Demonetization Dr. Vijay Laxmi Sharma Assistant Professor (Department of Commerce) M.B.G.P.G. College Haldwani Nainital (Uttarakhand) Email: vijaylaxmi1216@gmail.com ABSTRACT: Demonetization is the process of withdrawal of a particular form of currency from circulation. It becomes necessary whenever there is a change in the national currency. The old unit of currency must be retrieved and replaces with a new currency unit. In India demonetization has occurred thrice. The first was on 12 th January 1946 (Saturday), Second on 16 th January 1978 (Monday) and the third was on 8 th November 2016(Tuesday). The country may be happy about the initiative or upset with the move, but the word 'demonetization' has recently become the trend. Keyword : Demonetization, retrieved. Demonetization is the act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change of national currency. The current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins. Sometimes, a country completely replaces the old currency with new currency. The opposite of demonetization is remonetization, in which a form of payment is restored as legal tender. 24
Breaking down 'Demonetization' There are multiple reasons why nations demonetize their local units of currency : To combat inflation. To combat corruption and crime (counter feiting, tax evasion) To discourage a cash dependent economy. To facilitate trade. Objective of the Study: This study is based on the following objectives: 1) To study about the concepts of demonetization. 2) To study about the need and importance of demonetization to the Indian economy. 3) To study about the impact of demonetization on various in Indian economy. Methodology: This research paper is descriptive in nature and it used the exploratory technique. The data for the study were collected through secondary sources like newspapers and websites. 25
Dramatic Examples of Demonetization : The coinage Act of 1873 demonetized silver as the legal tender of the united states, in favour of fully adopting the gold standard. Several coins, including two cent piece, three cent piece, and half dime were discontinued. The withdrawal of silver from the economy resulted in a contraction of the money supply, which subsequently led to a five year economic depression throughout the country. In response to the dire situation and pressure from farmers and silver miners and refiners, the Bland Allison Act remonetized silver as legal tender in 1878. An example of demonetization for trade purpose occurred when the nations of the European Union officially began to use the euro as their everyday currencies in 2002. When the physic euro bills and coin were introduced, the old national currencies, such as the German mark, the French franc and the Italian lira were demonetized. However, these varied currencies remained convertible into Euros at fixed exchange rates for a while to assure a smooth transition. India's Demonetization : In 2016, the Indian government decided to demonetize the 500 and 1000 rupee notes, the two biggest denominations in its currency system;these notes accounted for 86% of the country's circulating cash. With little warning, India's Prime Minister Narendra Modi announced to the citizenry on Nov 8 that those notes were worthless, effective immediately and they had until the end of the year to deposit or exchange them for newly introduced 2000 rupee and 500 rupee bills. 26
Chaos ensured in the cash dependent economy (some 78% of all Indian customer transactions are in cash), as long, shaking lines formed outside ATMs and banks, which had to shut down for a day. The new rupee notes have different specifications, including size and thickness, requiring re calibration of ATMs : Only 60% of the country's 200,000 ATMs were operational. Even those dispensing bills of lower denominations faced shortages. The government's restriction on daily withdrawal amounts added to the misery, though a waiver on transaction fees did help a bit. Indian Currency Demonetization : Advantages and Disadvantages The government of India recently took a bold step to demonetize Rs 500 and Rs 1000 currency, which means that the legal tender of currency units is declared invalid from the specified date. Demonetization of currency means discontinuity of the said currency from circulation and replacing it with a new currency. Most of the people hailed the Modi's strong decision, while poor were shocked by the move. The overnight decision changed the life of many as black money holders were worried about the pile of cash they were sitting on. Many poor daily wage workers were left with no job and income as owners were unable to pay their daily wages. It is no doubt a bold step taken by the government which will definitely help India to become corruption free. Some advantages and disadvantages of de monetization: 1) Black Money Tracking : This move will help the government to track unaccounted black money or cash on which income tax has not been paid. Banning high value currency will impact people who will have no option, but, to 27
declare income and pay tax on the same or destroy the cash somehow. Now, it is not possible to hide the money as the notes have been declared invalid. 2) Reduction in illegal activity : Banning high value currency will halt illegal activity as the cash provided for such activities has no value now. Black money is usually used to fund the illegal activity, terrorism, and money laundering. Fake currency circulation will come to a halt in a single shot. Corrupt officers, money launderers are under threat as Income tax department is taking all the measures to track such people. 3) Tax Payment : Most of the businessmen who have hiding some income are ready to pay advance tax as current year's income. Tax payers who have been hiding some income can come forward to declare income and pay tax on the same. Individuals are required to submit PAN for any deposit above Rs. 50,000 in cash, which will help tax department to track individuals with high denominations. Also, deposit up to Rs 2.5 Lack will not come under income tax scrutiny. 4) Jan Dhan Yojana : Now individuals are depositing enough cash in their Jan Dhan accounts which they were reluctant to do so a few days back. The amount deposited can be used for the betterment of the country. Disadvantages of currency demonetization : It may cause inconvenience for initial few days for those who have to start running to the banks to exchange notes, deposit amount or withdraw the same. The situation can turn chaotic if there is a delay in the circulation of new currency. 28
Cost of currency destruction : After the news, many individuals have burnt their cash and discarded the same, which is a loss to the economy. The government has to bear the cost of printing of new currency and its circulation. It makes sense when benefits of demonetization are higher. The cost of currency printing is a burden on the tax payers and is one of the many disadvantages of de monetization. Conclusion: Demonetization is a one key step in sweeping the corruption and to bring most of the unregistered processes into taxation. Narendra Modi literally struggled to manage the inflation, corruption, lower tax returns and terrorism. Since, from the beginning Modi more focused on forming efficient hardworking and honest team. Once the currency was demonetized, they'd made it mandatory to link AADHAAR No to bank accounts and to PAN Card. With these details Income Tax department will track all the details easily and can stalk the suspects effectively. They can easily figure out one's actual income itself with details of his assets. It is the first step for future digitalization as well. One step many benefits. Demonetization should be done time to time which will keep external threats at bay and will not let the other civil servants to loot the public. Demonetization must be carried out by a different government governing body separately so that it should not create mess for the public all of a sudden. Many such benefits are there to be taken but it needs a sea change. Agencies of government will have a work really hard to make it a cashless economy. The beginning is good but it needs to be taken to the logical conclusion. 29
References: www.investopedia.com www.goodreturns.com www.quora.com www.researchgate.net www.royalharbinger.com 30