Global Scenario of the Demonetisation and Journey of India So far.

Abstract:
This paper is an attempt to study the global scenario of the demonetization activities. As these concepts
is not new to the global community and has been followed across the world in order to control the black
money and induce fairness in the economy. The present demonetization step should be taken in the
positive sense and the people should co-operate despite of all the difficulties they are facing in the
current situation. This will enhance strength of the banking system and every one get the benefit of
growth of the economy. This is also proved that it will not affect the total money supply.
Keywords. Global community, Demonetization, corruption,
Introduction:
On 8th November 2016, every Indian was surprised with the move of government of India with the
announcement of the demonetization of the 500 and 1000 currency notes. A situation of unrest was
witnessed every where. The most worried persons were those who accumulated uncounted incomes.
They cannot convert those currencies in to new ones as the deposit as well as conversion limit per
person were restricted. For many the demonetization may be new phenomenon but this concept is not at
all a new one. It is effective tool in the hands of Government and the central bank through which they
can control the circulation of the black money and bring up the hidden money in the main sources. In
this paper attempt has been made to make a overlook of the various demonetization steps taken across
the globe and the progress of India in this regard.
Definition of demonetization:
Demonetization is the act of stripping a currency unit of its status as legal tender. It is the process of
ceasing to produce and circulate particular forms of currency. This is necessary whenever there is a
change of national currency. The old unit of currency is retired and replaced with a new currency unit.
Different processes of demonetization
1- Replacement of one form of currency with another.
2- Scenarios where older currencies & coins are declared to no longer be legal tender after a certain
date.
Deciding to monetize
Deciding to engage the process of demonetization is something that is not done lightly. Rarely does
demonetization take place without some amount of public outcry. Some of the reasons are

Fight against counterfeiting currencies

Stop funding for terror activities

Battling black money

Demonetization across the world- a brief analysis

European Union The creation of a single currency for the European Union over 1998-2000 was the largest
demonetization and currency issue exercise in history.
Adoption of Euro resulted in demonetization across the various nations of European Monetary Union.
Authorities first fixed exchange rates for the varied national currencies into euros. When the euro was
introduced, the old national currencies were demonetized.
Zimbabwe Chronic hyperinflation forced the government to print currency notes with a face value of one
hundred trillion dollars.
This rendered lesser denominations obsolete, which were taken out of circulation quickly.
Australia 1996, Australia became the first country to have a full series of circulating polymer bank notes after
replacing all paper-based notes, which the government systemically made non-tender for legal
purposes.
To stop widespread counterfeiting, the Reserve Bank of Australia had released the worlds first long
lasting and counterfeit-resistant polymer (plastic) banknotes.
Libya

Its central bank started withdrawing old currency in early 2012 in an attempt to restore liquidity
after it found that the vast majority of funds are being kept outside banks.

Iraq

Even when the Iraqi Swiss dinar ceased to be legal tender in Iraq, it still circulated in the
northern Kurdish regions.
Despite lacking government backing, it had a stable market value for more than a decade.

This example is often cited to demonstrate that the value of a currency is not derived purely from
its legal status (but this currency would not be legal tender).

United States of America

Paper money was issued by the Confederate States of America during the American Civil War.

It became worthless by its own terms after the war, since it could only be redeemed a stated
number of years after a peace treaty was signed between the Confederacy and the United States
(which never happened, as the Confederacy was defeated and dissolved).

Demonetization is currently prohibited in the United States and the Coinage Act of 1965 applies
to all US coins and currency regardless of age.

The closest historical equivalent in the US, other than Confederate money, was from 1933 to
1974, when the government banned most private ownership of gold bullion, including gold coins
held for non-numismatic

Now, however, even surviving pre-1933 gold coins are legal tender under the 1964 act.

History of demonetization in India

January 1946- Rs.1, 000 and Rs.10, 000 banknotes, which were in circulation were demonetized
primarily to curb unaccounted money.

1978- The higher denomination banknotes in Rs 1,000, Rs 5,000 and Rs 10,000 were
reintroduced in the year 1954 and these banknotes were again demonetized in January 1978.

Denominations of 1, 2, 3, 5, 10, 20 & 25 paise were in circulation till June 30, 2011 but were
then withdrawn. While the 50 paise coins are still in circulation. They are called small coins while
the other denominations are known as rupee coins.

So the last time demonetization was done in India is almost 36 years ago.

Demonetization Of 500 & 1000 Rupee Notes In India An Analysis

Currencies in circulation
India has one of the highest levels of currencies in circulation at over 12% of GDP and of this cash, 87% is
in the form of Rs500 and Rs1,000 notes. Globally, this is not unusual as the central banks of several
countries pump massive amounts of cash into the economy, mostly in very large denominations.
Stages that led to demonetization

Massive rollout of Pradhan Mantri Jan DhanYojana (PMJDY) which gave banking access to nearly the
entire population. The Income Disclosure Scheme (IDS) where a window of opportunity to declare their
wealth amassed through various means is given to the people.
Why ban Rs 500 and Rs 1000 (large value) notes?

The idea is certainly not unique or new. It has for the past five years been proposed by a number of
academic institutions, think-tanks and international bodies that look to crack down on tax evasion,
corruption and terrorism-financing.

Unaccounted money often used in any form of corruption or illicit deals usually takes the form of highvalue notes, which in this case are the Rs 500 and Rs 1,000 bills.

The Financial Action Task Force, a global body that looks at the criminal use of the international
financial system notes that high-value bills are used in money laundering schemes, racketeering, and
drug and people trafficking.

In India, the Rs 500 and Rs 1,000 notes also constitute a huge percentage of the money spent by
governments, political parties and candidates during general elections.

A Centre for Media Studies report showed that nearly Rs 30,000 crore was spent during the 2014
general election, while official spending only accounted for Rs 7,000-Rs 8,000 crore.

The most important fact, however, is that the share of large-value notes has only been increasing over
the years.

While some of this is no doubt due to the natural growth expansion of our economy, it also hints at the
increasing size of the black money economy.

In May, the European Central Bank had announced that it was phasing out the 500 Euro note from 2018
because of heightened concerns of money laundering and terror financing, especially after the terror
attacks in Paris.

In the same month, formerUS treasury secretary Larry Summers also recommended that the $100 bill be
demonetised.

Even within India, there have been some signs that this was in the offing. Two years ago, for instance,
the RBI announced that it was phasing out and decommissioning all currency notes issued before 2005.
Reasons for Demonetizing

The widespread use of cash in high denominations has led to an artificial increase in the cost of
goods and services which was reflected in the governments success in bringing out Rs 1.25 lakh
crore of unaccounted money.

A structural transformation agenda which the drive against black money can bring about a
modification in the medium term and the political gains.

Progressive shift to a cashless economy with a greater focus on electronic transactions is being
envisaged.

The removal of large bills will make several criminal and illegal activities more costly such as
tax evasion, human trafficking, drugs, extortion and terrorism.

Scaling back large bills will not end crime, but it will force the underground economy to employ
riskier and less liquid payment methods.

Long Term Impact

In the long run, this is a significant positive shock to the Indian economy and society.
If substantially implemented, this will send a strong signal about Indias anti-corruption drive and is
very likely to improve the countrys reformist stance.
It also provides a boost to the governments financial inclusion drive, pushing more households
towards efficient banking and payment infrastructure.
Tax revenues will increase.
Bank deposits will increase and they will have more capacity to support the economy. It will boost
growth as it will expand and clean the formal gross domestic product.
Conclusions:
Despite having many positives such as rising tax to GDP, higher GDP growth, lower inflation, higher
financial savings, this demonetization move may not curb the root cause of black money.
This initiative addresses the stock of black money but not necessarily the flow/fresh creation of black
money unless some mechanism is built to track the movement of the new high-value currency notes.
However, such a sudden and drastic step by the government might dissuade some, if not all sections of
the society from creating new black money reserves.