You are here: Home » Economy & Policy » News » Demonetisation
Business Standard

Demonetisation resulted in chaos, loss of trust in govt: World Bank's ex-chief economist

Like everyone else, we were surprised by the dramatic action taken by PM Modi: Larry Summers

Topics
Demonetisation

Press Trust of India  |  Washington 

Larry Summers
Larry Summers , a former chief economist of the World Bank and ex-economic advisor to the US President (Photo - Reuters)

Describing the Indian government's steps as the "most sweeping changes in currency policy in the world in decades", a top global economist today said without new measures, this is "unlikely to have lasting benefits" and that it has resulted in "chaos and loss of trust in the government".

"Like everyone else, we were surprised by the dramatic action taken by Indian Prime Minister Narendra Modi to demonetise the existing Rs 500 and Rs 1,000 currency notes.

"This is by far the most sweeping change in currency policy that has occurred anywhere in the world in decades," Lawrence 'Larry' Summers, a former chief economist of the World Bank and ex-economic advisor to the US President, said in a blog.

In his blog written jointly with Natasha Sarin, Summers said most free societies would rather let several criminals go free than convict an innocent man.

"In the same way, for the government to expropriate from even a few innocent victims who, for one reason or another, do not manage to convert their money, is highly problematic," the blog said.

Moreover, the definition of what is illegal or corrupt is open to debate given the long-standing commercial practices in India, Summers added.

He and Sarin said there are also questions of equity and efficacy.

"We strongly suspect that those with the largest amount of ill-gotten gain do not hold their wealth in cash but instead, have long since converted it into foreign exchange, gold, bitcoin or some other store of value.

"So it is petty fortunes, not the hugest and most problematic ones, that are being targeted," Summers wrote.

"Without new measures to combat corruption, we doubt that this currency reform will have lasting benefits.

"Corruption will continue albeit with slightly different arrangements," said Summers, who in the past had advocated a similar measure for USD 100 and Euro 500 currencies.

"On balance, nothing in the Indian experience gives us pause in recommending that no more large notes be created in the United States, Europe and around the world.

"We were not enthusiastic previously about the idea of withdrawing existing notes from circulation because we judged the costs to exceed the benefits.

"The ongoing chaos in India and the resulting loss of trust in the government fortify us in this judgement," Summers wrote.

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Tue, November 22 2016. 09:00 IST
.