The goal that reddit is trying to accomplish is to reopen the closed subreddits. I think that this MIGHT accomplish that. What I think it may also accomplish is kicking mods who have been committed to their communities for years. Their replacement may be better in the vector that they click the "public sub" button, but almost certainly worse in the vector of actually caring about their community over the long-term.
Especially for large communities, signing up for a moderator position without the API-supported mod tools just makes me think you're going to get inept moderators. Nobody who knows how to effectively moderate would take that job. It would be like signing up to build a house with only a screwdriver.