"There's Chaos Everywhere" - Indians Angry As ATMs Run Dry After Cash Ban

The blowback from the world's latest strike in the war on cash is unraveling fast in India. This week's decision by PM Modi to ban some high-denomination banknotes (on the premise of fighting corruption) has left "chaos everywhere" according to one official who accused the prmeier of wreaking havoc on the poorest Indians. As Reuters reports, nearly half of India's 202,000 ATMs were shut on Friday and those that operated quickly ran out of the new notes as scores of people descended upon them.

Bloomberg's somewhat calming perspective on the events taking place in India...

India’s banks have been caught out by Prime Minister Narendra Modi’s unexpected and widely-praised announcement late on Tuesday of the withdrawal of 500-rupee and 1,000-rupee notes, part of a crackdown on tax evasion and the underground economy. Jaitley urged people not to rush to banks immediately and wait for a few days and to conduct financial transactions using electronic transfers, cheques and credit and debit cards.

“A big regret is that people are getting inconvenienced, but currency replacement of this magnitude will cause some problems,” said Jaitley. “There are long, but orderly queues. Such a big currency replacement can’t be done overnight.”

Indians rushed to deposit 478.68 billion rupees ($7.1 billion) of cash at State Bank of India after the government’s surprise move to abolish high-denomination banknotes, as customers queued for hours to deposit or exchange the old bills and ATMs ran dry.

Are very different from the more frantic scenes described on social media and reported on by Reuters...

But the crackdown by the government is affecting the real economy already...

Much of India's rural economy is powered by cash, with few people regularly using a bank account.

In Dudko, about 75 kms (45 miles) from Delhi, villagers said they were finding it difficult to pay for food and fuel four days into the cash crunch.

"Bank officials are saying they will give the money on Monday. How will we make purchases?" said Sunita, a woman who was preparing for her daughter's wedding later this month.

Finally, as GoldMoney's Alasdair Macleod notes, due to many Indians’ deep suspicion of government motives around monetary and banking policy generally, it also has the potential to lead to a sudden surge in Indian gold demand that could more than offset any weakness due to the tax. Our sources report that the surprise move has turned the Indian retail market into a frenzy.  As seen elsewhere in gold’s most important price drivers: energy prices and real interest rate expectations, the asymmetry in Indian gold demand has now shifted to the upside.