India’s Demonetization: A Short-Term Loss or a Long-Term Gain?

The history of demonetization in India could be traced to the year 1946 when an ordinance was promulgated to phase out higher denomination notes. This was the first incident of demonetization that happened before India gained independence. On January 12, 1946, the government came out with two ordinances. In the first ordinance, it asked banks to furnish information about currency holdings of various denominations like Rs.100, Rs. 500, Rs. 1,000, and Rs.10,000 while the second announced to the public that denominations of Rs. 500 and above would no longer be in use. The then governor of the apex bank of India, the Reserve Bank of India (RBI), Chintaman Dwarakanath Deshmukh, (Chintaman), was highly skeptical about the government’s move to demonetize certain denominations at short notice. People were given 10 days to exchange their old notes and this deadline ended on January 23 but was later extended to February 09 with people being required to explain why they could not exchange their notes in the first ten days....