Indian Prime Minister Narendra Modi on Tuesday announced that 500 and 1,000 rupee banknotes would be withdrawn from circulation at midnight, saying it was part of a crackdown on rampant corruption and counterfeit currency.

The surprise step appears designed to bring billions of dollars worth of cash in unaccounted wealth into the mainstream economy, as well as hit the finances of Islamist militants who target India and are suspected of using fake 500 rupee notes to fund operations.

“Black money and corruption are the biggest obstacles in eradicating poverty,” Modi said in an address to the nation.

New 500 and 2,000 rupee denomination notes will be issued at a later date, he added.

Modi’s ruling Bharatiya Janata Party came into power in 2014 promising to bring billions of dollars of black market money into the regular financial system. Critics said it had failed to deliver on that promise.

Tuesday’s announcement comes just over a month after the government raised nearly $10 billion through a tax amnesty for Indians to declare hidden income and assets.

A report by Washington-based think-tank Global Financial Integrity estimated that India lost $344 billion in illicit fund outflows between 2002 and 2011.

Modi also said militants operating against India were using fake versions of the 500 rupee note, worth about $7.50 at current exchange rates.

“Terrorism is a frightening thing … But have you ever thought about how these terrorists get their money? Enemies from across the border have run their operations using fake currency notes. This has been going on for years,” Modi said.

India accuses its neighbor Pakistan of harboring militants who have launched attacks on its troops, particularly in the disputed Himalayan region of Kashmir which both countries claim. Pakistan denies the accusations.

Some officials and experts said Tuesday’s move was the biggest in decades aimed at fighting graft.

“It is like a surgical strike on black money,” said Revenue Secretary Hasmukh Adhia. </s> Prime Minister Narendra Modi’s move to curb unaccounted cash, or black money, circulating in the Indian economy by withdrawing the highest-value currency notes of Rs.500 and Rs.1,000 as legal tender within three-odd hours of the announcement, is a bold one. He invoked provocative imagery to explain the measure — of corrupt officials stashing kilos of ill-gained cash under their mattresses, and such illicit black money fuelling inflation as well as terrorism. He pointed out how difficult it is for honest taxpayers to buy a house as the real estate sector seldom operates without a cash component, some of which finds its way to political funding. The increase in the circulation of these notes in the past five years has been disproportionate to the economy’s growth. The introduction of new Rs.500 and Rs.2,000 notes, the government argues, would not only check counterfeit currency, a problem that has assumed serious dimensions, but also purge India’s economy of the black wealth amassed in the form of high-value notes. Any decision like this needs to be sudden, and it is not surprising that it has caused hardship as people scramble to get notes of smaller denomination for daily expenditure. The only defence for this is that the larger public purpose outweighs the immediate difficulties.

Having promised during the 2014 election campaign to bring back black money worth lakhs of crores supposedly stashed abroad, the NDA government has been under pressure to do something dramatic. The two amnesty schemes it launched over the past year, including one for foreign assets, didn’t yield anything near the 23.2 per cent of GDP that the World Bank had estimated India’s shadow economy to be in 2007. Today that would be nearly $479 billion in unaccounted wealth, according to rating agency Crisil. While there will be pain and confusion in the short term for common people and the economy, a disruptive measure was perhaps the only way to shake up the system to a new compliance normal. But the Centre must ensure that no poor person is saddled with old, useless notes due to the lack of official identity documents or a bank account, and avoid putting to disadvantage older citizens unable to visit a bank repeatedly to exchange high-value notes. It should find ways to check black money parked in benami properties (possibly through a digital land and realty inventory) and gold. There must also be administrative and electoral reforms to advance digital payments and eliminate the prospect of the new currency regime spawning the ghost economy afresh. </s> India has discontinued its two largest rupee notes in a shocking move against corruption.

Notes worth 500 and 1,000 rupees will be invalid starting at midnight local time, Prime Minister Narendra Modi announced during a televised address to the nation.

The unexpected move is designed to fight against corruption and money laundering, Modi said, calling them "diseases" and "obstacles" to the country's economic success.

Modi said that policy changes had largely failed to root out corruption. Two years ago, he said, India was ranked 100th in terms of global corruption perception, and the country has only improved to 76th.

The idea is that Indians who have stockpiled undeclared income will now be forced to come out of the shadows.

"This step will strengthen the hands of the common man in the fight against corruption, black money and fake currency," said Modi, who leads the ruling Bharatiya Janata Party.

But the ban could also spark a mad scramble as ordinary Indians seek to exchange or deposit their cash. Modi said citizens have 50 days to deposit at banks and post offices. Hospitals will be allowed to accept the banned notes for another three days, until Nov. 11.

That transition will not be an easy task. The Reserve Bank of India (RBI) estimates that there are 16.5 billion 500 rupee notes and 6.7 billion 1000 rupee notes currently in circulation. ATMs will be shut on Nov. 9 and 10 to help implement the change.

The central bank is also preparing to issue a new series of 500 and 2,000 rupee notes, which are slated to enter circulation by Nov. 10.

Until then, the largest legal bill in circulation will be the 100 rupee note, which is worth only $1.50.

In a country where taxi drivers and shopkeepers are already reluctant to part with small bills, the sudden policy change could complicate business transactions in the short term.

Indian social media users widely praised the decision, calling it a "bold move." There were also, inevitably, plenty of jokes.

India is believed to have lost out on over $100 billion in uncollected tax, a large percentage of which is illegally stashed offshore.

Only 2% of Indians pay any income tax at all because most people work in the economy's informal sector that includes jobs such as construction laborers and road side food sellers.

Modi also touted the move as an anti-terrorism measure, saying that "enemies across the border have run their operations using fake currency notes," a reference to neighboring Pakistan.

"The 500 and 1,000 rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper," he said. </s> Image copyright AFP

Indian Prime Minister Narendra Modi has announced that the 500 ($7.60) and 1,000 rupee banknotes will be withdrawn from the financial system overnight.

The surprise move, announced on Tuesday evening, is part of a crackdown on corruption and illegal cash holdings.

Banks will be closed on Wednesday and ATM machines will not be working.

India is overwhelmingly a cash economy. New 500 and 2,000 rupee denomination notes will be issued to replace those removed from circulation.

"Black money and corruption are the biggest obstacles in eradicating poverty," Mr Modi said.

People will be able to exchange their old notes for new ones at banks over the next 50 days but they will no longer be legal tender.

The announcement prompted people across the country to rush to ATMs that offer 100 rupee notes in an attempt not to be left without cash over the next few days.

Media playback is unsupported on your device Media caption One woman says the unexpected change will make it tricky for her to pay to get to work

The move is designed to lock out money that is unaccounted for - known as "black money " - which may have been acquired corruptly, or be being withheld from the tax authorities.

Finance Secretary Shaktikant Das warned people with large stashes of hidden cash that banks would closely monitor the exchange of old notes for new ones.

Analysis: Simon Jack, BBC business editor in Delhi

Mr Modi has set his stall out as a modernising, anti-corruption crusade.

Scrapping notes that are very, very common is his biggest offensive yet. Most transactions in daily life are in cash and 45% of those are in notes in denominations of 500 rupees and over.

Not a single news organisation seemed to know this was coming. I saw one news anchor produce a wad of 500s from his own pocket on air wondering whether these were now just pieces of paper - and also wondering if the bars of Delhi would see a sudden surge of business.

It has caught the country completely off guard. There will also be limits on cash point withdrawals over the next couple of weeks.

Read more from Simon here

How long have people got to change their old notes?

The 500 and 1,000 rupee notes are the highest denomination notes in the country and are extremely common in India. Airports, railway stations and hospitals will only accept them until 11 November.

People will be able to exchange their money at banks between 10 November and 30 December.

Mr Modi's ruling Bharatiya Janata Party came into power in 2014 promising to bring billions of dollars of black market money into the country's financial system. His government is half way through its term of office.

The announcement comes just over a month after the government raised nearly $10bn through a tax amnesty for Indians to declare hidden income and assets.

How much 'black money' is there in circulation?

The BBC's Justin Rowlatt in Delhi says the issue of "black money" is a huge problem in India and the latest move is the prime minister's big demonstration that he is taking it seriously.

The idea is to lock out money that is unaccounted for and make it visible for tax purposes - banks will be happy to exchange a few thousand rupees, but will be asking questions of those who turn up with hundreds of thousands or millions in currency.

There are no precise figures available but experts say the government's move could be "a very powerful measure" to curb "black money". IIFL Holdings Ltd Chairman Nirmal Jain told Bloomberg that it will have "a deflationary impact in general and more specifically on real estate prices - making homes affordable".

Is there a limit on the amount an individual or household can cash in?

It seems not. An individual can put as much as he or she likes into the bank - but withdrawals are limited so the banking system may end up being flooded with cash.

Image copyright Indian government Image caption The government has issued flyers explaining the changes

Government guidelines say it is possible to exchange 4,000 rupees - but it is not clear if this is per day or in total.

Critics say the new rules may make it especially difficult for people who choose to keep their cash at home rather than in a bank account and for people with large rupee cash reserves who live abroad.

If there is a legitimate explanation for the cash, the authorities say, it will be possible to exchange it.

Cash points will close on Wednesday and in some places also on Thursday - a development that it seems may cause cash blockages or queues at ATMs.

Is this risky for the government?

It's a bold step because many people who voted for Mr Modi were small traders who overwhelmingly did their business in cash.

Our correspondent says these are people who probably do have a few hundred thousand rupees - a few thousand dollars - stored under their beds and will have problems when they turn up in the bank on Thursday trying to change their money.

The move leaves a lot of uncertainty about the Indian economy at least in the short term. </s> The world's fastest growing economy has woken up to a countrywide bank shutdown.

Banks and ATMs all over India were closed on Wednesday, following Prime Minister Narendra Modi's shock decision a day earlier to withdraw 500 and 1,000 rupee notes — the country's two largest denominations — from circulation at midnight.

Indians use cash for most transactions, and the measures were making it hard for them to conduct business or purchase everyday items.

"Everyone is facing a difficulty right now," said Pravin, an Uber driver. He was searching for a bank or store that would exchange his three 1,000 and four 500 rupee notes for smaller bills.

"If I don't get money, I won't work today," he said.

The currency move is an attempt to combat corruption and recover "black money," billions in illegal funds often stashed overseas by tax evaders.

For now, it means an incredible 23 billion notes (more than 80% of those in circulation) are now just "pieces of paper," as Modi put it during his speech Tuesday. They will either have to be deposited or exchanged.

That will have to wait till banks reopen on Nov.10, which is when the Reserve Bank of India says it will roll out new higher security 500 and 2,000 rupee notes. The shutdown should allow banks to stock up on the new notes, although ATMs will only have them a day later.

Many were confused by the announcement and the bank closure, even if they recognized Modi's decision could be good for the country.

"It's very difficult, I need to buy food for my kids," said Vijay Kumar, a security guard and father of three. "I need to change these notes, but we don't know what to do. Not everyone has a TV in their homes."

The news went down badly on India's financial markets, which also suffered from the global sell-off triggered by Donald Trump's surprise victory in the U.S. presidential election. The main SENSEX index fell more than 5%.

Modi also faced criticism from P Chidambaram, the country's former finance minister and a member of the opposition Congress Party. In a Wednesday afternoon press conference, Chidambaram expressed "support" for the removal of black money, but questioned the effectiveness of the currency ban.

"Introduction of a new series of notes is estimated to cost between [$2.2 billion] and [$3 billion]," he said. "The economic gains should be equal to that amount."

But Arun Jaitley, the current finance minister, downplayed that figure, calling it "highly exaggerated."

"Once the entire currency is printed the cost would be known," he said. </s> NEW DELHI – India’s highest-denomination currency notes are being withdrawn immediately from circulation, the country’s prime minister said Tuesday night, a surprise announcement designed to fight corruption and target people who have stashed away immense amounts of cash.

As of midnight Tuesday, 500- and 1,000-rupee notes, worth about $7.50 and $15, will have no cash value, Prime Minister Narendra Modi said in a televised address.

“A few people are spreading corruption for their own benefit,” he said in the speech. “There is a time when you realize that you have to bring some change in society, and this is our time.”

People holding the discontinued notes will be able to deposit them in bank and post office savings accounts before the end of the year – but anyone making large deposits will find themselves the target of Indian tax authorities. The government will shortly be issuing new 500- and 2,000-rupee notes, the prime minister said.

India’s economy – and its tax base – has long been hobbled by a culture of what is known here as “black money,” with business people using cash to avoid paying taxes. Raids on corrupt politicians and businesses regularly turn up people holding millions of dollars’ worth of rupees, with cash sometimes filling dozens of boxes.

The government has been urging people over the past year to declare the money they are holding in cash.

Across the country Tuesday night, people rushed to bank ATM machines where money could be withdrawn in 100-rupee notes, trying to avoid being caught without cash over the next few days.

Anuj Mathur, a banker, was among more than two dozen people lined up outside a south New Delhi ATM machine at about 10 p.m. Tuesday. It will be an inconvenience for the next few days, until the new notes are in circulation, he said, but he applauded the government’s decision.

“It’s a good measure,” he said. “This will clean up the system.

The sudden change, though, will be difficult for India’s millions of poor people, many of whom don’t have bank accounts and who may not have cash available in lower-currency notes to keep themselves financially afloat for the next few days.

“It will cause some hardship to you,” Modi said in his speech. “Let us ignore those hardships.”

In an indirect reference to rival Pakistan, Modi also accused a neighboring country of circulating fake Indian currency to damage the Indian economy. </s> The world's fastest growing economy has woken up to a countrywide bank shutdown.

Banks and ATMs all over India were closed on Wednesday, following Prime Minister Narendra Modi's shock decision a day earlier to withdraw 500 and 1,000 rupee notes — the country's two largest denominations — from circulation at midnight.

Indians use cash for most transactions, and the measures were making it hard for them to conduct business or purchase everyday items.

"Everyone is facing a difficulty right now," said Pravin, an Uber driver. He was searching for a bank or store that would exchange his three 1,000 and four 500 rupee notes for smaller bills.

"If I don't get money, I won't work today," he said.

The currency move is an attempt to combat corruption and recover "black money," billions in illegal funds often stashed overseas by tax evaders.

For now, it means an incredible 23 billion notes (more than 80% of those in circulation) are now just "pieces of paper," as Modi put it during his speech Tuesday. They will either have to be deposited or exchanged.

That will have to wait till banks reopen on Nov.10, which is when the Reserve Bank of India says it will roll out new higher security 500 and 2,000 rupee notes. The shutdown should allow banks to stock up on the new notes, although ATMs will only have them a day later.

Many were confused by the announcement and the bank closure, even if they recognized Modi's decision could be good for the country.

"It's very difficult, I need to buy food for my kids," said Vijay Kumar, a security guard and father of three. "I need to change these notes, but we don't know what to do. Not everyone has a TV in their homes."

The news went down badly on India's financial markets, which also suffered from the global sell-off triggered by Donald Trump's surprise victory in the U.S. presidential election. The main SENSEX index fell more than 5%. </s> Brand New Bank Notes Are Already Being Used For Corruption

On Nov. 8 – the same day American politics was upended – India’s prime minister announced the sudden invalidation of all high denomination currency notes, accounting for a whopping 86 percent of the country’s cash. Demonetization, as it is referred to here, has thrown Indians rich and poor into a protracted state of confusion and frustration.

The move’s primary intention has been to catch tax evaders. A significant portion of India’s cash is ill-gotten or undeclared, and it passes hands in an extensive shadow economy that goes untaxed.

 Invalidating 500 and 1,000 rupee notes meant that all Indians, including those hoarding large amounts of cash, would have to exchange those notes for new ones at a bank. In the process, official thinking went, all cash would become accounted for, and those who had been evading taxes would either have to stomach huge losses or declare their assets and pay major penalties.

For the plan to work, however, it had to be done in secret. Otherwise, those in possession of India’s “black money” could have converted it into noncash assets such as gold and avoided detection. That secrecy meant that the minting of new notes – new 500s, and 2,000s instead of 1,000s – could not happen in earnest until well after the invalidation was announced, lest a whiff of the change seep out. At current rates of printing, analysts say it may take three more months, if not double that, to restore the economy to its previous level of liquidity.

As such, India is now in the throes of a major cash shortage. Banks have each set their own limits on ATM withdrawals, leading to long lines as people’s cash runs out quickly. People are spending hours in those lines, often to find out that cash has run out before their turn. That’s not to mention entire sectors of the economy – including segments of agriculture and even manufacturing – that are entirely cash-driven and have gone through major slowdowns because of the shortage.

For the first few weeks of demonetization, it was common to meet Indians who felt that their collective suffering and inconvenience was justified because it would ultimately usher in a less corrupt, more equal India. But as the initiative enters its second month, more and more reports are emerging of seizures of vast quantities of hoarded cash in the new notes. Like water reaching the sea, the corrupt, it seems, have found ways to navigate around the government’s new obstacles.

In just two states alone, India’s Income Tax department said on Dec. 14 that it had recovered 202,200,000 rupees (roughly $3 million) in new 2,000 notes, according to ANI News. In those two states, Karnataka and Goa, the department said it had registered a total of 36 cases and recovered unaccounted-for assets –mostly in cash, jewelry and gold – in excess of 10 billion rupees (roughly $150 million).

Stories of humongous seizures of assets including new currency have become so common that news outlets are simply adding them as bullet points to stories with running tallies. A sense is building that while millions of Indians languish in ATM lines, the old black money system is simply restarting itself with the new notes. </s> From Wednesday, 500, 1,000 rupee notes will be illegal, announced PM Modi .

Highlights New Rs 500, Rs 2000 notes from Nov 10, old ones illegal from midnight For 72 hours, government hospitals to accept old Rs 500, Rs 1000 notes Citizens have 50 days from Nov 10 to return notes at banks, post offices

The new Rs 500 and 2000 notes will be issued on November 10

In a sudden address to the nation, Prime Minister Narendra Modi has announced that starting midnight, existing Rs. 500 and Rs. 1,000 notes can no longer be used for any transactions.They must be deposited, starting Thursday and through December 30 , at post offices and banks, he said, describing the move as essential to fight "the disease of black money."New Rs. 500 and Rs. 2,000 notes , cleared by the Reserve Bank of India , will be introduced on Thursday."Your money will remain yours...you need have no worry on this account," PM Modi said, stressing that the new notes will be in limited supply at first and will then be increased.He spoke first in Hindi and then in English to share the details of the new policy.For now, notes currently in use can be traded for upto Rs. 4,000 till November 24 and for larger amounts thereafter. Against notes that are deposited, withdrawals of upto Rs. 10,000 a day or 20,000 a week will be permitted for now.PM Modi, urging the country to bear with "temporary hardships" in the implementation of the new rule, said that banks will be closed to the public tomorrow and ATMs will not work in some places for the next 48 hours and withdrawals will be limited till Friday to Rs 2,000.The PM said that though India is now "a global bright spot" with its fast-growing economy, corruption and black or undeclared money "are the biggest obstacles to our success.""We are No 1 in rate of economic growth," he said, while adding that despite some progress, India still ranks at No 76 in world rankings for perception of corruption.PM Modi said that since his government was elected, 1.25 lakh crores of black money "belonging to the corrupt" has been uncovered, through a series of measures including a voluntary disclosure scheme which has seen a good response. The PM said that fake Rs 500 notes are employed "by the enemy across the border" to sponsor deadly attacks.

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India abolishes larger banknotes in a bold and unexpected move to curb circulation of counterfeit notes and to fight black money.