Introduction

It is a transformational decision taken by the government

to ban Rs.500 and Rs.1000 notes from circulation in the
market. The decision was taken to minimise the black
money and corruption. The RBI will be issuing Rs.500
and Rs.2000 notes from today onwards. They have
released a statement by saying that all the Rs.500 and
Rs.1000 notes are to be deposited at nearby banks or
post-offices. This will be a regular currency circulation all
throughout India. All those people who are panicked with
this move by the government need not worry at all as the
government has assured that ‘Your money will be yours.
You will not lose anything so there is no point in being
scared. There will be no restrictions on non-cash
payments by cheques, demand draft’s, and electronic
fund transfer.

Reasons Of Demonetization

We knew terrorism is a frightening threat, but who funds

these terrorists? Our enemies they use the fake currency
to sponsor terror-this was proven many a times. 
Corruption and black money are the major obstacles in
our country. It is weakening the efforts to remove
poverty. Our country is rapidly increasing in terms of
growth and we are in No.1 position in terms of growth
but we are ranked 76 in Global Corruption Perception
ranking. It clearly shows how corruption and black money
have spread their tentacles.

Impacts of Demonetization
Inflation : It will cause deflation in the market as people
who have earned money through illegal ways would be
afraid to declare the money as they may be prosecuted
by the Income tax department on the legitimacy of their
income. 

Reduction in Monetary Circulation: This will lead to

reduction of money circulation in the economy leading to
deflation. Value of money will be increasing which we
have because the total money supply will be going down
but the commodities and things available in the market
have not gone down. It will lead to inflation slowly but
not overnight. 

Cash Deposits in Banks: A lot of cash which are legally

earned will be deposited in the banks and now the banks
with more deposits will be able to do more lending. 

Easy Loans: Loans will become easier and interest rates

may come down. As banks will have more money so
more loans will be given out which will increase the
money supply in the market and it will create inflation.

Advantages:
 The major decision which is made by the
government will help us to eradicate black money,
corruption to some extent.
 Due to lack of funding there will be no arms
smuggling and all the terrorist activities will also be
choked.
 The government has proposed the new limits on ATM
withdrawals being restricted to Rs.2000 per day,
 withdrawal from bank account is Rs.10000 a day and
Rs.20000 a week. It indicates that card transactions
will slowly replace the cash transactions in our daily
prone activities.
  Exchange of money in banks can only be done
producing a valid identity cards like PAN, aadhar card
and electoral card from 10 to 24 November with a
daily limit of Rs.4000. By doing so it will be easy for
the government to track the money which is being
exchanged in banks. There is no limit if the amount
which we are exchanging is legal amount.
 Financial Intelligence Unit will track all details of the
transactions from the banks. So now it is really
difficult to get rid of the black money.
 Real estate industry is totally corrupted and now by
this stringent decision the real estate sector will bring
in more transparency. By doing it in this way we will
have more credibility, making it more attractive to the
foreign investors as well as domestic investors.
Disadvantages
  It will cause great inconvenience to common man
who will start running to bank to exchange Rs.500
and Rs.1000 notes.
 By replacing all the Rs.500 and Rs.1000
denomination notes, as ordered by the government,
could cost the RBI at least Rs.12000 crore.
 It will be very difficult for half of the population who
are not well versed with the card transactions.
 The major problem is that big fishes will be left out
whose black money is in the form of foreign currency,
gold and property and stashed in tax havens.
Conclusions
The advantages are much dominating and it will be in the
long term interest of our country comfortably
outweighing the disadvantages. Government need to
take all the necessary steps so as to ensure that there
will be a smooth flow of currency exchanges. It would
turn into chaos if government takes no necessary steps
to circulate money correctly. It will make a massive
change in our economy. We congratulate the entire
government and those hidden brains of our democracy
who brought this decision.

here is no other decision that effected 1 billion people from rich to

poor alike since independence like the present demonetisation.
Surely there will be pros and cons with this decision.
The decision taken by Modi is to know how much black money is
there with people. RBI will have data about how much currency it
printed and released into market. Now with demonetisation move
the money with people will come to the banks in the form of
deposits. So the money in the banks + money banks given as loans
- money RBI printed and released into market = black money.
The Government will now have an approximate figure about black
money. Now it will fill up that black money with new currency to
ensure that all that money which is in circulation is white.
Now the Government can track the movement of money. Any
suspicious transaction can easily be track down. So zero black
money. This is what Narendra Modi’s plan.
The Pros.
1. No more black money means all legal transactions.
2. From now Government can easily find out who is holding
black money.
3. Banks will galore with deposits so liquidity is easily
available at lowest interest.
4. Lowest interest means more investments and more
employment.
5. More business means more income thru taxes so no cash
crunch for welfare schemes.
These are the PROS the Government is talking about. But there is
danger lie also in this.
The Cons.
1. No easy money for people. When 100% white money is
there people won't go spending spree. So markets will be
dull.
2. When markets are dull business also. So low
turnover means low taxable income.
3. So far many companies started new businesses or
expanded their business by diverting it's black money into
new ventures. From now they can't do that some
employment opportunities are lost.
4. Deposit rates may be reduced. This will effect people
getting deposited income.
5. Huge cash deposits in banks will become burden unless
they don't divert them into market in form of loans.
6. An estimated ₹5–10 lakhs crores deposits will be
available with Banks for companies and Business
entrepreneurs to utilise for their business purposes.
7. The companies which are already availed loans from
banks and the companies which have no any new plans to
expand their business will not take loans. So who is going
to take? It must be new start ups. Now the question is Is
 there such business potentiality for start ups to utilize ₹5–
10 lakhs crores to commence businesses?
There is no such large scale business environment for start ups in
India. So employment generation will be difficult and it may leads
to collapse of the economy.
Poor people will be effected as all these hard working laborers
works under unorganized private sectors, especially in
construction and real estate. Until now, with the help of black
money, huge real estate and construction projects were made thus
gave employment to many of these unskilled labourers. From now
businessmen become thrift and follows cost cutting measures
because they don't want incurr loses since everything is white.
This will slow down the economy.
Perhaps in this point of view former Prime Minister
Manmohan Singh had expressed concern that growth
rate may come down to 2 to 3%.
No one is talking about the other side of the coin. All are seeing
bright picture without knowing the dark side.
As Chinese media rightly said Narendra Modi is playing
gamble on 1.3 billion people

Cons:
 Demonetisation does not help, since Black Money is
just a minuscule part of Black Economy which has
diversified investments.
 Govt. should have had the basic knowledge if an ATM
machine can dispense the new currency or not. Since now
the new currency is of the size of 100 rupees notes and the
ATM machines have three slots one for 100, 500 and 1000.
The other two slots are empty and the Government is
cramming all the new 2000 rupees notes in the 100 rupees
slot. So the ATM machines only dispenses 2000 rupees
notes and people are begging on the streets
like beggars for change. Having a 2000 rupees note is as
good as having nothing if you want to pay parking, buy
grocery, buy essentials or any small transactions below
1000 rupees.
 In India 40% people do not have Bank accounts and 70%
people do not have credit or debit cards. There is no
proper network penetration in rural sector for SMS
banking let alone internet banking.
 There are only 18 banks for every 1 Lakh people in
India and a single bank with enough new currency (well
assuming because the RBI is not able to print enough) can
only handle 500 to 600 transactions a day even if they
work additional hours. Now you can just do the Math and
you should also consider the above 1 Lakh people will
repeat every 3 days for withdrawals or exchange. This puts
a pressure on Bank employees who are stressed out.
 And because of the increased pressure on Banks during
this exchange period there is no proper loan retrieval done
by the banks and the defaulters are partying already. There
are no loans going to be given out by the Banks for at-least
another 3 months and during this period without the cash-
flow most small businesses will be washed out and
corporate will replace it. There are rate cuts in deposits and
no rate cuts in interest, while the opposite was expected of
demonetisation.
 And coming to the daily wagers, they are not even getting
paid not because the owners do not have enough money in
 the Bank account but the owners cannot withdraw the
money to pay them. For example: thousands of Tea
estate workers who are paid weekly are suffering since they
have to work everyday, they cannot stand in long queues to
miss a day of work every 3 days to en-cash cheque and
withdraw money and half of them do not have a bank
account.
 And the 4 printing presses which print Indian
currency are working 24 x 7 and yet they are only able to
replace 20% of the money deposited in banks with new
currency. Half the nationalised bank ATMs show a board
no cash, the private bank ATMs are closed from a week and
don’t ask about the co-operative banks.

Demonetization Advantages and Disadvantages

Vinish Parikh November 16, 2016
Demonetization refers to discontinuing of current currency units
and replacing those currency units with new currency units. It is a
major decision and it impacts all the citizens of the country
because overnight all the money you have become a piece of
paper which has no value if you do not exchange it with new
currency units or deposit it in the banks. In order to understand
demonetization better let’s look at advantages and disadvantages
of demonetization –

Advantages of Demonetization
1. The biggest advantage of demonetization is that it helps the
government to track people who are having large sums of
unaccounted cash or cash on which no income tax has been
paid because many people who earn black money keep that
money as cash in their houses or in some secret place which is
 very difficult to find and when demonetization happens all that
cash is of no value and such people have two options one is to
deposit the money in bank accounts and pay taxes on such
amount and second option is to let the value of that cash
reduced to zero.

2. Since black money is used for illegal activities like terrorism

funding, gambling, money laundering and also inflating the
price of major assets classes like real estate, gold and due to
demonetization all such activities will get reduced for some
time and also it will take years for people to generate that
amount of black money again and hence in a way it helps in
putting an end this circle of people doing illegal activities to
earn black money and using that black money to do more
illegal activities.

3. Another benefit is that due to people disclosing their income

by depositing money in their bank accounts government gets a
good amount of tax revenue which can be used by the
government towards the betterment of society by providing
good infrastructure, hospitals, educational institutions, roads
and many facilities for poor and needy sections of society.

Disadvantages of Demonetization
1. The biggest disadvantage of demonetization is that once
people in the country gets to know about it than initially for few
days there is chaos and frenzy among public as everybody
wants to get rid of demonetized notes which in turn sometimes
can lead to law and order problem and chaotic situation
especially in banks and ATMs which are the only medium to
change the old currency units to new currency units.

2. Another disadvantage is that destruction of old currency

units and printing of new currency new units involve costs
 which has to be borne by the government and if the costs are
higher than benefits then there is no use of demonetization.

3. Another problem is that majority of times this move is

targeted towards black money but if people have not kept cash
as their black money and rotated or used that money in other
asset classes like real estate, gold and so on then there is no
guarantee that demonetization will help in catching corrupt
people.

As one can see from the above that demonetization has both
advantages and disadvantages and it is up to the government to
see and analyze all the pros and cons and then decide whether it
is beneficial to go ahead with demonetization or not.