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A surprise announcement was made last night by India’s Prime Minister who advised that the 1,000 and 500 rupee banknotes have been scrapped.

The move is part of a crackdown on corruption and illegal cash holdings. During his address, Prime Minister Narendra Modi said that “Black money and corruption are the biggest obstacles in eradicating poverty”. Black money is deemed to be money that is unaccounted for, such as that acquired corruptly or being withheld from tax authorities.

India has a huge cash-based economy and subsequently the notes that are now deemed illegal tender represent 85% of cash in circulation within the country.

When speaking of the move, Indian Finance Minister Arun Jaitley said that “honest people” had nothing to fear about the abandoning of the 1,000 and 500 rupee banknotes, the highest denomination banknotes in the banknote series.

New 2,000 and 500 rupee banknotes to be introduced

To replace the illegal banknotes, new 2,000 and 500 denomination banknotes will be circulated during the next four weeks according to Mr Jaitley.

Exchanging old notes

There were long queues at ATMs last night as citizens tried to withdraw 100 rupee notes, but Wednesday saw banks and ATM machines remain closed.

Whilst the notes stopped being legal tender from midnight, people can exchange their old notes during the next 50 days at banks, though authorities are likely to ask questions to those trying to change vast quantities of banknotes. Authorities have advised that, providing a legitimate explanation is provided for the volume of cash, it will be possible to exchange it. ATM cash withdrawal limits are in currently in place.

Read the press release from the Reserve Bank of India here.