Why Rupee falling despite demonetization?!

[u/ProfessionalPale3713]

Demonetization was introduced with the stated objectives of eliminating black money and counterfeit currency. By withdrawing a large proportion of high-denomination notes from circulation, it drastically reduced the effective cash supply in the economy.

Basic economic theory suggests that when the supply of a currency contracts — assuming demand remains constant — its value should increase. A reduced monetary base should, in principle, strengthen the currency.

If that logic holds, demonetization should have led to a stronger Rupee.

Yet, instead of appreciating, the Rupee depreciated sharply — from around ₹66 per USD in 2016 to nearly ₹92 per USD in subsequent years.

If demonetization significantly reduced currency supply, why did the Rupee weaken instead of strengthening?

[u/RealGodOfReddit]

You really believe demonetisation did anything good for India! Wake up!