The RBI announced on May 19 that it intends to phase out of circulation the Rs 2,000 note, the aesthetically ugly pink currency note that nobody wanted to own. The central bank admitted that the currency note, an aberration in the denominational structure of the Indian currency regime, was only introduced to facilitate the “expeditious” expansion of the value of currency in circulation after demonetisation. The note was introduced because of the sudden evisceration of more than 86% of value of all currency in circulation in the economy, following the withdrawal of the Rs 500 and Rs 1,000 notes.
https://thewire.in/economy/rs-2000-note-withdrawal-demonetisation-effects
The RBI appears to admit, without any embarrassment whatsoever, that once the purpose of inflating the value of currency in circulation has been served, there is no further need for the denomination.
Every instance of demonetisation in history — and there have been very few of them — has been made in a country hit by hyperinflation. No country staking claims to a seat at the high table, and certainly not one whose leadership never tires of boasting that it is one of the world’s largest, has ever deigned to have achieved anything by using demonetisation as an economic policy tool. In fact, no standard textbook on economics cares to even make a passing reference to demonetisation. Modi thought otherwise, and the country paid a very heavy price.
The same sections that were hit hard by demonetisation, in particular small and informal businesses in both urban as well as rural areas, were hit again, first as a result of the imposition of the Goods and Services Tax in 2017 and since 2020, as a result of the pandemic. The K-shaped growth of the Indian economy, one in which a thin sliver of society is doing very well, even as livelihoods of most Indians have turned significantly worse, is testimony to the widening inequality. Demonetisation was thus the harbinger of the forced immiseration of the Indian people. And it remains a work in progress.
by V. Sridhar
23/05/2023