On November 8 2016, Narendra Modi, the prime minister of India, announced that the Rs500 and Rs1,000 notes (worth about $7.50 and $15 respectively) would be demonetised with immediate effect. This act cancelled 86 per cent of the value of cash in circulation. Moreover, the cancelled notes had to be deposited in banks by December 30 with restrictions on withdrawals.

In its boldness, this move by the democratically elected leader of so vast a country makes everything that US President Donald Trump has done so far look trivial. Should one regard it as a decisive action in India’s war against tax evasion, the black economy and pervasive corruption? Or is it a damagingly arbitrary act by an illiberal democrat? Today, it seems a bit of both. In the long run, it depends on what happens next.

For a politically and economically stable country suddenly to impose so unexpected and radical demonetisation is unprecedented. Why would any elected government inflict such a shock, particularly since India’s economy is so dependent on transactions in cash? As a lower-middle-income country, India still contains a huge number of people who are outside the formal financial system. Moreover, India is also relatively cash-dependent even for such a country: one estimate is that cash still accounts for 78 per cent of consumer payments.