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About yesterday the Indian government withdrew 2000 rupee notes in circulation ref. Typically, when stuff like this happens, the explanation is that the attempt is to combat black money. This answer discusses the effect of another similar move known as demonitization, where 2000 and 500 rupees where withdrewn and given anew.

What would, the direct and indirect effects of removing the note type entirely do? Bonus points, if there is a motivation to explantions given referencing similar situations happenining in history.

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    This question might be more appropriate in Economics
    – Barmar
    May 19, 2023 at 22:06
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    FYI, at today's exchange rates 2000 rupees is worth about $24 U.S. and 500 rupees is worth about $6 U.S.
    – ohwilleke
    May 19, 2023 at 23:15
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    The USA did it back in 1969.
    – dan04
    May 20, 2023 at 16:14
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    One effect of not having large denominated banknotes is it makes it more difficult for organized crime figures to move cash. The larger the denomination of banknote, the smaller the pile of cash, for a given amount of money.
    – Fred
    May 21, 2023 at 10:32
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    @ohwilleke And to put that in perspective, average Indian salary is about 1/10 average US salary.
    – Barmar
    May 23, 2023 at 15:49

1 Answer 1

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Note: I will be talking about removal, or failure to introduce, of large-ish denominations.

Lack, or rapid reissue, of large-ish denominations tends to happen in countries with bad economy and low confidency in local currency already.

Known examples are India (reissuing 500 and 2000, discussed removal of 2000), Argentina (the largest denomination was 100 {~10 USD} during the existence of 'Dolar Blue' and falling rate of the currency), Soviet Union (secret denomination of 1961 and bank note reissue of 1991), North Korea (2009 reissue), Zimbabwe (google zimbabwe wheelbarrow of dollar).

Strong economies usually see no problem having large-ish denominations of their currency in use even as electronic payments are also very well developed and grey economy size is relatively small. A curious example is EU which sort-of deprecated 500 EUR note following economy instability period.

I will theorise by that example that it leads to short-term fiscal normalization / rent-seeking on the side of country government at cost of citizens' misery. Why is it only short-term is because it tends to encourage foreign currency holding and will often go alongside (hyper)inflation.

In many cases banking system which goes alongside is non-existent (Zimbabwe, late Soviet Union), untrustworthy or predatory (such as Argentina with its exchange ratio fakery), so we can't talk about honest encouragement of using non-cash money.

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    I don't know if you consider the UK a "strong economy" but its highest banknote is the 50 GBP, about 60 euros. The highest Swedish note is the 1000 kronor, about 90 euros.
    – Stuart F
    May 20, 2023 at 10:30
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    1000 kronor is around 100 USD which is a respectable value for highest denomination. 60 euros is still around three 2000 rupee bills and whopping 11x 500 rupee bills.
    – alamar
    May 20, 2023 at 10:35

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