A conservative criticism of the Great Currency Transfusion

Over the past few weeks, many people have asked me (just as they’ve asked each other) what I think of the Modi government’s currency reform (popularly known as ‘demonetisation’).

To this day, my response has been that PM Modi has taken a very risky bet, and it’s too early to tell how things will turn out. It is unclear what the fundamental purpose of the exercise was—there are at least half-dozen of them—and hence it’s hard to say whether it met the policymakers’ objectives. I am not persuaded by the initial defence that it is a good policy, terribly implemented, because a policy is only as good as its implementation. I am not persuaded by the current short-term pain, long-term gain rationalisation, because it’s important to know what exactly the intended long-term gain is, before we can answer how much short-term pain is worth suffering for it.

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