DMPQ: Demonetisation came when world was showing resilience towards negative growth environment. What were the reasons for demonetisation?

Demonetisation  was part of the move to curb corruption. It was one of the step to curb the system of black money. The major reasons for demonetisation were:

 

  • India’s currency to GDP ratio was 12%. The value of the high currency notes also increased after increase in the standard of living.
  • India’s economy is relatively cash dependent economy , even taking into account of the fact that India is a poor country.
  • There was the presumption that cash holdings were not being used for legitimate transactions.
  • The presumption was right as across the globe there has been strong linkages between cash and nefarious activities. This analogy also get sanctioned by Transparency international which measure Corruption.

 

Hence by reducing cash transaction there was the attempt to mitigate corruption in the long run.

 

 

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