1. Former US Treasury Secretary faults PM Narendra Modi’s demonetisation drive

Former US Treasury Secretary faults PM Narendra Modi’s demonetisation drive

Coming down heavily on Prime Minister Narendra Modi's demonetisation drive, former US Treasury Secretary Lawrence H Summers not just doubts the lasting benefit of the "chaos-causing" currency reform, but feels it has resulted in "loss of trust" in the government, even as it will be unable to prevent corruption.

By: | Washington | Published: November 22, 2016 2:18 PM
"This is by far the most sweeping change in currency policy that has occurred anywhere in the world in decades," says the blog, expressing surprise at the dramatic action to demonetise Rs 1,000 and Rs 500 notes. (Reuters) “This is by far the most sweeping change in currency policy that has occurred anywhere in the world in decades,” says the blog, expressing surprise at the dramatic action to demonetise Rs 1,000 and Rs 500 notes. (Reuters)

Coming down heavily on Prime Minister Narendra Modi’s demonetisation drive, former US Treasury Secretary Lawrence H Summers not just doubts the lasting benefit of the “chaos-causing” currency reform, but feels it has resulted in “loss of trust” in the government, even as it will be unable to prevent corruption.

The move also has also unleashed chaos and goes against the spirit of free societies that call for several criminals to go scot free, than convict an innocent person, Summers writes in a blog with Natasha Sarin, a Ph.D. candidate in Economics at Harvard University.

“This is by far the most sweeping change in currency policy that has occurred anywhere in the world in decades,” says the blog, expressing surprise at the dramatic action to demonetise Rs 1,000 and Rs 500 notes.

“It is the imminent prospect of notes currently held becoming worthless that has created such alarm and disruption in India. Small and medium-sized merchants have seen their shops (which transact mostly in cash) deserted and ordinary Indian citizens have spent the last week in line outside banks hoping to be able to exchange their cash holdings for legal tender,” it says.

Summers says even as many people hold large quantities of ill-gotten cash in India, raising the temptation to expropriate such assets, there are also those who have come by their wealth legally and have nothing to fear in exchanging the old notes for new ones.

“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,” he says.

“Moreover, the definition of what is illegal or corrupt is open to debate given the commercial practices that have prevailed in India for a long time,” says Summers, also a former Chief Economist of the World Bank.

The blog also goes on to question the equity and efficacy of the move and says there are strong possibilities that the largest amount of ill-gotten wealth is not held in cash but in foreign exchange, gold, bitcoin (digital currency) or some other store of value.

“So it is petty fortunes, not the hugest and most problematic ones, that are being targeted,” he says adding: “Without new measures to combat corruption, we doubt that this currency reform will have lasting benefits. Corruption will continue albeit with slightly different arrangements.”

On balance, he says, one was not enthusiastic previously about the idea of withdrawing existing notes from circulation because the costs were perceived to exceed the benefits. “The ongoing chaos in India and the resulting loss of trust in government fortify us in this judgement.”

  1. G
    gopal
    Nov 22, 2016 at 10:39 am
    congrats Indian Media...please run around the world and pick up more -ve stories on the currency demonetization..pathetic
    Reply
    1. M
      mohan
      Nov 22, 2016 at 12:00 pm
      People who di not have an idea of indian economt indian babudom the 60 plus years of inspector raj rule should stick their noses closer home. When people can trust a country which wages war on imaginery weapons of m destruction demonetisation will also not let people lose faith!Case in point for all those who claim hardly any black money in cash form a bihar busman caught with 5.5 crores in chartered flight. As a professional CA and having seen indian business and babus from close qurters this was long overdue!
      Reply
      1. B
        Bulletproof Monk
        Nov 22, 2016 at 10:47 am
        They can get a lot of Khujliwal, Bangu Momta & Italian pappu guters also called as mouth.
        Reply
        1. B
          Bulletproof Monk
          Nov 22, 2016 at 10:46 am
          This should first answer why sub prime crisis took place & Lehman went bankrupt.CIA agents roaming around must have been hit badly in this.US also doesn't want to see powerful India but only wants to use India against China.Americans should understand that their days of superiority are gone & next battle is going to be between India and China.
          Reply

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