Demonetization and Its Effects – Short Essay 1.
Demonetization means the withdrawal of existing currency in the form of notes or coins, and issuing new notes or coins in its place. It is the process of invalidating the value of currencies in circulation.
The currency loses its valid tender and they are no longer accepted by the sellers in exchange of the goods sold.
For example, the Government of India demonetized the circulation of Rs 500 and Rs 1000 on 8th November, 2016. The legal tender of these currencies became invalid, people could no longer use this type of money to do any transaction. They were required to deposit the demonetized notes with the bank or exchange old notes for new ones.
Demonetization is generally considered to have a good effect in the long-term because it accelerates the digitization of the economy. If an economy is chiefly cash based, and there are large cash based transactions, then demonetization may promote digital economy. Once people deposit their physical cash in their bank account, they are more likely to use digital modes while making payments.
Fake currency would get filtered and not be allowed to be deposited or exchanged. This will help the Government fight against the problem of fake currency.
The process of demonetization also helps the government to track unaccounted money or cash whose income tax has not being paid. Due to demonetization, there is likelihood that people who had been hiding their income will declare their income and pay tax on the same.
The banning of high value currencies also reduce illegal activities. This is because most of these type of activities are funded by cash that is gotten from people engaging in illegal activities.
Trade and economy is affected, at least in the short-term. The consequences of demonetization is that it takes some time for suppliers and consumers to adjust to the new monetary policy and this may cause trade disruptions. The economy of a country slows down due to interruptions and disruptions. It may lead to a situation of cash crunch since there is little money in circulation due to unavailability of big currency denominations. The overall demand for products, especially of luxury commodities, is negatively effected in the short-term.
Illiterate people find it difficult to operate through mobile wallets, credit cards, or net banking facilities. It can be painful if they are they are denied to make cash transaction, even if it is for a short period of time.
Elderly people cannot wait in queue for hours for depositing the invalidated currency into their bank account.
Demonetization and Its Effects – Short Essay 2.
Demonetization is a situation when the Central Bank of that country withdraws some currency from circulation.
In India on 8th Nov 2016, demonetization was a government decision whereby a start was made to get currency hoarding and corruption under control.
Rupees 500 and 1000 notes were no longer legal tenders. People who had these currency notes could deposit these with the banks for a very limited period.
- Demonetization caused a severe cash crunch. For many days the withdrawal limit was very low. Daily wage earners were hit the hardest.
- It served as a financial reform against corruption, black money, and counterfeit currency.
- It helped the government to track black money, unaccounted cash, and improved the tax system. This tax money can be utilized for development schemes and public welfare.
- It also improved the finance of the public sector banks that were having a deposit crunch and shortage of funds.
- This was also the time when a move towards a cashless economy was encouraged to improve transparency and to wipe out the parallel economy.
Demonetization and Its Effects – Short Essay 3.
In 2016, The Indian Government announced demonetization of 500 and 1000 Rupee note. It affected almost all economic, political and social factor of the country.
Although this is not the first time that demonetization took place. It has been done earlier in the year 1946 and 1978.
This crusade against black money has been cheered by the masses.
Positive Effects of Demonetization
- It has helped the government to track black money which has not been counted at all.
- A big part of the funding for anti-social activities were restricted. Demonetization act as countermeasures against all these activities.
- It has helped in putting end on this circle of illegal activities of people regarding money.
- Government will now get more of tax from tax payer as they honestly deposit their money in bank account.
- Indian economy now emerging as cashless economy.
Negative Effects of Demonetization
- The biggest disadvantages of this scenario is the chaos and frenzy it created among common people.
- Insufficient supply of new notes is a big concern during this time as everyone is waiting for the new currency to be swap against old.
- In rural area people struggled for the withdrawal and exchange of cash due to lack of banking facilities and ATMs.
Last updated: June 28, 2019.