Almost a year ago, the Indian government rolled out an unprecedented policy move. Arguably, it was a time when the country was poised for economic success. With $9.49 trillion in purchasing power parity, it was the third-largest (in PPP terms) and the fastest-growing large economy in the world. On November 8, with no advance warning, India’s two highest-denomination banknotes, the 500-rupee and 1,000-rupee bills, were demonetized, rendering 86% of the country’s currency invalid overnight. The ostensible objective was a popular one: to root out corruption and illegitimate activity involving untraceable cash transactions. As the implications unfolded, I wrote two pieces (“India’s Botched War on Cash” and “Early Lessons from India’s Demonetization Experiment”) evaluating the policy and its impact. My assessment of the action was that the policy was poorly thought out and executed and that its net impact would be negative and particularly bad for the poor.
One Year After India Killed Off Cash, Here’s What Other Countries Should Learn from It
Last November 8, with no advance warning, India’s two highest denomination banknotes, the 500-rupee and 1,000-rupee bills, were demonetized, rendering 86% of the country’s currency invalid overnight. The ostensible objective was a popular one: to root out corruption and illegitimate activity involving untraceable cash transactions. But reactions to the policy were mixed. Now we are closing in on the one-year milestone, a point when it is natural to reflect on an event of this magnitude. More of the dust has settled and, with more data now accumulated, the Indian experience holds powerful lessons for policy makers planning economic interventions around the world. Those lessons include: Choose your experts carefully, don’t ignore basic data, consider human behavior, and beware of digital “silver bullets.”