DEMONATIZATION

In November 2016, India’s prime minister announced that all bills over 500 rupees were demonetized
in an attempt to fight corruption. As a result, 86% of India’s currency disappeared overnight!
Demonetization is an economic process in which a country’s currency unit is no longer used for the
legal tender.
Legal tender is anything which is recognised by law as a means to settle a public or private debt or
meet a financial obligation that includes tax payments, contracts and legal fines or damages. The
national currency is legal tender in every country.
Demonetization process:
Firstly, the old currency is discontinued and taken away from the circulation to be replaced with the
new forms of money. During the process people are given time to exchange then existing bank notes
and coins for the new currency before it is officially discontinued. After a currency has been
discontinued, it is no longer legal tender and has no monetary value

Benefits of demonetization:
1. Diminishing fraudulent practices: The best benefit of demonetisation is the minimization of
fraudulent acts in the country. During the process, people with black cash would fear being
prosecuted for these crimes while hoarding cash for exchange with banks since individuals
would be unable to exchange black money with banks.
2. Advanced investment system: With the demonetisation, the banking system will improve
considerably. If the economy moves towards a cashless direction, it paves the way for better
access to credits in the economic system in the long run. The government will handle the
remaining white cash.
3. Lowered liability: Allowing demonetisation can reduce the risks of handling liquid cash. All
produced notes are a liability for the government, and for those who decide to turn in their
income, the current notes would lose their value.
4. Decreased cases of tax evasion: The sudden severe movement can considerably reduce tax
avoidance if executed successfully. Tax avoidance can give a terrific boost to the Indian
economy.
5. GDP increase: Higher tax collection gives scope to decreasing the rate of interest on bank
loans; hence, reducing tax avoidance can bring clean money into the currency stream and
increase the disposable income of India’s economy.

Disadvantages of demonetization:
1. Inconvenient for the citizens: Demonetisation can cause major inconvenience to the people of
a country. If, at any point, the government chooses to remove specific categories of banknotes
from currency circulation but keep the others, it can be bothersome and confusing for
individuals. Suppose, when smaller coins are being removed from the currency circulation,
and banks fail to provide small changes, it can cause inconvenience to most people to deposit
or exchange currency in most banks.
2. A standstill in Economic Growth: The economic growth in a country can face a period of total
gridlock due to business disturbances or any such problems, at least in the short-term scenario
after the execution of the demonetisation process.
3. Difficulties with paying bills and disruption in trading: Suppose someone has sent current
banknotes by post before the commencement of demonetisation and has experienced a delay;
this can cause the bill to lose its value after its implementation the previous currency would
become invalid. Faults could cause disruption in trading within the highly bureaucratic
implementation system. This process may agitate the regular trading activities since it
demands time for suppliers and traders to get used to the new system of transfers and
exchanges.
4. Remodification of ATMs: The Government has to remodify ATMs to make the newly adopted
currencies available to the people. It will result in extra costs for banks and also trouble bank
customers.
5. Short-term economic crisis for the needy: If the newly adopted currency system fails to
achieve its aims, it will result in a financial emergency for the needy in the country. Minute
changes in the state of everyday items or confusion about the validity of the current currency
can pose a lot of hardships and panic among the poor citizens in the nation.