What is Demonetization?
When a currency is stripped of its legal status and replaced with a new currency, it is known as demonetization. It is also interpreted as a shift on the part of the government indicating that tax evasion will no longer be tolerated or accepted. The government of India, announced the demonetization on November 8, 2016, with profound implications for the Indian economy. The government decided that the two largest denomination notes, Rs. 500 and Rs. 1000 were ‘demonetized’ with immediate effect, ceasing to be legal tender except for a few specified purposes such as paying utility bills. This led to eight-six percent of the money in circulation bills. The people of India had to deposit the invalid currency in the banks, which came along with the restrictions placed on cash withdrawals. The aim of demonetization was to control corruption, counterfeiting the use of high denomination notes for illegal activities, and especially the increase of black money generated by income that has not been paid to the tax authorities.
The reasons behind taking the step of demonetization are as follows:
- To curb the circulation of fake currency in the economy
- To tackle corruption due to currency upholds
- To make idle money productive and help in reducing corruption crime
- To promote a cashless society and bring transparency to financial transactions
- To fight Inflation
- To reduce tax evasion
Table of Content
- Features of Demonetization
- Impact of Demonetization