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Evaluating India's Radical Experiment In Eliminating High-Value Currency


What would you do if you woke up one day and found out that all your cash was worth nothing? That's what happened in India last November, and Prime Minister Narendra Modi gave people six weeks to go to the bank and change their suddenly worthless bills out for new ones. There was also a strict daily limit. Modi said the currency change was necessary in order to fight corruption and help bridge the country's economic divide. It has been six months since that change happened, so Stacey Vanek Smith of the Planet Money podcast went to India to see if it's been working.

STACEY VANEK SMITH, BYLINE: Prime Minister Modi said his plan was painful but necessary. He said criminals and tax dodgers operate in cash, and they would be stuck with worthless piles of it. And he said, this will help modernize rural India. Most of India farms, and a lot of people in rural areas don't use banks. They keep their savings in their houses. Making all of their cash worthless, said Modi, would get everyone to a bank, push people to keep their money in savings accounts and get them into the modern banking system.

Ghaziabad is a rural area outside of Delhi. Here, farmers work little half-acre plots right next to each other, growing tomatoes and celery and sugarcane, including Garunder Shodi. He says, out here, it's all cash. And when he heard Modi's speech, he didn't believe it.

And what did you think when you heard that?

GARUNDER SHODI: That he is joking. It's not possible.

VANEK SMITH: Modi was not joking, and Garunder says it was chaos. Farmers all had to leave their fields and go stand in line at the bank.

SHODI: There were some people who suffered a lot. There were queues since morning, 6 o'clock, 5 o'clock, till night, 10 o'clock. There are people - hand-to-mouth people.

VANEK SMITH: And nobody had money to buy anything. Farmers couldn't sell their crops. Sales of produce dropped in half. Vegetables rotted in the streets. It was a terrible shock, but did it work? There were some bank accounts opened in rural areas but not a ton. And all of the farmers I talked to changed their old bills out for the new ones and went right back to storing cash in their houses, like Harinder Singh, who grows greens and onions and these things.

Oh, eggplants.

HARINDER SINGH: (Foreign language spoken).

VANEK SMITH: Yes, it's a little guy.


VANEK SMITH: Harinder says, he likes having cash on hand, and he does not want to try debit cards or mobile payments.

SINGH: (Through interpreter) Cash is something I understand, so I would rather deal with cash. I don't understand these other things.

VANEK SMITH: Out here, Modi's plan caused a lot of pain and doesn't really seem to have changed anything. And the farmers were all for it. Garunder Shodi told me he liked Modi's plan even though he lost time and money. He says he smiled to himself in line at the bank, thinking about all the criminals stuck with their worthless stacks of cash, their so-called black money.

SHODI: Why are you laughing? Only people - those who are having big amount of black money, they are worried about it.

VANEK SMITH: Garunder told me India has a terrible corruption problem and finally a politician was taking action - not that the action worked. Economist Bhaskar Chakravorti says even after all the drama, almost all of the cash in circulation in India made its way back into the banking system.

BHASKAR CHAKRAVORTI: Not all of that was legal cash. It just happened to be the case that India has - is extremely innovative in getting it on constraints.

VANEK SMITH: But the public loved it. Modi's approval rating has continued to climb. It's just amazing to me that people aren't angry about this. Like, why do you think that people are supportive of this move?

CHAKRAVORTI: Because populism is a strange thing, right?

VANEK SMITH: Stacey Vanek Smith, NPR News. Transcript provided by NPR, Copyright NPR.