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Jayati Ghosh: The Political Economy Of Demonetising High Value Notes

Who better to write about the recent demonetisation than Jayati Ghosh? In yesterday’s The Hindu, she writes:

The demonetisation of bank notes per se is not the problem. Indeed, it has occurred periodically in India and many other countries, both to reduce concerns about counterfeiting and to spread the use of cash-based illegal transactions. To the extent that it reduces these, it should certainly be welcomed. However, when this has been done in India in the past or in other countries, it has typically been done gradually, allowing adequate time for people to replace the old notes with new ones to prevent too much disruption of economic activity. This overnight shock, by contrast, is hugely destabilising, with likely medium-term material damage to a very large part of the population. It affects very little of the stock of ill-gotten wealth and does nothing about its generation, but it has severe impact upon ordinary people, whose lives have already been hugely disrupted.

Although, the best you can read on this issue, I’d differ saying that announcement should have been a shock. But that’s a minor quibble, since the government assumption on which this is based – that people have a stock of cash notes in their water tanks itself is wrong.

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