January 16, 2017

Demonetisation Debates, Redux

Vivek Dehejia, Resident Senior Fellow at IDFC Institute, distills the ex ante rationale for demonetisation from the ex post facto analysis in an article in Mint. He writes that the empirical basis for the rationale for introducing demonetisation may have been flawed. Regarding the ex post anaylsis, he argues that:


"..the smaller the short-run costs caused by the temporary liquidity shortage induced by demonetisation followed by insufficiently rapid remonetisation, the smaller, too, would be the expected medium- to long-term gains in terms of a move towards less cash and towards greater formalization of the economy. In other words, had the old notes been swapped for new ones within (say) the first week or two after 8 November, the cash crunch would have been short-lived, and consequently there would have been less of an impetus to move towards non-cash means of payment and towards moving out of the black and grey economies into the white economy."


Read the complete article here

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