Fellow Talkmarkets contributor Zacks Investment Research gives this take on the banning of most of the cash in India although from India Times below we see that denominations will be replaced:
India’s prime minister Narendra Modi announced note demonetization. As much as “86% of Indian currency and 12% GDP got stalled overnight."
As per the announcement, the Indian government withdrew high-denomination banknotes – 500 rupee and 1000 rupee notes – in circulation, as part of a clampdown against illegal money and corruption. Analysts expect this move to deal a direct blow to the finances of militants targeting India. These militants allegedly used fake 500 rupee notes to fund their operations...
The immediate impact will be on inflation as eradication of unaccounted and untaxed money will have a deflationary effect. As per the source, real estate prices should come down. Some even view the step as an unplanned form of policy tightening, though India has been resorting to rate cuts in recent times to boost growth (read: 4 India ETFs to Buy as RBI Cuts Rate).
Though things should be benefited over the long term, it is widely apprehended that the consumption-driven sectors will be hurt in the near term due to scarcity of cash. EGShares India Consumer ETF (INCO - Free Report)may be hit hard. The fund was down about 0.4% on November 9.http://economictimes.indiatimes.com/markets/stocks/news/side-effects-of-demonetisation-dear-pm-modi-it-seems-you-missed-these-6-consequences/articleshow/55471601.cms
The India Times has quite another take on this cashlessness. The shortage of money caused truck drivers to abandon trucks and the new larger 500 and 2000 rupees won't fit into cash machines, which will all be reconfigured. Rural areas have had to have the new notes airlifted. And there was a mini gold rush.
We can see the upheaval caused by this process when new notes are on the way. You can imagine how things would be if cash were banned altogether like some economists in the west want.
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