Demonetization is the process of stripping the status of a currency as legal tender. This process is essential whenever there is a transformation or change of currency. The old currency notes should be replaced and retired with a newer one. However, it also considered as a tool for curbing black money and counterfeit currency. In 1996 the Australian government replaced all its all paper-based notes by releasing world’s first polymer (plastic), counterfeit-resistant and long lasting banknotes.
A brief background
In 1991, Mikhail Gorbachev Government demonetized the currencies (Ruble 50 and 100) in the Soviet Union to end the problem of counterfeit currency and black money in the country. The Government hoped that it will diminish the black money market and will help in the sustainable development of the country. But in reality, this decision took a very wrong turn and resulted in a change of government.
The replica of this happened in Ghana in 1982. However, in 1971 in Britain, the government blocked the circulation of old denominations and bought new coins of 10 and 5. This policy of demonetization remained unsuccessful in other countries except in Britain.
Demonetization and India
Not much same as demonetization in other countries, because high denomination currencies eventually returned. The currency of Rs 500 was introduced in 1987 and the currency of Rs 1,000 was in the year 2000. At that time the move was justified, as it was an attempt to contain the quantity of banknotes in circulation due to inflation. However, in present scenario Rs, 2000 denominated notes have been issued even before Rs.1000 denominated and Rs.500 denominated notes have been drained out completely.
Impacts of Demonetization
Demonetization would cost the RBI at least Rs. 12,000 crore or more, on the basis of the volume of currency in circulation and the cost incurred in printing them. Demonetization can also be considered as Digital Strategy of making India cashless. However, public have to face the inconvenience caused by this for further 2-3 months.
- Huge decline in black money: – This decision will trouble the holders of the black money and enjoying without paying any tax.
- Befitting move to clutch the Fake currency racket: – If the policy is implemented efficiently and effectively then it will result in end of counterfeit currency.
- Blockage on terrorist funding:- This move will block the terrorist funding, as producing counterfeit currencies of the new notes won’t be easy.
- Reduction in corruption: – Demonetization had started its impact from the 1st day of its implementation, as millions of rupees have been seized and hundreds of people charged on grounds of corruption.
- True and Fair Election: – It’s known to everyone how black money is used in election by political parties to win the election. The upcoming elections in 5 states will make it tough for parties to use the black money.
- Building Cashless Economy: while it is nearly impossible to make the Indian economy 100% cashless, still it will boost the use of e-wallet, debit/credit cards and online banking. Hence will result in greater transparency.
- Inconvenience to the public: – Even if people are supporting the demonetization, still they are facing ample of problem in their day to day life.
- Loss to common People:-Mainly in rural areas where people don’t have the knowledge to verify fake currency, will be cheated easily.
- Issuing of new Rs. 2000 denominated notes: – this will later increase corruption as it will be easy to store Rs 2000 denominated notes.
- Shortage of Money- as the banks and ATMs are over-crowded by people. There will be scarcity of money for a reasonable period.
- Problematic situations for couples getting married: This demonetization move will create many complicated situations for those families have weddings in this season.
What’s in store for us in Budget
Long queues of people outside the ATMs can be seen even after a month of demonetization. The government has provided with certain measures like No toll tax on National Highways, Withdrawal charges at all ATMs wavered, Parking charges at airports wavered and more which would ease day to day life of common people.
However, in the upcoming budget government is expected to boost cashless infrastructure and re-calibrated the ATMs which can dispense Rs 2,000 notes.
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