Jan 21, 2007

Thousand Rupee Notes

Indian government had demonetised Thousand Rupee notes in the late seventies as a measure to check black money. It was reintroduced in 2000.

The date for phasing out the Thousand Rupee note was set and so was the process for exchanging the notes for hundred Rupee notes. The bearer of the Thousand Rupee notes just had to account for the notes based on their past income tax filings, earning, and other transactions.

This started an alternate exchange for breaking the notes into smaller denomination. Thousands of Thousand Rupee notes were selling for 70-80% of their face value. They were picked up by grocery store owners and other businessmen who could account for such an inventory outside of a financial institution.

Today, Mumbai has a parallel economy at least as large as a legitimate one. Somehow, I don't think the government will abolish a Thousand Rupee note. Inflation has put that denomination in almost all wallets and purses. 103 Rupees in 1975 had the buying power of today's 1000 Rupees.