ABSTRACT
The cash holding to income ratio differs not so much between the 'black' and the 'white' economies, as between the small or informal sector, and the large or formal sector, both of which consist of both 'black' and 'white' activities. In sum, the principal macroeconomic fallout of demonetisation is a contraction in output reflecting an engineered economic recession. Others include the indirect feedback on growth through the monetary route and the impact that demonetisation has on the credibility and functioning of the banking sector. In actual fact, if they wished to get more cash, banks could always borrow from the Reserve Bank through the latter's Repo operations at interest rates fixed by monetary policy. In sum, the principal macroeconomic fallout of demonetisation is a contraction in output reflecting an engineered economic recession. Indeed, demonetisation has by contrast generated significant fiscal costs for the government.
