The people are primarily the reason for this. Have you seen this thread and especially the politics threads ? People are hoarding cash *and* demanding that GoI print more cash. They're making the classic mistake of feeding a liquidity crunch with actions that worsen it. And the 'fix' ? Force GoI to print more, a lot of which gets also hoarded or goes right back into black economy.Deans wrote:1. Far too much money has already some back. As posted earlier, an estimate for 3.79 lac crore in BM was a credible estimate and it was believed most of it would not come back. Now it appears almost all of it would. If the amount not coming back is anything under 100,000 cr. either BM holders have defeated the system, or the amount of BM held in cash has been hopelessly overestimated.
Beyond a point this is irredeemable madness of crowds behavior. Of course they will self righteously blame the government and ask them to 'do something'. But the situation is primarily created by hoarding. Enabling the existing cash base to circulate better would address problems, but peoples' response to a cash crunch is to hoard the cash instead. There are some notable folks who are doing their bit to do the right thing, but it seems most don't/won't.
I think the Rs.2000 as a honey trap is a good measure as a result. In fact it's quite clever thinking. It pragmatically accepts that people will not see sense and will make counterproductive mistakes collectively that break the very policy measure that benefits them. Therefore, GoI should force 2000s (not 500s) as higher priority into circulation, and then in future, demonetize the 2000 alone. It cleanly 'moves' up the target which in turn minimizes the blowback later. Of course people will scream now 'I don't want the bl00dy pink notes!' but that's to be expected.
