Demonetisation
Introduction
Demonetisation is the act of removing a currency unit of its status as legal money. Demonetisation is necessary whenever there is a change of national currency. The old unit of currency must be retired and replaced with a new currency unit.
Reason of Demonetisation
There are multiple reasons why nations demonetise their local units of currency. Some reasons include combating inflation, to combat corruption, and to discourage a cash system. The process of demonetisation involves either introducing new notes or coins of the same currency or completely replacing the old currency with new currency.
History of Demonetisation
In 2016, the Indian government decided to demonetise the 500 and 1000 rupee notes, the two biggest denomination notes. These notes accounted for 86% of the country’s cash supply. The government’s goal was to eradicate counterfeit currency, fight tax evasion, eliminate black money gotten from money laundering and terrorist financing activities, and provide a cashless economy.
In 2015, the Zimbabwean government demonetized the Zimbabwean dollar as a way to combat the country’s hyperinflation that was recorded at 231,000,000%. Fiji, Singapore and Philippines were other countries to have opted for currency demonetisation.
Another example of demonetisation occurred when the nations of the European Monetary Union adopted the euro in 2002. In order to switch to the euro, authorities first fixed exchange rates for the varied national currencies into Euros. When the euro was introduced, the old national currencies were demonetized. However, the old currencies remained convertible into Euros for a while so that a smooth transition through demonetisation would be assured.
Impacts of Demonetisation
It has major impact on corruption and also on financing of terror activities. It also will curb the menace of black money and will help check storing of funds to a large extent.
Conclusion
The demonetisation always affects some extent to the general public, but for larger interest of the country, such decisions are inevitable. Also it may not curb black money fully, but definitely it has major impact in curbing black money to large extent.
