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Opinion

Slaying the demons of demonetization

India's ban on high-value bank notes backfired -- there are better ways to fight corruption

| India
India's 2016 demonetization -- heavy government intervention in economic activity -- wrought much damage and brought no benefits.   © Reuters

Just when Donald Trump was about to shock the world by winning the U.S. presidential election on Nov. 8, 2016, Indian Prime Minister Narendra Modi sprung a surprise of his own, and proclaimed in an evening announcement that 1,000 rupee and 500 rupee notes would no longer be legal tender. Momentous though Trump's victory was, most Indians spent the night worrying about demonetization -- a move which rendered worthless 15.4 trillion rupees  ($217 billion at the time) or almost 87% of the currency in circulation in the globe's sixth largest economy.

The largest demonetization ever undertaken anywhere touched the life of every Indian. Presented by Modi as a move "to strengthen the hands of the common man in the fight against corruption, black money and fake currency" there was initially a lot of goodwill for the measure. However, as the crushing effects of the liquidity crisis began to destroy the livelihoods of millions of people, and the abysmal lack of planning to remonetize the economy became evident, the mood turned from support to bewilderment and anger.

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