Trade and Development Review, Vol 9 (2017)

Demonetization in India: Some Unsolved Economic Puzzles

Ajitava Raychaudhuri


The Demonetization in India has several distinguishing characteristics out of which two are noteworthy- the ‘surprise’ element attached to it for the general public and the rather theoretically indefensible aim of achieving too many targets with one instrument. The action can be put to the scanner to find the theoretical support behind it, but as can be surmised, it will produce several economic puzzles in the context of demonetization. This ranges from the reason for the surprise action to the stated goals of confiscating the black money, reducing prices and rate of interest as well moving towards a digital economy. Some of these may be contradictory to each other. The paper looks into the logical consistency of the objectives with respect to the instrument chosen and as a corollary, conjectures about its impact on growth.


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