For a policy designed, in effect, as a one-time tax on black money, it is a truism to argue that it cannot by itself tackle future flows of black money
More than a month has passed since the 8 November announcement by Prime Minister Narendra Modi that high-denomination currency notes would be scrapped and remonetisation would occur through replacement of new notes and deposits of old notes in bank accounts. Often termed “demonetisation", this policy has created considerable confusion among commentators, some ill-informed, some politically motivated. A number of fallacies continue to persist—concerning the value of “unreturned" versus “returned" money, the existing “stocks" versus future “flows" of black and counterfeit money, the short- versus the long-term impact on black money, and the expansionary versus contractionary effects of the policy reform—allowing opponents of the policy to claim, prematurely, and without evidence, that it is a failure. We clarify in what follows.
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