MUMBAI • When the rest of the world rings in the New Year, India's central bank will be grappling with a unique situation: how to deal with more than 23 billion worthless banknotes.
Stacked one on top of the other, the pile would be 300 times the height of Mount Everest, which stands at 8,848m. Laid down to form a pathway, the bills would be enough to reach the moon and back five times.
Prime Minister Narendra Modi invalidated the bills - of 500- and 1,000-rupee denominations - in a single move announced on Nov 8, sucking out 86 per cent of the nation's currency in circulation and giving citizens until Dec 30 to exchange them for fresh notes.
Described as the world's most sweeping currency policy change in decades, the step has earned the government both admiration for its boldness and criticism for its execution. The Reserve Bank of India spends more than US$400 million (S$570 million) yearly on currency production, about 1.5 per cent of the global banknote industry.
Most of the junked notes will be destroyed and dumped in landfills, following the usual process used with soiled notes, said a senior central bank official, asking not to be identified. Many will also be turned into briquettes for industrial use, while some could be turned into paperweights and other knickknacks.
About 98 per cent of all consumer payments in India are in cash, and the high frequency of handling forces the monetary authority to withdraw about 75 per cent of its notes in circulation in a typical year - more than the number of banknotes collectively produced by all countries taken together with the exception of China.
With the government's step targeted at black money - the local term for cash stashed away to avoid tax - there are also reports of people burning their bills to avoid prosecution. Of the 15 trillion rupees (S$320 billion) withdrawn, just over 5 trillion rupees had been deposited in banks as of Nov 18, and the government estimates that an equal amount will stay undeclared.
The cost to replace the old notes could run into 200 billion rupees, former finance minister Palaniappan Chidambaram has said, in attacking the government's decision. But his successor Arun Jaitley, who is in charge of overseeing the move, said such estimates are "highly exaggerated".