Demonetization in India: Superfluous discovery and money laundering

Abstract

Demonetization policy of 2016 in India anticipated that a large share of the old notes was held by tax evaders and criminals, who, in the interest of avoiding legal scrutiny, would not exchange their currency for the new notes in circulation. The Indian government expected a revenue windfall between 10 and 33% of the currency in circulation through unreturned notes. After the demonetization policy, entrepreneurs discovered ways to effectively and swiftly launder money and 99.3% of the revoked currency was returned within the sixty-day window. This paper discusses the kinds of entrepreneurship and superfluous discovery processes post-demonetization that helped circumvent the intended goals of demonetization.

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Acknowledgements

The author would like to thank all the participants of “Austrian School of Economics Workshop” at the Wirth Institute for Austrian and Central European Studies, for comments and suggestions. Standard disclaimer applies.

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Correspondence to Shruti Rajagopalan.

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Rajagopalan, S. Demonetization in India: Superfluous discovery and money laundering. Rev Austrian Econ 33, 201–217 (2020). https://doi.org/10.1007/s11138-019-00465-w

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Keywords

  • Entrepreneurship
  • Superfluous discovery
  • Demonetization
  • India

JEL classification

  • D72
  • L26