New Delhi: Former finance secretary Arvind Mayaram has critcised the government for scrapping high-value notes saying it will destroy the credibility of the Indian rupee and lead to a huge increase in import of gold in the long-run. “If you look at the US dollar, it is one of the most counterfeit currencies in the world. But the dollar has never been demonetised. None of the strong economic powers have done this because it shakes the confidence of the people in the currency. People are not very sure of that currency,” he told this newspaper.
Mr Mayaram underlined that the currency is basically the wealth of the sovereign. “Because the currency is the thing which explains the economic strength of the country,” he said. He pointed out that currency is just a promise. “Ultimately the note is a paper. Actually the value of Rs 1,000 note is just Rs 5, if you take into account the cost of its making. It becomes Rs 1,000 because the RBI governor signs on it and says “I promise to pay a sum of '1,000 if you produce it,” said Mr Mayaram.
He said that the currency has the credibility because everybody beli-eves that “when I will produce it I will get Rs 1,000. Now we have said no if you will produce I will only give Rs 1,000 if I am satisfied that you should get Rs 1,000. So you have questioned the credibility of the note. It will take a long time for people to have that faith in the currency. You will see a lot of purchases of gold and a lot of gold will needed to be imported,” said Mr Mayaram.
“If the people’s faith in the currency gets shaken, then the economy takes a bad hit. Even if you issue a new note, people will say we don’t know wheth-er in the next year, there may be another demonetisation or any government can come and demonetised it,” he said. Former World Bank chief economist Kaushik Basu said that demonetisation is not ‘good economics’ and its collateral damage is likely to far outstrip the benefits.
“GST was good economics; the demonetisation is not. Its economics is complex and the collateral damage is likely to far outstrip the benefits,” Mr Basu, who was also chief economic advisor in the ministry of finance, said in a tweet.
