Inflation
Mohammod Irfan, Graduate School of International Studies, Denver, Colorado, USA
Looks like inflation is beginning to become a big concern for the caretaker government as well. The many reasons and the suggested solutions that we see in the newspaper reports and columns point mainly towards a supply shock explanation. While the supply shock explanations bear quite some merit, I was wondering whether the experts are contemplating the monetary explanations equally.I see at least two reasons for a surge in money supply. Firstly the well-known increase in remittance which is going on for quite some time. Secondly, the black money has already accumulated in the economy. While the anti-corruption drives are supposed to reduce the inflows to the stock of black money, the biggest sources of outflows from that stock, e.g., real estate or smuggling out, are also blocked because of constant vigilance. The only outlet for this cash money, considering the fact that the bank accounts have come under surveillance as well, is the commodity market. The usual tools of "contractionary monetary policy" might not work in the second case. I wonder whether the regime is contemplating changing the currency notes to deal with excessive black money.
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