Demonetization.docx - Demonetization A tool to curb black...

Demonetization: A tool to curb black money, corruption and terrorism
Demonetization is defined as “ an act of stripping a currency unit of its statuses as legal
tender” (Mali, 2016). Through demonetization circulation of obsolete currency is barred by
introduction of new currency. Generally demonetization has been utilized as a tool to combat
issues associated with inflation by reinforcing or re-establishing the value of a subject
currency and, as a vehicle to assist progression of trade and access to markets. Further, in
most of the scenarios demonetization is carried out to translate illegitimate economic
proceedings into legal and more transparent activities and primarily to eliminate flow of
black money ensuing from underground businesses which also includes terrorist financing
activities. In addition, it is also used as a tool to combat corruption and promote cashless
transactions through digitization drive. Despite its objective and purpose, demonetization
impacts the economy of a country in a tremendous manner as the intervention directly affects
the medium of exchange that is being employed in all kinds of economic transactions.
Unsuccessful demonetization move can result in chronic societal turmoil and decline in
economy.
The history of demonetization dates back to 1990s and to underpin the failing economy
numerous countries have implemented the demonetization move. While some nations have
enjoyed the success of the demonetization move, few countries were overshadowed by the
chaos resulting from demonetization drive. To ensure uniformity in currency, in 1971, Britain
introduced coins of 5 and 10 pounds and this act of demonetization had only a minute impact
on the economy as the government gave adequate time to the people to exchange their
money. Similarly, during 1996, with the objective to check black money and widespread
counterfeiting, paper-based notes were replaced with polymer bank notes of the same
denomination in Australia. The move didn’t have any adverse effects but helped in turning
Australia into a business-centric country. In contrast, demonetization of 50 cedi has resulted
in nationwide chaotic situations and in 2010, North Korea implemented demonetization and it
ultimately led to immense economy downturn with the people left deprived of basic needs
(K, 2018).
Black money refers to any income generated from illegal or underground business and it
would also encompass the legitimate income which are hidden from the eyes of public
authorities basically to evade taxation (Solaiman, 2014). According to Swiss Bank statistics

of 2011, it was brought to the notice that a tremendous amount of black money is deposited
with them wherein India tops the list with approximately $1500 billion followed by Russia
with $470 billion (Ramdurg and Basavaraj, 2016).