Indian Prime Minister Narendra Modi in a spectacular speech announced that the present 500 and 1000 rupee currency notes stands abolished with immediate effect. After that, there will be new banknotes. The central bank will print new notes of 2,000 and 500 rupees. President Pranab Mukherjee called for people not to panic and follow Govt Guidelines for Exchange of Rs. 1000/500 notes.
On November 9, there will be a bank holiday. The use of credit cards is not to be stopped by the radical measure. The possibility to pay with present denomination at petrol stations will continue for few days. Thereafter, the people will be given a one-time opportunity to exchange their money and declare the undeclared money.
In ATMs, citizens will be allowed to withdraw up to 3,000 rupees for few days and then the limit would be increased to 10000 rupees.
Officially, the reasons behind this emergency is about corruption, money laundering and terror financing. But the Prime Ministers speech points to fundamental problems. He apologized to the Indians for the difficulties they would have to face in the coming days. The country had been troubled by fraudsters and tax evaders, and now they had to make a serious counter-attack. All previous government measures against the shadow economy have not worked.
Bloomberg quoted a real estate expert, who believes that the measure will have a deflationary effect and would make housing prices again affordable.