International Finances

Student: ANA ASATIANI

Cryptocurrency: how can demonetization help economic growth?

First of all, I want to explain what the demonetization is. This is an action when it is stopped
using a metal as a monetary standard, to bare of value for official payment as legal tender. It is
needed anytime there is a change of national currency. The old unit of currency need to be retired
and replaced with a new currency unit. Demonetization can cause chaos and inconvenience to
the public because sometimes it is accepted unexpectedly or it can modify existing problems in
the country. There are many reasons that demonetization be publicized for.

One of them is a way to finish interrelation between people and black money, because many
gatherers find a way to legitimize their black money or do not hold them in the form of cash.
Second reason is stabilization of currency and combat inflation. Next one maybe the cashless
economy, facilitation of trade or form currency unions, corruption, crime.

Every reform has its own result and outcomes. The most noticeable blemish of demonetization is
that at a time people gets to kwon about it than there is a chaotic situation in the country for a
few days, because everybody wants to get rid of demonetized notes. Let's talk about positive
impacts of demonetization, how it helps economic growth. As a result of demonetization there
are increased savings in economy, because people tend to make bank deposits and invest their
cash in the bank rather than keep it at home. If there is many savings accounts and other forms
for savings, it helps overall economic growth. Personal savings supply funds that allow banks
lend to businesses for broadening opportunities (investment in capital goods). After investments
more goods and services are produced and sold, which creates growth in economy. As well, if
there are money distributions from people to banks, financial markets, financial institutions,
there is a great circulation of money in the economy. The government receives more taxes and
can sponsor more and more
development projects. And this helps to achieve better-performing economy. Also, thus there is
a better spreading of money, it will lead to lower cost of funds which transform into lower
lending rates, which makes it cheaper to borrow money to finance investment into financial and
physical assets, create situation, that people are willing to borrow money to make big purchases.
This encourages firms, companies, consumers to take out loans to finance greater spending and
investment, everything stimulate economic growth. The demonetization is being used as an
instrument of modernization a cash capable developing economy and to fight corruption and
crime. In finance and accounting cash refers to money that is readily available for use. It is part
of transaction for anti-social activities. The demonetization restricts these actions, interests. It
cutting down falsified currency notes and allows government to withdraw counterfeit currency
from market. Banks make verification of all notes, that they won’t be fake or counterfeit before
accepting them. It also forces anti-social units to find ways to get rid of the old notes. Finally,
there is a better situation in the country and better control over the unaccounted money in
economy.

The demonetization is good for some reasons, but it can cause problems in the business system
of the country like an awkward situation to the public, interruption of business activities,
decrease in sales especially in cash-dependent activities. It is remarkable that black money does
not become white because of the deposits in the banks, but these should be achieved by slow
demonetization. When every businessman, firm, company, hoarder, usual citizen or economic
agent were given a limited time to deposit their own notes with banks and change those with new
notes, there will be creation of chaos. The government should do enough preparation for this
action. The sudden decision will cause demand and supply shock for money in economy. We
have a big example of this.

In 2016, there was a decision in Indian economy. The Indian Prime Minister announced
demonetization of 500 rupees and 1,000 rupees notes. Holders of the demonetized currency were
given approximately 2 months to deposit or exchange them for newly produced 2,000 rupees and
500 rupees notes. The main short-term objective of this
demonetization was to weed out a large amount of black money hoarded in cash and the long-
term objective was to transform cash-dependent economy into a digital one and make India
cashless. This action made some problem in society. There was an increase of pain for
individuals and businesses. The inconveniences and pain should not have gone two months, but
after this it was still far from a normal situation. It may need more months to solve problems.
Cash is a critical note in the agriculture and its sudden shortage had an impact at many levels. So,
it would be great to have a little time in advance to identify objectives and to be ready for this
situation in the country and don’t create a crisis in businesses.

The demonetization plays a big role in achieving digital economy. Countries have chaotic
impacts of demonetization, creates a huge pressure on banking system, may cause some damage
to the economy with a little duration, there may be the boost of credit cards, but it is the best way
to attack on black money holders, to reduce loan interest rates, make cheaper to buy homes or
other buildings, to curb terrorism. It will also help to modernize society and be cleaner with a
low crime rate because demonetization force terrorists and smugglers to collaborate, operate
through banking lines, take their large denomination notes to bank, which will be by law
required to acquire tax information on them. It will be evident that all firms, companies,
businesses, medium, small or micro enterprises accommodating toward the digital arenas.

REFERANCES

 https://www.investopedia.com/terms/d/demonetization.asp
 https://www.investopedia.com/terms/l/low-interest-rate-environment.asp