DEMONETISATION: A BOON OR A BANE?

Removing the legal tender status of a unit of currency is a drastic intervention into an economy
because it directly affects the medium of exchange used in all economic transactions. It can help
stabilize existing problems, or it can cause chaos in an economy, especially if undertaken
suddenly or without warning. That said, demonetization is undertaken by nations for a number of
reasons. Demonetization is referred to as the process of stripping a currency unit of its status to
be used as a legal tender. In simple words, demonetization is the process by which the
demonetized notes cease to be accepted as legal currency for any kind of transaction.
Demonetization can cause unrest in an economy or it can help in stabilizing the economy from
existing problems. Demonetization is usually taken by a country for various reasons.
Demonetization in India has taken place three times till now, namely in the years of 1946, 1978
and 2016. Let us have a look at all the three events.

The first currency ban:

In 1946, the currency note of Rs 1,000 and Rs 10,000 were removed from circulation. The ban
really did not have much impact, as the currency of such higher denomination was not accessible
to the common people. However, both the notes were reintroduced in 1954 with an additional
introduction of Rs 5,000 currency.

The second:
That came in 1978; the then Prime Minister of India Morarji Desai announced the currency ban
taking Rs 1000, Rs 5000 and Rs 10,000 out of circulation. The sole aim of the ban was to curb
black money generation in the country.

The Latest:
The latest demonetization was announced on 8th of November, 2016 by the Prime Minister
Narendra Modi. During this demonetization the notes that were taken out of circulation were the
denominations of 500 and 1000. PM Modi also introduced new currency of denominations 500
and 2000 after demonetization. The objective was to curb black marketing of fake currency notes
, to remove counterfeit notes from the market , to help reduce anti-social activities and their
finances and to create cashless economy. The advantages of demonetization included a
sophisticated banking system, reduced liability for the Govt., reduced instances of tax avoidance
and increased GDP levels. But has Demonetization actually achieved the objectives it has then
identified? On the fifth anniversary of demonetization, Congress leader Priyanka Gandhi Vadra
on Monday termed it a "disaster" and asked if the step has been successful, why hasn't corruption
ended and black money returned to the country. At the time of demonetization, cash in
circulation was about 18 lakh crore. Today, it is 28.5 lakh crore!" tweeted Senior Congress
leader P Chidambaram. Unemployment has risen, small businesses have been hit and closed. He
(Modi) spoiled the country's good economy through demonetization," Senior Congress leader
and Leader of the Opposition in the Rajya Sabha Mallikarjun Kharge told reporters.
Demonetization, (in 2016) will be marked in the world's economic history as among the "worst
policy blunders", senior Congress leader Jairam Ramesh said. Thus, to conclude while there
were short term benefits seen of demonetization but it has still not achieved the aims which were
then identified. To curb other problems, other measures need to be taken. The root cause i.e.
corruption needs to be eradicated at root level only then the effects of demonetization will have a
better impact on the country.

Shaina Sachdeva
M.Com(Sem-1)

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