Why demonetize the Indian economy?

Abstract

This paper is a conceptual analysis of demonetization. The main aim of this paper is to analyze the reason why a government would like to demonetize its economy. The main reasons for demonetizing an economy are to modernize the banking sector, to provide banks with liquidity, to reduce the importance of the informal financial sector, to give people the opportunity to hold bank accounts, which in turn gives people access to the credit market. This is part of the digitalization of the economy which is a part of the demonetization policy. The other aim of this policy is to fight against inflation and attract foreign direct investment. The make-in policy and demonetization policy are interrelated.