Pros And Disadvantages Of Demonetization

DEMONETIZATION

Demonetization is the act of stripping out a currency unit as legal tender. It happens when change of national currency takes place. The form of money in circulation is pulled out and discarded, which might or often are replaced with new notes and coins. Many a times, a country replaces the old currency with the new ones completely. There can be several reasons why a government wants to enforce demonetization. Some of them are to discourage a cash-dependent economy, to counter inflation, to counter corruption and crime (terrorism, tax evasion), to encourage trade, etc.

There are several advantages linked with the process of demonetization.

The biggest and impactful benefit of demonetization is that it assists the government

Because black money is utilized majorly for illegal and destructive activities like gambling, money laundering, terrorism funding, and increasing the price of assets like gold, real estates and due to implementation of demonetization, such activities will step down for a while. The Real estate industry is completely corrupted and by this decision the industry will have more transparency. It will consume many years for such people to generate the same amount again and therefore in a way it puts an end to people indulging in illegal activities to generate black money. Due to people revealing their income by depositing cash in their bank accounts , government gets a high amount of tax revenue ,which can be utilized by the government towards to facilitate services for society by providing educational institutions ,roads hospitals, good infrastructure, and new schemes for needy and poor sections of society. Loans will become easier to take and interest rates will come down. As banks have money so more loans will be given out which will increase the money supply in the market and it will enforce

The re-calibration of ATM’s should be done at fast pace , if not it leads to long queues and take more time to get people’s own money back. Because of very slow procedure many people suffer serious problem. Everyone has their livelihood and problems so they have deal with it anyhow. The demonetization also leads to currency destruction. Individuals have burnt their cash and discarded the same which is a loss to economy .the government has to make space in the taxes they impose for the cost of printing and circulating new currency. This directly affects the tax payers because the cost of printing new currency is deducted from the taxes they pay.

Demonetization in a country is not a new phenomenon to the world. There are several instances when demonetization was implemented.

European Union - The countries which joined EU in the beginning adopted Euro and discarded their respective currencies in 2002. For

Smoothness in the process of switching to the euro, first the authorities fixed exchange rates for the varied national currencies into Euros. The old national currencies were demonetized when the euro was introduced. For the sake of smooth transition and public convenience the old currencies remained convertible into Euros for a while so as to counter negative effects of demonetization.

United States of America - Decades before, the Federal Reserve use to issue $1,000, $5,000, $10,000 and surprisingly $100,000