Prof Jeffry Frankel says demonetisation is the new trend in world economics.
Around the world, several countries are currently undergoing “demonetization,” or currency reforms in which the government removes banknotes of a certain denomination from circulation and replaces them with new notes. Governments pursue demonetization for a variety of reasons, and some of the recent initiatives are going better than others.
He says there are three kinds of demons:
- To tackle hyperinflation like in Venezuela
- To decommission and replace bills for more benign, technical reasons, such as to remove unpopular notes; introduce new counterfeit-proof bills; switch national currencies (like Euro).
- To crack down on illegal activities as India did.
The experience of India shows that too much boldness also backfires:
Western leaders could probably be bolder when they phase out big bills as slowly as they do. But Modi has been too bold.