ABSTRACT
Whatever be the reasons that were subsequently provided, it is clear that the government's initial goal was to attack and 'capture' the black money held in the form of cash. The early expectations of the government were that significant amounts of currency would simply be abandoned and not exchanged, for fear of revealing these stashes to the tax authorities. Indeed, insofar as currency is hoarded, it is much more likely to be done by those who have limited access to banks and other savings instruments, who would keep the money both for precautionary reasons and as a store of value. The immediate consequence was a very severe liquidity crunch, which meant an inability to exercise potential effective demand solely because of the cash deficit. For those who were able to game the system, there were apparently a wide range of methods employed to launder money, or simply to avoid the inconvenience of exchanging through the banking system.
