Anger in India is growing over the recent and sudden demonetization of certain types of cash. The Indian government just made 500 and 1,000 paper rupee notes (worth a mere $7 and $15 respectively!) illegal, allegedly to cut back on counterfeiting and crime. Supposedly, they will be replaced by newer and more counterfeit-proof paper money. The cash ban will be very good for gold demand but is no way to run a country.
All countries periodically upgrade their paper currencies. The Indian government, however, acted differently than more responsible nations. When the US introduced new $100, $50, $20 and $10 bills, for example, it did so in a slow and controlled manner. There were no time limits on exchange. Older notes retained their value indefinitely. Eventually, in the ordinary course of business, these old notes make their way into the banking system (and still are making their way there), where they are sent back to the US Treasury for destruction and replacement. The same process takes place periodically in a host of different nations.
The Indian government, in contrast, has put a time limit on the legal tender nature of older notes. It gave Indians a few days notice of its decision to phase out old versions of the 500 and 1,000 rupee notes...
