Android Studio proguard handling in multi-library projects

After some searching I found the answer. If you are using external/separate source libraries with your main project/application, you should not use a proguard on the library modules. Instead, you replace the following,

buildTypes {
    release {
        minifyEnabled true
        proguardFiles getDefaultProguardFile('proguard-android.txt'), 'proguard-project.txt'
    }
    debug {
        minifyEnabled false
    }
}

with the following (in the build.gradle of the library/libraries):

buildTypes {
    release {
        consumerProguardFiles 'proguard-project.txt'
    }
}

where proguard-project.txt is the file that contains the proguard rules for your library project. When building the application (either in debug or release mode), the compiler will take care of all the rules (in the library and in the application).

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