Theoretical Economics Letters

Volume 8, Issue 14 (October 2018)

ISSN Print: 2162-2078   ISSN Online: 2162-2086

Google-based Impact Factor: 0.82  Citations  

A Simple Model of Currency Notes Withdrawal

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DOI: 10.4236/tel.2018.814198    337 Downloads   630 Views  

ABSTRACT

In the backdrop of the demonetization move by the Government of India, this paper proposes a model of optimal currency holding when there is a possibility of currency withdrawal. Our results indicate that if the perceived probability of withdrawal of higher denomination currency is very high, then agents would eventually hold cash in lower denomination currency only, thereby making the higher currency notes redundant. Thus, one of the targets of demonetization, which is less holding of higher currency notes, can be achieved without actually implementing demonetization.

Cite this paper

Chattopadhyay, S. and Sahu, S. (2018) A Simple Model of Currency Notes Withdrawal. Theoretical Economics Letters, 8, 3196-3202. doi: 10.4236/tel.2018.814198.

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