Indian Currency Crashes To Record Low As Cash Exchange Of Old Notes Suspended

Tyler Durden's picture

It appears the social unrest, economic collapse, and currency crisis sparked by Indian PM Modi's decision to demonetize "corrupt" high-denomination bank-notes was not enough.

As the Rupee crashed to a record low overnight, officials announced a suspension of the exchange of 'old notes' as of tomorrow to, in their words, "encourage people to deposit old notes in their bank accounts." With as much 60% of banknotes still un-exchanged, we suspect chaos will be the operative word for the immediate future.

Those with old notes will still be allowed to deposit them into their bank accounts until Dec. 31, but not permitted to do outright exchanges.

As Bloomberg reports, the Indian government had observed a declining trend in exchange of old notes over the counter, according to a statement from the state-run Press Information Bureau.

And so the decision to end OTC exchange of notes was to encourage people to deposit old notes in their bank accounts.

Government allows certain exemptions for use of old notes until Dec. 15, with only 500 rupee denomination currency notes accepted for such transaction:

  • Old 500-rupee notes can be used for payment of school fees with limit; utility dues; payment of road toll fees
  • Foreigners permitted to exchange foreign currency up to 5,000 rupees/week

Furthermore, as CNBC reports, the Indian government is set to impose a 45% tax (haircut) on any suspicious deposits.

This is a major problem as only 40% of banknotes have been exchanged according to local reports.

We suspect the sudden urge to force citizens to deposit/exchange their old banknotes is due to the increasing prevalance of "illegal workarounds" across the nation... (as The Wall Street Journal reports)

Unable to spend or deposit their sackfuls of large bank notes amid India’s crackdown on hoarding cash, business owners across the country are paying employees months of salary in advance, ringing up bogus sales and even buying gold they can smuggle overseas to get rid of stashed money or conceal its source.


Such illegal workarounds are threatening to undercut Prime Minister Narendra Modi’s move this month to cancel India’s highest-denomination rupee bills, which was meant to punish tax evaders and other criminals and bring more of the nation’s $2 trillion economy out of the shadows.


If Mr. Modi’s unprecedented social-engineering project fails to net too many of the biggest tax cheats, he risks further incurring the wrath of Indians already frustrated with the pain and economic dislocation the experiment has brought about in its first two weeks.


Requiring Indians to exchange their big bills at banks for newly created ones—or suffer a quiet, potentially catastrophic financial loss—was Mr. Modi’s way of forcing hidden riches to the surface. There, authorities would be watching, ready to examine large cash deposits.


Millions of Indians have heeded the call. Since Mr. Modi’s Nov. 8 announcement more than $80 billion in old bills has been exchanged or deposited. That is around 40% of the value of all large rupee bills in circulation. The deadline for turning in canceled bills was Dec. 30.

Meanwhile capital flight is very evident...


Sending the Rupee crashing to a record low against the dollar.

“Continued outflows along with dollar strength have undermined the rupee,” said Gao Qi, a Singapore-based foreign-exchange strategist at Scotiabank. “The rupee may outperform some regional currencies such as the Malaysian ringgit and Indonesian rupiah on account of the central bank’s intervention and low foreign position in Indian financial assets.” Bloomberg reports that the central bank will take appropriate action to deal with the currency’s decline, a government official said earlier Thursday, asking not to be identified, citing rules. State-run lenders sold dollars, probably on behalf of the central bank, as the rupee approached its record low, three Mumbai-based traders said, asking not to be named. The RBI has maintained that it doesn’t target a specific rupee level and intervenes only to curb undue volatility in the currency market.

But, as WSJ adds, India has to do more than void notes if it wants to wean itself off cash. It also has to target the underlying reasons for which businesses amass paper money, such as the need to pay officials who demand bribes.

Politics in India is another big cash business. Because the country’s electoral rules don’t require political parties to disclose the sources of small donations, companies regularly use cash to buy influence. Parties then use the cash to buy votes ahead of elections.


The currency replacement is just “a spring-cleaning exercise,” said Jagdeep Chhokar, co-founder of the New Delhi-based Association for Democratic Reforms, which advocates for greater transparency in party financing. “Unless we change our way of living, our house is not going to be clean. It is going to get dirty again every year.”


There has been widespread condemnation of Modi's actions. As former PM Manmohan Singh exclaimed, "Those who say demonetisation is good in the long run should recall quote "In the long run we are all dead".  Singh tore into his successor Narendra Modi's clampdown on the cash economy, calling it an "organized loot and legalized plunder" of the country. Singh - the architect of economic reforms that led to years of rapid growth - dubbed Modi's shock move to scrap 500 and 1,000 rupee banknotes a "monumental mismanagement" that could shave at least 2 percentage points off economic growth.

 "I do not disagree with the objectives of taking steps against terrorism and black money.


In the process of demonetisation, monumental mismanagement has taken place. What has been done can weaken and erode our people's confidence in the currency and banking system. I say so with all responsibility that we do not know what will be the full outcome.


This will hurt agriculture, small industry and everyone in the unorganised sector. My view is that GDP growth can fall by 2 per cent and that is an underestimate."

And from our soruce in India, the problems are escalating: ATMs lines are building once again.


But as the following image shows, there are no lines at The State Bank of India ATM, as these only have INR2000 notes:

As former PM Manmohan Singh raged today in the Rajya Sabha, "50 days is a short period but for those who are poor, even 50 days can bring about disastrous effects."

And, as we now know, it's less than 50 days.

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Bill of Rights's picture

Eventually this chaos will reach our shores...

Soul Glow's picture

At least they can light those old notes on fire to keep warm.

El Vaquero's picture

I recall a story a while back, probably here on ZH, talking about Athens, and a survey that the government sent out asking about things like who had a swimming pool in their backyard.  Greeks make tax evasion a sport, and this was a ploy to see who had more income than they were reporting.  Of course, very few Athenians with pools reported honestly.  Then the age of Google Earth hit, and they started looking at people's back yards to see who had pools so that they could clamp down on tax evasion.  Some enterprising Greek then developed pool covers that looked like a lawn.


I would really like to see the Greeks and Indians go head to head on tax evasion.  

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) El Vaquero Nov 24, 2016 1:50 PM

Muh boss is a Japanese Cryptographer

BaBaBouy's picture

F u u u ck ... Just Dump MODEY & His Fiats Fecksters Already ...
Trade In GOLD For now.

tmosley's picture

What is the traditional method of execution for incompetent/corrupt/genocidal rulers in India?

If there isn't one, I would suggest having them gored to death by bull elephants. Or maybe squished by one. Should make for a fun show either way.

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) tmosley Nov 24, 2016 1:58 PM

Gold Shirt dude missed his chance at stardom by (((that much)))

BaBaBouy's picture

""Furthermore, as CNBC reports, the Indian government is set to impose a 45% tax (haircut) on any suspicious deposits.""

USA BankSters Are Salivating At The Prospects ~~~

manofthenorth's picture

GOLD & SILVER, physical and in possession, are the only insurance against the coming global central bank fiat apocalypse.


HRH of Aquitaine's picture
HRH of Aquitaine (not verified) manofthenorth Nov 24, 2016 3:54 PM

Sure. Until the IRS and FATCA make sure that every US citizen that owns PMs must pay a 45% (or higher) windfall tax upon the sale of those PMs.

ctiger2's picture

Then you don't "sell" them for fiat. You exchange them for other physical goods. No Govt paper changes hands, no problem.

SilverRhino's picture

Yeah there's a neat little phrase I like to use for situations like that. 


Fuck that.

webmatex's picture

government is set to impose a 45% tax (haircut)

fuck em - get your woman to cut it and i believe there are many suspicious deposits there.

zeronetwork's picture

Indians themselves are responsible for their misery. But God forbid we also voted for Trump and he says Hitlery has been through a lot already.

Karlus's picture

Gold Shirt Dude is dead. Robbery....shocking, I know

RockySpears's picture


 Tipu Sultan had mens heads crushed by a strong mans hands if that's any help,



refill6times's picture

Ahh, remember the movie Casino?

"frankie, do em a favor"...

East Indian's picture

Nothing. They got away scotfree. That is why the country detriorated so much. 


Dragbin Fonestar - shove the Shitcoin where the sun never shines.

Bitcoin volatility up and down, up and down, oughta give you the thrill ride of a lifetime orgasm you won't get any other way sitting in Mommie's basement in yer undies, eating Cheetos and spamming the webs with crypto currency crap. 

financial apocalyptic contagion's picture


me too. Indians would probably nick it. 

It's a citizen's duty to evade tax. When I first came to the States I couldn't believe how easily the people had been conditioned into declaring incomes and paying taxes.

refill6times's picture

In this country, USA, a single IRS agent can stop an Asian horde.

Its called rule of law, it makes us special.

HenryKissingerChurchill's picture

"tax evasion"

you talk like a government-mafia shillbot sheep

Absalon's picture

"Eventually this chaos will reach our shores..."


Not likely.

This is an Indian problem made in India.

How many people do you know who earn their incomes and pay their bills in cash?

Tijuana Donkey Show's picture

Anyone who has questionable citizenship status. So, a lot. 

Socratic Dog's picture

Everyone who's ever worked for me.

Fractal Parasite's picture

Billions of my friends, actually.

bfellow's picture

Gold. Silver. Lead. Can't demonetize that.

dark fiber's picture

Cry me a river.  If the people of India are putting up with this shit and haven't turned the place into a warzone yet, they deserve what they are getting and they deserve to get even more.  Don't really understand why  they didn't like the British empire.  Far more reasonable than their government.  Fuck'em.

lincolnsteffens's picture

First create a panic. Second, heard them all into the banks. Now people that never had bank accounts will be forced to open them or their currency becomes worthless.

If they deposit too much they will take a major loss unless they want to sue the government. Once the currency is in the bank, good luck on taking it out!

Boys and girls, this is just warming up. Every one of these economic shocks will build into a global one. Once the camel's back is near braking it will only take one more straw.

Sheep to the slaughter house. How are we going to break out of the pen?

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) lincolnsteffens Nov 24, 2016 4:09 PM

The main problem was that most Indians didn't even have a bank account. An earlier article stated that 90% of the Indian economy is cash-based. I was shocked to see how many people don't have a bank account and don't have an ID. This is a way to push those people that do have money into opening a bank account.

I use cash here in the USSA. Most of the time it is viewed as an inconvenience by the cashier or checker. It is dirty, it is slow. Credit and debit cards or smart phone payments are so much faster and convenient and of course that is how the cool people pay. I remember when grocery stores started installing systems that allowed people to pay with a debit card. Before that the only choices were to pay with cash, write a check, or use a credit card. I was a student at that time living in a city. Suburban and rural areas were not using that system (about 24 years ago).

The western world has already gone down this slippery slope. Now is the time to rein in the third world. Happening before our very eyes. Few people are paying attention but the implications are clear: cash is going to be considered verboten, old fashioned, and not accepted or welcome.

Buck Johnson's picture

This is going to end badly, it already is and eventually as you said it will hit american shores.


thesonandheir's picture

War on Cash.


Brought to you by the same folks as the successful drugs and terrorism wars.

max2205's picture

Pakistan should put them out of their misery 

illuminatus's picture

It's always all right as long as it happens to somebody else, right?

I see it over and over again, even with idiots on this site. ' Oh, that couldn't happen here' and 'that's and Indian problem, they brought it on themselves'. 

I suppose I should never expect more than is delivered. Silly me.

Joebloinvestor's picture

World take note.


Government created fiat and chaos.

illuminatus's picture

And they'll use the fiat to steal everything you have and then take away the fiat too. But hey, they'll leave the chaos, so it's not all bad.

EuroPox's picture

Why don't they just use the cash to buy stawks in a nominee account?

canisdirus's picture

They can't. The physical currency is being discontinued with a hard trade date. Nobody will take them in trade for anything unless they haven't personally hit the deposit cap, meaning practically nobody will willingly take them in exchange for anything.

Basically, you trade at a bank or lose their value entirely.

EuroPox's picture

So buy stawks or bearer bonds, pay cash to the broker who deposits the cash in a bank.  Or, give the cash to an attorney who deposits it in a bank and holds the cash in a client account - client attorney privilege would prevent any awkward questions...

El Vaquero's picture

Something like 50% of the country doesn't even have a bank account.  25% doesn't even have the ID needed to exchange the cash.  This is in a domestic economy that is over 90% cash. You think those people are going to have attorneys?  The only people who could pull that are the ones who have the means to figure out many routes around this.  

rejected's picture

I have an acquaintance that's always bringing up Lawyers and how they can somehow protect you. The crooks that are doing this could care less about law. In fact it's the Bankers, Lawyers, and Government (all levels)  that are in the process of destroying a rule by law liberty minded society. 

dark fiber's picture

One billion people and they bow to the wishes of a single idiot.  They can just fuck off.  It is about time we started showing zero sympathy for willful slaves.

canisdirus's picture

With that deal, you deposit the limit, then anything you haven't been able to trade through others and just take the haircut on the second deposit of the remaining cash. Some value is better than no value.

max2205's picture

Note to self:  the deposit savings rate was too low 

harrybrown's picture

The war on cash is already here,
we're just seeing the advanced stages of it in other nations "further along that road"

Get ready to be locked into a digital only slaughterhouse!

Or Get stacking what little cash you have left.

F*cking Money changers "Death to them & their paper"

canisdirus's picture

It's not a war on cash. The infrastructure in India is so laughable that you couldn't switch to digital no matter how bad you wanted it.

This is simply flushing out undeclared/taxed income and taking bills out of circulation that were regularly counterfeited to fund criminal organizations.

Korprit_Phlunkie's picture

Currency issues plus live fire across the border with pakistan. Thats not good.