India's currency switch: a risky gamble, but with potential benefits

ON the evening of Nov 8, while the rest of the world was fixated on the US election, India's Prime Minister Narendra Modi made a dramatic announcement that would impact the lives of all of his countrymen - perhaps for a long time to come.

He declared that from midnight, high denomination notes of 500 and 1,000 rupees (equivalent to about US$7.35 or S$10.40 and US$14.7 or S$20.80, respectively) would no longer be legal tender, except, temporarily, for a few exceptional transactions. People were given until the year end to exchange their existing currency notes for new notes (in denominations of 500 and 2,000 rupees), with limits on daily withdrawals and larger deposits subject to compliance with know-your-customer norms and possible tax scrutiny.

The aim: to eliminate undeclared cash or so-called "black money" from the system, which represents a tax loss to the government, is said to be used for the financing of terrorism and other nefarious activities (as well as election campaigns) and distorts the functioning of key markets such as land and property.