Explained: Demonetisation of High denomination notes and what can foreign tourists do about it.

Dr. G G Saxena and Anshul Saxena

There has been a lotta hulla-bulla over the Demonetization of Rs. 500 and Rs. 1000 currency notes. So, we thought it important to bring out an apolitical and neutral version of Demonetization, the reasons behind it and how can Government and other agencies improve their functions.

What is demonetization?

Demonetization refers to the banning of a certain denomination of currency notes. In a late afternoon address to the nation on 8th November 2016, PM Modi announced that Rs. 500 and Rs. 1000 notes will no longer be legal tender with immediate effect starting from 9th November 2016. This invoked specific reactions in various sections of the society as Rs. 500 and Rs. 1000 notes account for more than 80% Indian currency notes. So, once they are declared illegal tender, people would rush to convert their Rs. 500 and Rs. 1000 currency notes into Rs. 100 legal tender or lower denomination notes. Even more shocking are the reports of some unscrupulous elements faking the Rs. 2000 notes that shall eventually become the highest denomination note in India. However, it merits understanding demonetization of high denomination notes from various perspectives. This blog post attains significance in the face of a bandh implemented by opposition parties to protest against demonetization.

What is the share of Rs. 500 and Rs. 1000 notes in the Indian currency basket?

Denomination of Currency No. of Notes in circulation Value of the denomination of notes in INR Value of the denomination of notes in USD
500 16 billion 7 lakh crore 120 billion
1000 6 billion 6 lakh crore 97 billion
Junked currency 22 billion notes (85% of total Indian currency notes) INR 14 lakh crore USD 217 billion

Has it been done before?

It has been done before during the Morarji Desai led Janta government rule in 1978 when Rs. 1000, Rs. 5000, Rs. 10000 notes were demonetized in a phased manner. However, this announcement was abrupt and meant to cast a blow to the Black money holders.

Bollywood-inspired depiction of Demonetisation
Bollywood-inspired depiction of Demonetisation: Pic 1: Aamir khan robs a bank in Dhoom 3 Pic 2: After demonetisation when Rs. 500 and Rs. 1000 notes become illegal Credit: @naalaYUCK

Merits of Demonetization

Excessive circulation of higher denomination notes leads to Illegal money that in turn results in the following:

  • Financial crime that fuels drug trafficking and human smuggling
  • Counterfeiting of Rs. 500 and Rs. 1000 notes from across the border.
  • Corruption that erodes credibility of public institutions and adversely affects decision making
  • Terrorist organizations carry out their propaganda that spreads death, misery and fear across all strata of society.
  • Cash for vote and circulation of large amount of black money prevalent in various levels of elections.
  • Tax evasion leading to huge loss to state exchequer
  • Huge amount of unaccounted Black money invested in sectors such as Real Estate etc.

Apart from the above-mentioned reasons to curb illegal money and tax evasion, here are some interesting stats that merit demonetization of Rs. 500 and Rs. 1000 notes:

  • India witnesses an average transaction of Rs. 2.7 lakh crore daily which amounts to Rs. 800 lakh crores when calculated annually. Out of this transacted amount, only 20% transactions take place through banks and rest all are through cash, while in developed countries, statistics are completely reverse. Since Rs. 500 and Rs. 1000 notes account for 85% of total Indian currency, one can imagine the volume of non-banking transactions done with the help of higher currency notes. Since poor or common man constitute 80%-90% population yet they are involved in 10%-15% cash transactions, so it is anyone’s guess as to who accounts for the rest of the cash transactions involving high denomination notes. This is a major area where black money is generated, transacted and distributed. If a black money hoarder has a huge amount of money to transact and store, he/she will only prefer higher denomination notes of Rs. 500 and Rs. 1000 instead of Rs. 100 or Rs. 50. Thus, the ban on Rs. 500 and Rs. 1000 notes.
  • India’s 78% population spends only Rs. 20 a day, so they are in no need of higher currency notes.

Interestingly, Income Declaration scheme had been announced earlier in the year, wherein incentives were given to citizens to declare their unaccounted wealth by 30th September 2016, beyond which unaccounted for money would become useless piece of paper. This step has come more than a month after the Income Declaration scheme ended on 30th September 2016.

Demonetization Impact: Rs. 500 and Rs. 1000 notes declared illegal tender
Demonetization Impact: Rs. 500 and Rs. 1000 notes declared illegal tender

Why ban only Rs. 500 and Rs. 1000 notes and not Rs. 100 or Rs. 50 notes?

In any economy where tax evasion and black money are prevalent, higher value currency notes are the preferred payment mechanism for pursuing illicit activities given their prevalence (Rs. 500 and Rs. 1000 constitute 85% of Indian Currency notes), lack of transaction record, relative ease of transport and storage. Thus, by eliminating high denomination notes, those pursuing tax evasion, illicit activities, financial crime, financing the terrorist organisations will face a hard time and higher risk of detection.

Government was intent on manufacturing and circulating Rs. 500 notes soon and start floating Rs. 2000 notes with superior technology that is tough to replicate by unscrupulous sections of society. But that remains to be seen.


A statement by India's Union minister against demonetization back in 1970
A statement by India’s Union minister against demonetization back in 1970.

Demerits of Demonetization of High value currency

Timing of the announcement was kept a secret on purpose and the positive effect of the well kept secret will be known in the days to come. However, this abrupt announcement was a huge inconvenience in the marriage season when many families who had been saving cash for paying the hotels/banquets/guesthouses and for other expenses such as buying a sherwani or lehenga etc are faced with the dilemma of either standing in the day long queues outside their nearest bank branch or making other arrangements. Thus, it has caused inconvenience to many sections of population.

Casualties reported: There have been reports of people dying in the unending queues.

Though Demonetization of higher denomination of currency has been done with a view to curb black money but various reports and experts suggest that since the amount of black money transacted is huge and cannot be stored and distributed, so, black money hoarders do not deal in cash anymore. Instead, they stash their black money in Swiss bank accounts. If this argument is taken true, why are these astonishingly large percentage of high denomination notes in circulation? Economists in the world have time and again advised policy makers that high denomination currencies should be changed frequently to curb black money.

Steps forward:

With the objective to render worthless as much black money as they could, the announcement was kept a secret by the PM and only his closest confidantes knew about it. However, such a noble step should have been backed by large customer support executives to provide convenience to incoming tourists or those who may be left stranded when their higher denomination notes go invalid.

Besides, the hardest hit sections are lower class and middle class citizens who must pay their daily bills and deal with kirana stores who do not have POS machines. This results into delayed payments for maids, servants, etc. Besides, those working in the unorganized sector such as roadside vendors, small traders, cab drivers, etc. are facing immediate liquidity issues. Though such problems faced by the common man cannot be ignored by the Government, these are procedural problems which could be addressed only by Government agencies. This involves shaking up a few departments of government to enhance customer service, provide convenience and bring about the fruitful results of a noble cause.

Due to Demonetization, foreign tourists are not able to full enjoy the spirit of Incredible India
Due to Demonetization, foreign tourists are not able to full enjoy the spirit of Incredible India.

Case of a Foreign Traveler

Foreign tourists who are visiting India or have been in India for a while are also adversely affected due to the demonetization of Rs. 500 and Rs. 1000 notes. As an example, a Japanese national, who had come to attend a 15 day Trade fair, had dozens of high denomination currency as the restaurants he would visit or places. This is because he would pay at least Rs 500/- for a meal and a few thousands for shopping. Thus, before the announcement, he had refilled his wallet with higher currency notes. He had negligible number of Rs. 100 and other lower currency notes.

Immediately, after the announcement, he was crippled like the rest of us as most of his cash was rendered invalid. Besides, since he didn’t have an account with an Indian bank and there were huge queues outside each operational ATM, he had to depend on a few large hearted Indian friends for cash. Keeping such a scenario in view, Govt of India could have conducted a survey and found out the places of interest to a foreigner in a city and facilitated provision of cash in the Government agencies that monitor those places.

What can Govt do for Foreign Travelers?

All monuments come under Govt body Archaeological Survey of India (ASI)
All monuments come under Govt body Archaeological Survey of India (ASI)

Optimum use of Govt Agencies:

Each state Govt has a list of monuments that are most frequented by tourists. These monuments come under the ambit of Archaeological Survey of India, which is a Govt body. Here, Govt can allow foreign tourists to exchange Rs 500 and Rs. 1000 note, upto a certain value eg. Rs. 5000 after showing their visa. Later on, these notes obtained by ASI can be exchanged with RBI on an internal basis.  This will provide convenience to the incoming tourists. In Delhi, Foreign tourists tend to visit Humayun tomb, Qutub Minar, India Gate, Red Fort. These monuments come under the ambit of Archaeological Survey of India, a Government of India body.

Increase the number of Tie up with select private sector players:

Similarly, government agencies can forge strategic tieups with private sector and provide foreign customer care facilities in shopping malls, Museums, cinema halls, Railway stations, airports etc.

Similarly, each city which are on foreign tourists’ wishlist such as Jaipur, Udaipur, etc could be used to provide convenience to the foreign traveler.

The Demonetization scheme has provided inconvenience to majority sections of the population but there is little criticism of the intention of the incumbent government. Thus, providing a little more convenience to the foreign traveler could make this scheme better.

Long queues inside a bank can be shortened.
Long queues inside a bank can be shortened.

What can Banks do to improve their services?

Though the banks have been trying relentlessly to end the trouble caused to fellow countrymen and tourists but a little bit of tweak in their implementation can be time saving for the client. While in conversation with a  the owner of a clinic in GK-1, we came to know that standing in the queue to withdraw cash was not the problem for the owner but the only problem was that as the bank’s reliable and old customer, there should be a separate line for the account holders. Another line for people who do not have an account. Additionally, a separate line or a specific time can be allotted to foreign tourists to transact with the bank. In Goa, there is a separate queue for foreign tourists and since metropolitan cities of India also have scores of foreign tourists queueing up outside their branches, this tweak in their operations could provide a welcome relief.

What can the Foreign Tourists do to help themselves?

Point of Sale machine is a necessity nowadays
Point of Sale machine is a necessity nowadays

Plastic Money

Use plastic money to do as many transactions as you can. Even if you have to order meals from a restaurant, first ask them if they accept cards and if they can send a POS machine along with the delivery boy to make the payment.

Duty Free shops are a good place to exchange old notes
Duty Free shops are a good place to exchange old notes Credit: http://www.dailymail.co.uk

Exchange old notes at transit points

Western Union Money Transfer's new service to India to cope with Demonetization
Western Union Money Transfer’s new service to India to cope with Demonetization

Send money online to Western Union and collect Rs. 15000 from post office.


As demonetization kicks in, time for PayTm to rejoicse
As demonetization kicks in, time for PayTm to rejoice

Install PayTm app on your mobile: The phase of demonetization has adversely affected every part of the society but one company that is grinning is PayTm. So, it is advisable to install the app and make payments. Nowadays, even vendors are tying up with PayTm to get the payments done, so, before putting your hand in your pocket to take out money, ask the vendor or shopkeeper if they accept PayTm.

Bookmychotu: Ideal candidate for Startup of the month???
Bookmychotu: Ideal candidate for Startup of the month???

Bookmychotu.com: If you run out of cash and desperately need to get money from the bank, go the website www.bookmychotu.com or call +91 8587028869. This website offers chotu’s who would stand in the bank queues on your behalf. They wont enter the bank and would call you as soon as it’s their turn to enter the bank.

Time to deal in Rs. 100 notes more frequently
Time to deal in Rs. 100 notes more frequently

Time to value Rs. 100 notes: Get as many Rs 100 notes as you can as you’ll be transacting with these notes more frequently in the days to come.

"A friend in need is a friend indeed" friendly quote
“A friend in need is a friend indeed”

Ask for friends’ help:  If you are visiting a bank’s branch, ask a friend who lives in the vicinity to offer to stand  in the queue just in case you feel exhausted or dizzy while standing in the queue. We are sure there would be many such friends who would be ready to help you. If you are living with an Indian family in a Bed and Breakfast unit, your woes will be decreased to a great extent as the host Indian family might even lend you money.

Checklist before standing in the bank's queue
Checklist before standing in the bank’s queue

Things to carry to stand in the bank queue (we’ll pray you wont need to ):

  • Fill up the bank forms beforehand
  • Do not forget to carry your passport and visa.
  • A bottle of Glucose water
  • A packet of biscuits
  • Fully charged mobile with a recharge device
  • A book or an old newspaper
  • Loads of songs on your mobile phone
  • Keep the contact numbers of Hospitals, clinics and Police (100) handy and saved in your mobile in case of an untoward incident.
  • Lastly, a smile on your face.

Inspirational quote


Though the step to demonetize higher currency notes is abrupt and chaotic domestically but on the international front, it will receive a thumbs up and more countries may adopt this measure to curb the nuisance of black money in its backyard.

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