Demonetization is the stripping a currency unit of its status as legal tender. Demonetization becomes a necessary when there is a change of national currency. The old unit of currency has to The Southern Regional Conference on Management Education – A Global Perspective, Organized by PSG Institute of Management, Coimbatore – 06.01.2017 be retired and replaced with a new unit of currency. It include either introducing new notes or coins of the same denomination or completely replacing the old denomination with the new denomination which is often carried out as an ambush on the black money and market. The opposite of demonetization is called as remonetization in which a form of payment is restored as legal tender. Currency is a commonly accepted form of money, including coins and paper notes, which is issued by a government and circulated within the economy. As used a medium of exchange for goods and services, currency forms the basis for any trade.
2. HISTORY OF INDIAN CURRENCY
aper Money as a legal tender was first introduced in the late eighteenth century. The Victoria portrait series was initially issued in few denominations of 10, 20, 50, 100. Then the Victoria portrait was replaced by the following under print series in 1867. Rs.1000 and Rs.10,000 currency notes were circulated between 1938 and 1946. Notes in Ashoka Pillar watermark series in Rs 10 denomination were first issued between the year 1967 and 1992, Rs 20 in 1972 and in 1975, Rs 50 in 1975 and 1981 and Rs 100 was launched between 1967-1979. Mahatma Gandhi (MG) series banknotes were issued in 1996 in the denominations of Rs 5, (introduced in November 2001), Rs 10 (June 1996), Rs 20 (in August 2001), Rs 50 (March 1997), Rs 100 (in June 1996), Rs 500 (in October 1997) and Rs 1,000 (in November 2000). The Mahatma Gandhi Series – 2005 bank notes were issued in the denomination of Rs 10, Rs 20, Rs 50, Rs 100, Rs 500 and Rs 1,000 and carried some additional/extra security features as compared.
3. NEED AND IMPORTANCE OF DEMONETIZATION
The Indian government claims that the demonetization effort is to stop the counterfeiting of the current currency notes allegedly used for funding terrorism across the border by the neighbouring countries, and as an attack on the black money in the country. The move was claimed as an initiative to curb corruption, trafficking of drugs, and smuggling across borders. The supply of currency notes of all denominations has seen an increase by about 40% during the period between 2011 and 2016, the Rs. 500 and Rs. 1,000 denomination notes has increased by 76% and 109% respectively during this period due to forgery.
The Southern Regional Conference on Management Education – A Global Perspective, Organized by PSG Institute of Management, Coimbatore – 06.01.2017 currency notes of selected denominations has been taken (Governor of the Reserve Bank of India, Urjit Patel, and Economic Affairs secretary, Shaktikanta Das). Nations demonetize their local units of currency for various reasons. Some include combating inflation or corruption, and to discourage a dominative cash system. Chart 1 Rs 500 and Rs 1000 Notes: From 25% to 85% of Cash Economy in India The government’s aim was to wipe out the counterfeit currency, scrap tax evasion, abolish black money generated out of money laundering and terrorist funding activities, and to promote a cashless e-economy. By announcing the larger denomination notes to be useless, the individuals and various black money launderers with huge collection of black money generated from the parallel black cash systems were affected and made to convert the cash money through a banking system which requires tax information from the entity. In case, if the entity is not providing any proof of paying any tax on the cash, a 200% penalty of the tax owed was imposed. Besides combating black money, the purpose mentioned is also to curb fake currency (financing terrorism) and also corruption.
4. EFFECT OF DEMONETIZATION
After the announcement of demonetization, all banks and ATMs across the country were paralysed because of cash shortages. The cash shortages had many disadvantageous effects on every small business, agriculture, and also on transportation, with people wanting to exchange their old banned notes having lengthy waits in long queues, and several deaths were reported to be linked to the difficulty in exchanging cash. The shortage of cash due to demonetization .The Southern Regional Conference on Management Education – A Global Perspective, Organized by PSG Institute of Management, Coimbatore – 06.01.2017 process resulted in disorder and chaos, and mostly the people holding old currency notes faced difficulties in having them exchanged because of the endless queues outside banks and ATM machines across India. They also ran out of cash only after a few hours of being operational, and about half of the ATMs in the country were not functional. Several deaths were reported standing in queues for long hours at the banks and ATMs to exchange their old banknotes. Deaths were also accounted for the lack of medical facilities or preparations due to denial of old currency notes by the hospitals.
6. HISTORY OF DEMONETIZATION IN WORLD
Ghana carried out their demonetisation decision with 50 cedi currency notes for monitoring money laundering and to curb corruption. This change was not supported overwhelmingly, but has created chaos which ended in a move back to physical assets and foreign currency. In the same way Nigeria’s economy also collapsed after the demonetisation move in 1984 as it doesn’t have the way it was actually planned. The military President Muhammadu Buhari launched various coloured notes to invalidate their old currency notes to fight black money. But the debt-ridden economy and high inflation hit Nigerian economy collapsed. Nigerian Government gave just few days for exchanging the old notes, this move didn’t solve the purpose to fix the country’s debts and containing the rising inflation. In Myanmar, demonetization was carried out with larger denomination bank notes for many times in 1964, 1985, 1987, and 2015. In 2015, the argument for introducing a new 10,000 KYAT bill is fighting against Counterfeiting. In 1987, to curb the black market it has got around 80 percent of the currency in circulation invalid which resulted in students protest and a tough handed government crackdown which killed hundreds of the protestors. In 90s, in Zaire, currency note reforms resulted in inflation surges and exchange rate against the dollar had collapsed.
The Southern Regional Conference on Management Education – A Global Perspective, Organized by PSG Institute of Management, Coimbatore – 06.01.2017 In 2002 demonetization occurred when the euro was adapted by the member nations of the European Monetary Union to switch to the new currency euro, in which the authorities fixed various exchange rates for the national currencies of all its members into Euros. National currencies were demonetized before the Euro was introduced. However, the exchange of the old currencies to Euro continued to be convertible for a considerable period to enable a smooth transition after demonetization. Government of North Korea In 2010, under Kim Jong-II took two zeros off the face value of the country’s currency in an attempt to constrict a control over the economy and to bring an end to the black markets, but the country’s poor harvest led to a severe food shortage. Demonetisation results in a major economy breakdown leading to starvation of the people even for the basics of their life.
This study has the inherent limitations added to it by itself as it does not have adequate research being carried out on the phenomenon of demonetization. Hence there is no sufficient review of literature available for the inferences to be made through an exhaustive reference. All the data are already available but this article have them consolidated and organized them in a factual method and order for a clear understanding and study. Added to that time is also a major constraint. As this includes a huge amount of data handling due to its macro economical nature and the availability of the raw data from the valid sources are also crucial in this study.
After this exhaustive and logical analysis demonetization seems to be a different ball game while it is compared to the other economical reforms initiatives by the governments to restore or to replenish the economy from being ruined by the black money and tax evasion. Demonetization seems to be a bitter pill and through the various historical evidences it is clear that the management of the crisis after the demonetization plays a vital role in ensuring the success of it. Better preparedness in terms of a clear game plan and in terms of the policies and strategies of government machinery itself and half of the success is seemed to be achieved just through the right way of communicating the government’s intentions and the foreseen outcomes with its benefits to the country as a whole.
The success and the efficiency of implementing demonetization lies in the preparedness of the entire economy, the government machinery and the awareness amongst the general public and the entire political system being taken into confidence through an effective communication by all means and by the transparent approach of the government implementing Demonetization.