Demonetization and Remonetization: Macroeconomic Issues and Implications
Keywords:
Demonetization, Remonetization, e-payment system, Fisher’s Equation of ExchangeAbstract
The paper has examined the impact of demonetization and remonetization on price, output and use of e-payment for the purpose of transactions. The theoretical rationale based on Fisher’s Equation of Exchange suggests that reduction in the quantity of money in circulation in a substantial way must curtail output and average price level. However curtailment of money in circulation on account of abrupt demonetization in the Indian economy on November 8, 2016 has only a marginal impact in the reduction of the average price level but gross value of output instead of falling has increased. Besides it has been found that demonetization is an extremely useful short run measure in promoting e-payment system in the economy, but as remonetization takes place e-payment transaction has dropped in the country. This is indeed a reflection of strong desire among people to make cash payment in the economy since it hides many of the corrupt practices of generating black money which otherwise is not possible in case of e-payment system.
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