What happens when 86% of a nation's currency vanishes overnight?
In November 2016, India demonetized all notes above 500 rupees to combat corruption. This video explores how economists used this sudden disappearance of cash to study the fundamental role of money in modern economies.
Harvard's Gabriel Chodorow-Reich and his team analyzed this massive economic shift by treating it as a natural experiment. Because different Indian districts replaced the invalidated currency at different speeds, researchers could compare economic outcomes across regions.
To overcome the lack of reliable traditional data, the study utilized innovative proxies: employment surveys to track labor participation and satellite-based night light activity to measure local economic intensity. This approach provides a high-accuracy look at how sudden liquidity shocks impact a nation.
Source: Demonetization: When 86% of India's Currency Disappeared (Gabriel Chodorow-Reich, Harvard)
