During the painful periods of hyperinflation in the last century, there were a few episodes when governments decided to demonetise the economy and to reintroduce money in new forms in an attempt to contain the rampant price increases.
But these moves pale in comparison to India's bid to absorb 87% of its circulating physical currency and turn it into deposited money, in one of the greatest demonetisations in history. Such an experiment comes disguised as a weapon in the fight against illicit activities, tax fraud, and even terrorism. But, ultimately, it will most likely prove ineffective in delivering on these goals, and even risks sinking the economy and possibly even generating deflation.
At a time when global growth is weak, the Indian PM Narendra Modi has just taken a step to auto-inflict pain in one of the world's last bastions of growth. The precise effects on the money supply and the real economy remain to be evaluated with precision, but so far everything seems to be heading towards failure, recession, and chaos.
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6 mins. to read
