Demonetisation : Did Note ban kill black money ?

One day that India cannot forget is 8th November, 2016. This day around 8 P.M. our Prime Minister Narendra Modi made an announcement which created a panic situation all over the nation. In that announcement he said that two largest denomination notes, ‘500’ & ‘1000’ were demonetized with immediate effect, ceasing to be legal tender except for a few specified purposes such as paying utility bills.




Demonetisation : Did Note ban  kill black money ?
Demonetisation : Did Note ban kill black money ?


The next morning our bank saw flooding of customers who were desperate to get their currency replaced and with uncertainty of future government notification some of them even lost their life in the process of getting their currency deposited and replaced. The execution of this government historical step didn’t support the purpose for which it was announced and eventually became its biggest loophole.


Meaning of Demonetization

It is a process of stripping a currency unit of its status as a legal tender, in simple words making a currency invalid as legal currency. New currencies are introduced to replace the old ones.


History of Demonetization

This was not the first time that our nation saw demonetization, in 1946, the RBI had demonetized ‘1000’ and ‘10000’ currency note which were then under circulation. In 1954, the Government of India introduced new currency notes of ‘1000’,’5000’ & ‘10000’. Further these notes were demonetized in 1978 when the Morarji Desai government decided to curb illegal transactions and anti-social activities.


Reason for Demonetization in 2016

Although this step of government was hugely criticized among large sections of society but on the other side it aimed at very needed and sensitive issues that required an utmost steps to be taken such as

Ø Unearthing black money

Ø Curbing finance to terrorist

Ø Give fiscal space to government

Ø Reduce interest rates in the banking system

Ø Formalize India’s informal economy

Ø Creation of cash less economy

The government offered several incentives to induce people to use digital transactions too.


Fruits of Demonetization


When we are talking about the benefits of demonetization we should always remember that apart from its execution that was quite bitter for our nation, it reaped fruitful results that cannot be overlooked. The aim of demonetization was to curb corruption, counterfeiting the use of high denomination notes for illegal activities; and especially the accumulation of ‘black money’ generated by income that has not been declared to the tax authorities. Some of the noticeable benefits were as follows :


Ø Increased savings: when currencies are demonetized, people tend to deposit their cash with a bank and store less physical currency at home. This helps in increased savings.

Ø Better economy: It resulted in higher circulation of money and government getting more taxes which can be utilized for various developmental projects.

Ø Curbing anti-social activities: Smugglers and terrorist use cash a mode of payment and government discontinued the highest notes available in the economy forcing them to find ways to get rid of the old ones and in that process government got an opportunity to get a better control over the unaccounted money and curbing these anti-social activities.

Ø Lower lending rates: As bank had inflow of cash they could have used it for credit creation process in the economy resulting in reduced interest rates and more lending.

Ø Reducing counterfeit currency notes: It also allowed public to become vigilant as now they would have easily got to know through banks that which currency were genuine and which were counterfeited currencies. This step made public the new checker of currency.

These were not the only positive outcomes of demonetization as it had various other benefits but these were some major and noticeable fruits that demonetization reaped.



Conclusion


Since the past century governments across the world were taking the decisions of demonetization. Though the currency which was demonetized may differ, the objectives largely have remained the same means to remove black money, stop illegal activities, and bring currency into the mainstream. The decision of demonetization was taken by keeping the national interests in priority. Though the decision might have caused inconvenience to the general population, it definitely had the national interest and economic growth at its core.



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