It’s been six years since demonetisation happened. Was the ban on certain denominations of currency notes a good thing? Let’s find out.
Recently, a Constitution Bench of the Supreme Court was hearing petitions challenging the Union government’s policy of demonetisation in 2016. But what is demonetisation? Let’s find out….
Demonetisation is withdrawal of a particular form of currency from circulation which means it is no longer legal tender for any kind of transaction. In other words, the demonetised currency notes are rendered useless. It can cause unrest in an economy or can help stabilise it. Demonetisation is usually undertaken by a country for various reasons.
Notes withdrawn
On November 8, 2016, the biggest-ever demonetisation exercise was announced in India. Notes of *500 and 1,000 denomination were scrapped. The move was undertaken by the Union government with the objective of cracking down on black money and curbing terror funding. Following the withdrawal of the then prevailing *500 and 1,000 notes, the government introduced new *2,000 currency notes. It also introduced a new series of *500 notes, and later, a new denomination of *200 notes. The demonetisation exercise in 2016 resulted in cash shortages, causing extreme hardship to citizens. However, opinion is still divided on its impact on India’s economy among trade circles, economists and the public.
Benefits
According to the government, the demonetisation exercise has enhanced digitisation and formalisation in the economy, reduced tax evasion, and contributed to a rise in tax collections.
This was not the first time demonetisation took place in the country. Earlier in 1946 and 1978, the country had been witness to demonetisation. Then it was implemented through an ordinance promulgated in Parliament. In 1946, notes in the denomination of Rs.1,000 and Rs. 10,000 were removed from circulation. This had a low impact as the common people did not have higher denomination notes. In 1978, notes in the denomination of Rs 1,000, Rs 5,000 and Rs 10,000 were phased out.
However, in 2016, demonetisation was done through a notification issued under the provisions of the Reserve Bank of India Act, 1934. The massive exercise was announced by PM Modi on television following the Cabinet’s decision to withdraw the notes.
OBJECTIVES
The purpose of demonetisation of currency notes is…
- to check the circulation of black money in the country.
- to help create a cashless economy.
- to remove counterfeit notes.
- to help curb anti-social and terror activities and their financing.
Picture Credit : Google