Short-Term Notes Ban Costs To Outweigh Long-Term Benefits: Raghuram Rajan

Short-Term Notes Ban Costs To Outweigh Long-Term Benefits: Raghuram Rajan
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 RBI former governor Raghuram Rajan had cautioned the government against cost of demonetisation and suggested that there were better alternatives to achieve the main goals of notes ban.

RBI former governor Raghuram Rajan had cautioned the government against cost of demonetisation and suggested that there were better alternatives to achieve the main goals of notes ban.

In his book titled 'I Do What I Do: On Reforms Rhetoric and Resolve', Mr Rajan, who was the governor between 2013 and 2016, had also warned of what would happen if the preparations for demonetisation were inadequate.

"I was asked by the government in February 2016 for my views on demonetisation, which I gave orally. Although there might be long-term benefits, I felt the likely short-term economic costs would outweigh them and there were potentially better alternatives to achieve the main goals. I made these views known in uncertain terms," Mr Rajan wrote.

He added that he had handed over a note to the government outlining the potential cost and benefits of demonetisation as well as alternatives to achieve similar aims.

He further said: "If the government, on weighing the pros and cons, still decided to go ahead with demonetisation, the note outlined the preparation that would be needed and the time that the preparation would take. The RBI flagged what would happen if preparation was inadequate."


The government then set up a committee to consider the issues, Mr Rajan said, adding that "the deputy governor in charge of currency attended these meetings and at no point during my term was the RBI asked to make a decision on demonetisation".

Prime Minister Narendra Modi on November 8 last year had announced demonetisation of Rs. 1,000 and Rs. 500 notes in a major assault on black money, fake currency and corruption.

Mr Rajan's revelations of demonetisation assume significance as RBI last month announced that as much as 99 per cent of the junked Rs. 500 and Rs. 1,000 notes have returned to the banking system.

The RBI former governor, currently professor of finance at the University of Chicago, also pointed out that his only public commentary on the talk of invalidating high-value currency was in response to a question in August 2014 at the Lalit Doshi Memorial Lecture.

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