In November I predicted this to my Indian friends (who were quite excited by the new changes) that a rational Indian person shouldn't throw away their old black money, because this money would make a come back in a few years, when the new money starts to lose value due to inflation (Indian Rupee is inflated by the govt at a crazy rate, because that's how the govt funds itself in lieu of taxes).

This would eventually reach to a point when new currency would die out in the hands of the old currency. Why? Because what Indian govt has done is not 'demonetization' rather they have announced that they would stop printing more old currency and start printing a new currency. But it's like USG issuing Bitcoin like currency (without the electronicy parts, but with the fixed supply, and anonymity of cash).

In other words, the old Indian currency is the perfect black market currency created, and it will just keep gaining value over time as new currency keeps losing value.

My prediction was for at least 4-5 years, but pleasantly surprised to have it come true in only a few years.

>> Indian Rupee is inflated by the govt at a crazy rate, because that's how the govt funds itself in lieu of taxes

Very interesting. I was looking for an answer to how the Indian government even funds itself with only 1% of the population paying taxes (which also suffers from tax evasion). Could you please explain more how inflation is used in lieu of taxes?

Thanks.

You print[1] more money and spend it.

1. Create more money should be the accurate term here. They can create more money by printing or, using debt.

That makes sense. Thanks!

Is there somewhere I can read more about this? :-)

That's a very interesting take on this subject!

So you recon that instead of parallel economy using Govt. issued notes - better to shift to old (but invalid) notes?

The only problem is mainstream will not accept old notes from them.

This sounds pretty accurate. Not sure why you are being downvoted.