000 notes—will have to put the money into the formal system. And terrorist organisations, which according to the government have made repeated use of fake currency, will suddenly find their cash piles containing these notes worth nothing.

Meanwhile, new currency notes are on their way!