On November 8, 2016, Indian Prime Minister Narendra Modi dropped a bombshell. In a televised address at 8:00 pm, he declared that after midnight—four hours later—banknotes with face values of INR500 (US$7.50) and INR1,000 (US$15) would no longer be legal tender.
These bills comprised 86% of the monetary value of currency in circulation, so to say that panic ensued would be an understatement. The market stayed open all night as people rushed to buy gold, Rolex watches, and anything else they could get their hands on to use up their cash.
During the next two weeks, gold traded for as much as US$3,000 per ounce, a premium of almost 100% to the international price. Foreign currencies traded at similar premiums.
Soon, Indian tax authorities descended on the gold market, confiscating security camera recordings to identify any transaction that might have bypassed taxation. They were raiding people’s houses with abandon.