Demonetisation: How Pakistan can avoid making the same mistakes as India

Published: January 2, 2017

The Rs2000 is proving to be a little too big of a denomination for average Indian citizens. PHOTO: TWITTER.

On November 8, 2016, while the rest of the world was watching the American election results, India dropped a bomb shell on its citizens. The wily Mr Modi (dressed in his favourite kurta shalwaar) announced that the Indian government would pull out all Rs500 and Rs1000 from circulation at midnight. This would be akin to 86% of the total economy – some Rs14 trillion in cash would be rendered useless. Mr Modi implored to the nation that even though it seemed as if he had ripped a bandage off here, India would benefit in the long run.

The impetus for this drastic policy was to stem the flow of black money into the economy. This included money being used for criminal activities, counterfeit notes, terrorism, and tax evasion. The people were given 50 days from that day forward (until December 30th ) to exchange their old notes for newly issued notes of Rs2000 and Rs500. While people had roughly 50 days to deposit their money in bank accounts, doing so in large quantities could have exposed them to high taxes. This goes on the assumption that this was legally earned money on which taxation was due but the money was never declared.

As noise around demonetising the Rs5000 note in Pakistan grew, there are some lessons that the Pakistani government must take into account based on the Indian experience:

1. Stemming large denominations of currency may hinder the flow of black money, but the results will be spotty and might take a long time to show. Most entities accused of hoarding illegal currency are smart enough to keep it in various investment instruments, the most prominent being real estate investments. Back in the 80s and 90s, when Amitabh Bachchan reigned supreme in the Indian film industry, movies were the most popular investment vehicle for criminals and money hoarders. The beginning of the 21st century saw the arrival of professionalism and legitimate investment in Indian movies and the difference clearly shows.

2. India demonetised their Rs500 and Rs1000 notes in exchange for new Rs500 and Rs2000 notes. The Rs2000 is proving to be a little too big of a denomination for average Indian citizens who have to rely on loose change for most of their purchases. This goes for the merchants as well where they are refusing to accept large notes for small purchases.

3. When people come into exchange their old notes, they are being asked to present proper ID before being allowed to exchange currency. Most of India’s daily wage earners are unbanked and undocumented. If they can’t prove their identity, they are stuck with value-less paper.

4. The plan to demonetise such a large chunk of currency has not been matched with an equal availability of fresh notes. This has caused an even bigger cash crunch, where people have been trying to offload their cash through everything that they can, including groceries, petrol stations, loan sharks etc. Unfortunately, many of them are being turned away for this very reason. For example, there have been instances where hospitals have turned away patients because they tried to pay with old notes.

5. The real estate development sector has also been affected heavily given its status as the investment of choice by black money hoarders. With a lack of legitimate cash in the market, for whatever reason, the sector is facing its own liquidity crunch. Weddings are taking a beating given the amount of cash-based business they generate. Farmer’s looking to make investment in next year’s crops are at odds on how to pay for seeds.

To summarise, Pakistan must keep these points in consideration before any such decision is taken:

1. Do not confuse black money with the informal economy. Pakistan may have a weak formal economy by a gigantic informal economy that is humming on all cylinders. Difficult as it may be, perhaps Pakistan needs to widen its tax net or at the very least, try to measure the informal economy to ensure minimal disruption to the general productivity.

2. Any demonetisation policy must be accompanied with exceptions for public institutions that can continue to accept old currency notes. This is to ensure that the common man has access to state facilities, at the very least.

3. Mr Modi sprung this policy to catch black money hoarders by surprise. Unfortunately, so far it seems that he’s created more chaos. If Pakistan has to do something similar, they should take the stakeholders into confidence – the banks, so that they can prepare their staff and ATMs for the coming onslaught.

4. Another one of Mr Modi’s agendas is taking India digital by introducing a cashless society. While this looks good on paper, the common Indian is already cashless… or at least starved for cash. Pakistan can push for a more digital economy – take local financial technology players on-board, convert cash payments to digital transfers, increase the reach of something like easypaisa before removing currency from the economy.

5. Set up a solid marketing and communication team in place to battle any negativity about demonetisation. Theoretically, demonetisation is an appreciated policy. It forces people to disclose their wealth and come into the tax bracket. Furthermore, it forces them to use alternate payment channels like digital payments and allows banks to plug liquidity gaps. At the same time, if the policy lacks sound public relations, all hell can break loose.

To sign off, I would recommend going against demonetisation. Pakistan is not ready for such measures. Some of our esteemed denizens may have illegal cash holdings, but I doubt the Pakistani rupee is the currency of choice when it comes to funding terrorism. I sincerely advise the current government to keep chugging away as it is and try to increase the number of people that are documented and banked. Once we reach a critical mass on that front, maybe then can we revisit this topic.

Should Pakistan have demonetised its Rs5000 note?

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Muhammad Yamin

Muhammad Yamin

The author is a management consultant based in Toronto. He has a keen interest in international business, social enterprise development and application technology trends. He tweets @myamin325 (

The views expressed by the writer and the reader comments do not necessarily reflect the views and policies of The Express Tribune.


    but to commit a mistake you should do something rather than ranting.To my knowledge digital transaction has gone viral and has become an ordinary matter in India Even a road side tea stall has swipe machine and the govt is extending subsidise to swipe machine .Dear Pakis please do something then talk about mistake and la la ;la Hope ET would not edit my commentsRecommend

  • Rahul

    India’s cash ban is a resounding success. Most ordinary Indians support it. Almost all merchants have credit card machines now. Almost all Indians have bank accounts. Even the New York Times, which is usually very Anti-Modi and Anti-India in its tone and tenor has been forced to agree.

  • M. S. Chaudhry

    Modi Sahib’s intention was good but Baboos of India have destroyed his dreams. These people did not do good job. They will keep their job and perks but Modi Sahib will face the brunt. In my opinion, and I have stated it at different sites from 8th Nov that only 1000 note should have been cancelled. Secondly, before action focus should have been on printing of Rs. 500 note and opening of new bank accounts. It was so easy to do. Introduction and Printing of Rs.2000 note not only wasted huge resources, it also killed whole purpose of black money. Last but not least it’s size failed hundreds of thousands of ATMs. Winner in this whole saga are Baboos, Banks, and Big businesses, losers are Modi Sahib and poor people.Recommend

  • antistatusquo

    I don’t know about the impact of Indian decision on Indian economy, but definitely they might had calculated its positive and negative impacts ,we should say good luck to the common ppl of India, we should not worry about that…….OUR OWN PROBLEM IS THIS 5000 RUPEES NOTE….used by corrupt mafia in business deals avoiding bank transactions as its easy to carry millions and millions in small bags….


  • Awais

    Pakistan achieved 19 % year on year increase in digital transaction without demonitizationRecommend

  • Purna Tripathy

    Either the author is correct or people in India are fools who have elected BJP after demonetization. It requires credibility and conviction of the leader to take such a step. If people are so inconvenienced and are angry they would have been on the road, not in front of the Bank ATM.Recommend

  • Dipak Mehta

    Who says demonetization did not work? It’s doing exactly what it was supposed to do. Even a begger in India gets his bhiksha on internet. The Congress is unhappy Party.Recommend

  • Gingerman78

    Everyone in Pakistan and their cousin (also sometime wife) has reached a conclusion about demonetization in India. This conclusion is largely colored by their anti-Modi bias complete with an irrelevant dig at what he is wearing. So be it. The author seems to have extreme empathy for the day laborer. Most day laborers may not have a bank account (not that one is not easily available) or perhaps an id, but most don’t have 500 rupees either. It is true that, for reasons having to do with secrecy, the replacement notes were printed in advance. That shortage is starting to ease and will ease further in the coming weeks. Interest rates are lower and so is inflation. Economic activity has been affected but most agree that is temporary. However, if Modi succeeds in transforming India, these same writers will be urging their government to emulate India. Given that it is ruled by one-foot-out-of-the-country elite, it will be amusing to see Pakistan’s effort in this same regard.Recommend


    Demonetisation requires a strong political will accompanied by financial experts Pakistan neither has the will power nor think tank Pakistan may ask the chinese help foe demonetisation problem is that the chinese are the masters of printing fake currencyRecommend

  • raj

    I guess a lot people n India are bearing the consequences of what Modi has done. Even people like Dr Manmohan Singh and Dr Amartya Sen (nobel laureate) have accused Modi on this. To see the reality, you need to go to the villages where majority of the people live. Just as an example, the Maid that Asians are so dependent on, would only take cash as the salaries are too low to get a bank account (accounts cannot be opened by everyone). Then there are daily wages people like labourers, who would get money on the spot. These people can’t afford to have a bank account as they earn and spend on the single day for their kids waiting for food at home. Further to this, there has been instances during this demonetisation, when Modi govt caught many people with huge cache of new notes which means the black market is already up and running on new notes. Yes you will get few hundred crores but how much you have lost, Modi won’t tell you. Modi govt will tell you how much Rs.500 and Rs.1000 notes they got but they won’t tell you how much Rs.2000 has gone out too. Modi is fooling ppl as a lot of them don’t know Economics.Recommend


    Ranting is trademark character in pakistan .pakistan doesnt do anything but to find faults in every matter from cpec to demonetization etc,instead of banning huge note like 5000 the auther justify it Recommend

  • Samir

    Demonetisation has done really well for India dont know wot u r recommending…but ofcoz u need an honest man to take such a gigantic step ..

    in Pak where even highest order ministers r fighting cases in Panamagate scandal it is difficult to think that anybody will come forward !Recommend

  • angrybird

    lazy people dont want to change- thats the only problem happened in India, nothing else.. Recommend

  • Sane

    Pakistan will not do this. Recommend


    Mr Raj i dont where you are in India Am from southern most district of India ,Kanyakumri . I too faced certain difficulties but I do not cry. People in my district are extending visible support. Your main aim is bashing Mr Modi “a lot of them don’t know Economics.” I know which school of ideaology they are belonged to .Recommend


    We are inching towards less less cashless economy. Digital transaction in at the last layer of society ” village ” Not confined to the citiesRecommend

  • abhi

    I know. Expecting Nawaz to do something like this is impossible.Recommend

  • abhi

    I have talked with many rural folks and they were supporting this move. Recommend

  • Saurav

    Your observations seems wrong. I was also in the ATM queue for hours on many days, but didn’t see any anger expressed anyone there. Instead most of them where showing optimism about better future for common man.

    The huge election victory for BJP in recent elections after the note ban proved Mr.Modi is right. He has support of almost all in the country where back money is concerned.

    Its too difficult to understand and comprehend what Mr.Modi is doing or would do, but surely he is doing everything for his MOTHERLAND and its citizens.Recommend

  • Sane

    Because Nawaz Sharif after all is not lunatic.Recommend

  • Razzy

    Go to the hinterlands of UP, Bihar and Bengal to see how much “digital” they are!! Forget about tea vendors, in eastern UP the cash crunch has wiped out a very large percentage of people’s livelihoods. The saree weavers and the sewai makes of Benares are one such example.Recommend


    Go to the hinterlands of KERALA ,AP, KARNATAKA and TN,to see how much “digital” they are!! blame the state govt and dont lavishly bash Mr.Modi.Recommend

  • abhi

    What ever makes you happy.Recommend

  • raj

    U don’t know amratya sen.. go read his viewsRecommend

  • raj

    if the whole nation is not behind something, what is the point..Recommend

  • raj

    that doesn’t mean its good.. the thing is they dont even have bank account and they are supportingRecommend


    A school kid in my state TN has bank account again blame the state govt for the inefficiency .You statement clearly expose how ignorantRecommend


    We know the patriotism of BANEJEES ,SENS( am not generalising I mean the left of Bengal) Therefore we dont mind the so called AmarthyaRecommend


    who are you to say whole nation ? Are u representing whole India? I think u are trying to say whole Bengal ?Recommend

  • raj

    i am not saying there aren’t. im just saying there is long way to go and these things shud be done in a more manageable manner.. already new notes are out in black market so dont be ignorantRecommend

  • raj

    if a single person who works hard to feed his kids on daily basis is not getting the fruits of this whole modi-thing, then i wud say its all lostRecommend

  • Raj

    then u shud first respect your own scholars rather then chai walaRecommend

  • Faisal Shah

    Demonetization is not the solution to legitimize the ill-gotten money into white one. As many investors make their different portfolios for the investment. Their investment pattern is totally different from the comments.Either they can invest in different ongoing development projects or in the bonds. On bonds, they can get interested rate on the principal amount. So this policy of demonetization never brings too much panic to the investors.It hurts the buyer or seller at the micro level. Demonetization also increases the transaction cost for the exchange of old money to get the new one. The buyers cannot buy the properties because they do not have money. The prices of real estate or properties are too much and buyers can not consume the huge amount of money. But some of the real estate telling you about the property prices and its trends in Pakistan and here are the websites.

  • Naeem Ali

    Great job. While surfing in internet about ” real estate websites” I found your blog and got this awesome information. Nice blog. Thanks for sharing the information.Recommend