Imagine that you had a $20 bill in your pocket. You’ve been saving it for months and tomorrow you’re going to use that money to buy a toy. You go to sleep and the next morning you find out that your $20 bill is worth $0. Shocking, right? It may just be a bad nightmare to some, but it’s actually happening in India right now.
It was a surprise move by the government: over night, the government announced that the 500 and 1000 rupee note (two of the most popular denominations of currency notes (or amounts in paper money) in India) would no longer be circulated. What does that mean exactly? It means that anyone with a 500 or 1000 rupee note would no longer be able to buy anything with that money because it’s now worth nothing.
The announcement from the government was shocking and resulted in people scrambling to get to the banks to exchange their 500 and 1000 rupees for something worth, well, money! This would cause chaos in any country, but it has been particularly bad in India because India is widely a cash-based economy, meaning a lot of business transactions are done with cash, not credit cards or checks. And the greatest population affected by this change? The working class like farmers who use cash as their primary form of payment for transactions.
So why did the government do such a thing if it was going to affect so many people? Their reasoning is that they wanted to get control of the corruption and tax evasion (or people who don’t pay their fair share in taxes) that was happening in the country.
So, what now? Indians have until December 30th to exchange their old notes for notes that are still in circulation (such as the 100 rupee note) and the government is issuing new 500 and 2000 rupee notes into circulation.