In a move he says is designed to foil dirty money transactions and the black economy, India's prime minister has banned certain banknotes from circulation.

India's prime minister Narendra Modi has surprised the country with a decision to demonetise high-value rupee notes in a bid he says to hit the underground economy and corruption.

Yesterday, Modi announced that the 500 and 1000 rupee notes will not be valid from midnight and they are being replaced with notes of new notes of Rs 500 and 2000, a move finding echoes in the policy of the European Central Bank this year.

According to one publication, Quartz India, "by making the present Rs500 and Rs1,000 currency notes illegal from 9 November onwards, the government has effectively forced the entire country to go to the banks (or post offices) and have their cash (in those denominations) added to their accounts".

India has for a long time had a reputation for corruption, although it has fluctuated. According to Transparency International, a body tracking such matters, India has a score of 38 on its Corruption Perceptions Index, where a score of 100 represents no corruption and where zero is very corrupt.

Observers of government controls on the monetary system in different countries, such as the writer James Rickards, whose book was reviewed by this publication (see here), argue there is another reason why governments, such as those in the West, are moving against high-denomination banknotes. Unless such notes are banned or curbed, it is hard for central banks to impose their policies of "financial repression" via negative interest rates if people choose to hoard cash instead. In the 1930s, for similar reasons, the US administration of F D Roosevelt banned private ownership and transactions in gold.

The European Central Bank has moved to take the €500 note from circulation, arguing that it has been a favoured instrument of money launderers and other criminals. Critics have argued this was an excuse to deter people and firms from holding significant amounts of cash so that the ECB's monetary policy could work more effectively. The ECB has said the €500 million note will no longer be issued in 2018. According to a report in 2013 from the ECB, €500 million notes accounted for about 30 per cent of total circulation of cash in 2013.

Peter Sands, the former chief executive of Standard Chartered, the UK-listed bank that earns the bulk of its revenues in Asia and Africa, has argued that high-value banknotes should be taken out of circulation to foil criminals.