From Kris Sayce – Port Phillip Insider (Australia) –
Marcus is right. The Indian government is withdrawing 500 and 1,000 rupee notes. It will replace them with new 500 and 2,000 rupee notes.
What does that mean for the war on cash? And is it a ‘war on cash’ at all if the government is replacing old notes with new notes?
The answer to the second question is that yes, it’s still a ‘war on cash’. The answer to the first question is that the policy of replacing one paper currency with another has the real potential for hyperinflation.
It works like this. In India, according to the World Bank, only 53% of adults have a bank account. It means that roughly half the adult population relies on the cash economy.
That’s a problem for those without a bank account, who hold their savings as physical cash. It’s a problem because, if they happen to hold the 500 or 1,000 rupee notes, those will become worthless, unless they change them at a bank.
However, given the number of these notes in circulation, and given the extreme poverty in which many in India live, it’s likely that a signicant number of the population won’t even know the government is making their savings worthless, let alone understanding that they can switch their notes at a bank.
Kris’ background includes 20 years of experience stock analysis, financial brokering, and wealth management. He has worked for Port Phillip Publishing for over ten years and currently pens Money Morning Australia and the Port Phillip Insider.
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