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Nine ways in which PM Modi followed 'Curse of Cash'

  • Rogoff is a Harvard Professor and former IMF Chief Economist.
  • He feels the long-term advantages for India will be large.
  • He also continued to bat for the full elimination of large notes
IMFs exchief economist applies curse of cash to PM Modi

Kenneth S. Rogoff, the Thomas D. Cabot Professor of Public Policy at Harvard University and former chief economist of the International Monetary Fund, is the author of The 'Curse of Cash', published in 2016.


Among other observations on the limits of currency, in his work, Professor Rogoff urged the phasing out of high denomination currencies and the regular replacement of notes.


Here is what Professor Rogoff says on PM Modi's currency ban move:



• It was a bold, audacious move to radically alter the mindset of an economy where less than 2% of citizens pay income tax, and where official corruption is endemic.


• A very fast swap plan absolutely merits serious discussion, but any exchange at short notice would be extremely unfair to people who acquired their big bills completely legally but might not keep tabs on the news.


• In general, a slow, gradual currency swap would be far less disruptive in an advanced economy and would leave room for dealing with unanticipated and unintended consequences. One idea, detailed in The Curse of Cash, is to allow people to exchange their expiring large bills relatively conveniently for the first few years (still subject to standard anti-money-laundering reporting requirements), then over time make it more inconvenient by accepting the big notes at ever fewer locations and with ever stronger reporting requirements.


• In my opinion, large notes are to be eliminated entirely. Instead of eliminating the large notes, India is exchanging them for new ones, and also introducing a larger, 2000-rupee note, which are also being given in exchange for the old notes.



• The 500 rupee note in India is like the $10 or $20 bill in the US and is widely used by all classes, so India’s manoeuvre is radically different than my plan. That said, I appreciate that the challenges are both different and greater, and the potential long-run upside also much higher.


• Simply replacing old notes with new ones does have a lot of beneficial effects similar to eliminating large notes. Anyone turning in large amounts of cash still becomes very vulnerable to legal and tax authorities. Indeed that is Modi's idea.


• Criminals have to worry that if the government has done this once, it can do it again, making large notes less desirable and less liquid. And replacing notes is also a good way to fight counterfeiting.



• Despite apparent huge holes in the planning (for example, the new notes India is printing are a different size and do not fit the ATMs), many economists feel it could still have large positive effects in the long-run, shaking up the corruption, tax evasion, and crime that has long crippled the country.


• The short run costs are unfolding, but the long-run effects on India may well prove more than worth them, but it is very hard to know for sure at this stage.




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