This is by far the most sweeping change in currency policy that has occurred anywhere in the world in decades.
First, it impacts notes that are in widespread use, being valued at 7.34 and 14.68 dollars respectively. It is the imminent prospect of notes currently held becoming worthless that has created such alarm and disruption in India.
Small and medium-sized merchants have seen their shops (which transact mostly in cash) deserted and ordinary Indian citizens have spent the last week in line outside banks hoping to be able to exchange their cash holdings for legal tender.
Without new measures to combat corruption, we doubt that this currency reform will have lasting benefits. Corruption will continue albeit with slightly different arrangements.
On balance, nothing in the Indian experience gives us pause in recommending that no more large notes be created in the United States, Europe, and around the world.
We were not enthusiastic previously about the idea of withdrawing existing notes from circulation because we judged the costs to exceed the benefits. The ongoing chaos in India and the resulting loss of trust in government fortify us in this judgement.