A

Dissertation Report

On

“A STUDY OF DEMONETIZATION’’

Submitted By

Nilesh Nathulalji Joshi

Submitted To

Savitribai Phule Pune University

In the partial fulfillment of the requirement for the award of

Masters in Business Administration (MBA)

Through

MM’S

Institute of Management Education Research and Training (IMERT)

BATCH 2016-18
 DECLARATION

I Nilesh Nathulalji Joshi , of MBA-II, hereby declare that the Dissertation work titled
“A study of Demonetization” which has been submitted to University of Pune, is an original
work of the undersigned and has not been reproduced from any other source.

Date: Signature:

Place: Nilesh Nathulalji Joshi

 ACKNOWLEDGEMENT

Words put on paper are mere ink marks, but when they have purpose there exists a
thought behind them. I too have a purpose to express my gratitude towards those individuals

without whose guidance the dissertation would have not been possible.

I have pleasure in successful completion of this dissertation work titled: “A Study Of

Demonetization’’ I am especially thankful to my Guide Prof. Sandeep Hegade for Valuable

guidance and cooperation during this internship and in fact his navigational assistance life would

have been very difficult as far as structuring the dissertation is concerned.

I express my gratitude towards Prof. Mr. Dr.Shriram Nerlekar(Director of IMERT),

for giving me the opportunity to undertake my dissertation work

I am also thankful to my parents and friends. I would be always grateful to all of them

for their help and support.

Date: Nilesh Nathulalji Joshi

Place: (MBA II)

 INDEX

CHAPTER NO. CONTENT PAGE NO.

Executive Summary

1 Introduction 1

2 Literature Review 3

3 Objectives & Scope of Study 4

4 Research Methodology 11

6 Data Analysis & Interpretation 13

7 Findings 40

8 Conclusion 41

9 Bibliography 43
 EXECUTIVE SUMMARY

The following project is about A Study of Demonetization with reference to selected

Countries. It is an attempt to learn about the process of demonetization happening in different
countries. The basic idea behind selection of this topic is mainly due to its nature and importance
overall impact of demonetization on various countries. This move was targeted towards tackling
black money, corruption and terrorism in countries.

Demonetization is a process of removing currency from general usage, or circulation or it

is a withdrawal of particular form of currency. It is often the case when it is determined that the
currency is not longer in regular use within the country of origin.

Demonetization is a process of restoring legal tenders.

Demonetization is done by the government, which is called an act of stripping currency

unit of its status as legal tender and the old currency is replaced with a new currency unit. The
objectives behind the demonetization policy are as follows; first, it is an attempt to make country
corruption free. Second it is done to curb black money, third to control escalating price rise,
fourth to stop funds flow to illegal activity, finally it is an attempt to make a cashless society.

In Data Analysis different countries are taken to explain about demonetization such as:

Pakistan

Zimbabwe

Australia

India

All the above mentioned countries and different types of steps taken by them as well as
the status of those countries have been mentioned in the project.
 The research methodology includes the method through which the data has been collected
for the project. In my project I have collected secondary data which I got from Magazines,
Internet, Research papers, Government publications, Books, etc.

The data analysis is a part of my project includes comparative analysis of five different
countries. All the data analyzed in this project is as per the information available from secondary
data.

The findings for the countries are following in case of Pakistan the demonetization got
messed up because of non-satisfactory response of people and could not curb black money
neither counterfeit notes, In case of Zimbabwe, it failed in process because of chronic inflation in
their economy and in case of Australia, this country succeeded. They did not change anything
accept they just replaced notes with polymer bank notes and had no side effects on economy.In
case of India, According to recently released RBI report, 98.86% of the high-denomination notes
that were demonetized have been deposited into the banks. Before demonetization, the official
estimate was that around 20% of the notes (which is black money) will not return. To put this
into perspective, in the demonetization currency respectively did not return to the system.

The findings are based on available data and analysis.

 INTRODUCTION

OF

DEMONETIZATION
MEANING OF DEMONETIZATION

Demonetization is the act of stripping a currency unit of its status as legal tender. It
occurs whenever there is a change of national currency: The current form or forms of money is
pulled from circulation and retired, often to be replaced with new notes or coins. Sometimes, a
country completely replaces the old currency with new currency.

Definition: -“Demonetization of currency means discontinuity of the particular currency

from circulation and replacing it with a new currency.”
(Ref: - Investopedia)

Definition: -“Demonetization is the withdrawal of a particular form of currency from

circulation.”

(Ref: - Business Dictionary)

Through demonetization the old currency is replaced by the new currency or a currency
circulation is blocked. There are multiple reasons why a country demonetizes its currency; some
reasons include to check the inflation, to curb the corruption and to promote the cashless
transactions.

Currency, known as money, is used for exchanging of goods and services and it is basis
for trade in the country too. Currency is circulated within economy of a country by the
government. However, some times, demonetization is done by the government, which is called
an act of stripping currency unit of its status as legal tender and the old currency is replaced with
a new currency unit. Demonetization of such notes was primarily inter alia done against
counterfeiting currencies, black money and to stop funding terror activities.

1
 Demonetization simply means that that signature and promise is no longer valid which
means that the note loses its value is a mode of transaction and has its value regained only when
submitted to the bank. While the currency is no longer minted or printed, any of the discontinued
currency that is presented is still accepted as legal tender. Demonetizing a currency is to devalue
the physical money. This move is a drastic move and takes no time to implement it but the actual
time to change the currency or replacing it with the freshly made note takes time. This also
affects the government economically as to mint fresh notes it cost a nominal amount.

Deciding to engage the process of demonetization is something that is not done lightly.
There is usually a solid reason behind the change in currency, and countries normally go through
a learning curve as the citizens begin to get used to the phasing out of one form of currency and
the concurrent introduction of a new form of currency.

Rarely does demonetization take place without some amount of public outcry. However,
in most cases, the indignation of the general public is short lived and soon everyone begins to
accept the changes and gradually discontinue use of the older currency. This is particularly true
when the government only allows a specific window of time to redeem the discontinued currency
for other types of legal tender.

The opposite of demonetization is demonetization, in which a form of payment is

restored as legal tender.

There are reasons why nations demonetize their local units of currency:

 To combat inflation
 To combat corruption and crime (counterfeiting, tax evasion)
 To discourage a cash-dependent economy
 To facilitate trade
 To eliminate black money

2
Demonetization is also helpful for following reasons.

The most common is the replacement of one form of currency with another. For example,
some countries have chosen to replace their smaller banknotes with coins of the same value.
Even though the banknotes are no longer printed, merchants can still accept them as legal
currency and deposit the worth of the banknote into a bank account. Over time, the banknotes are
exchanged for the newer coins and the demonetization process is considered complete.

Another reason for withdrawing currency is to completely revamp the value and type of
currencies used within the country. This is often due to matters involving the rate of exchange of
currency with other countries. At other times, this wholesale change has been due to a desire to
streamline the currency in order to make the use of the money easier for all concerned. In both
scenarios, the older coins and notes usually are declared to no longer be legal tender after a
certain date. However, the older money can be redeemed for an equivalent amount of the newer
forms of currency.

3
Process of Money Creation and Circulation in Economy-

Money creation is the process by which the money supply of a country or a monetary
region is increased. A central bank may introduce new money into the economy by purchasing
financial assets or lending money to financial institutions. However, in most countries today,
most of the money supply is in the form of bank deposits, which is created by private banks in a
fractional reserve banking system. Bank lending increases the amount of broad money beyond
the amount of base money originally created by the central bank. Reserve requirements, capital
adequacy ratios, and other policies of the central bank influence this process.

Central banks monitor the amount of money in the economy by measuring monetary
aggregates such as M2. The effect of monetary policy on the money supply is indicated by
comparing these measurements on various dates.

The process of the continuous movement of money as a medium of circulation and

payment, this process takes place within the framework of the monetary system of every country.
The circulation process breaks through the individual and local boundaries of the direct exchange
of products.

In monetary economics, circulation is the continuing use of individual units of a currency

for transactions. Thus currency in circulation is the total value of currency (coins and paper
currency) that has ever been issued minus the amount that has been removed from the economy
by the central bank. More broadly, money in circulation is the total money supply of a country,
which can be defined in various ways always including currency and also including some types
of bank deposits.

Standard money is the basic currency circulating within a monetary system. It has legal
recognition for prices and settlement. According to Karl Marx circulation is a process which is
established by capital and formed from wealth.

4
 On the basis of simple money circulation, the circulation of money as capital is
developed according to the formula M—C—M. Under capitalism, money circulation promotes
not only the process of the exchange of ordinary goods but also the exchange of a special
commodity—labor power—for consumer goods as a condition for its extended reproduction.
This sphere of money circulation is in fact the one that imparts a specifically capitalist character
to the process of money circulation.

The amount of money in circulation varies according to a number of factors. For

example, there is more demand at Christmas time when commercial activity is high. Notes and
coins stored in warehouses are ordered by banks and sent to them so they may increase supply.

5
Process of withdrawalof Money from Economy-

Demonetization meanswithdrawalof Money from Economy.If a currency is being

removed because new currency note are coming out, then in most instances, an overlap of
circulation will exist. Both sets of currency notes will be in circulation for a couple of years with
the banks doing the back end sorting of removing from circulation the old notes.

The central bank would have put out a public awareness campaign that the old notes will
go out of circulation soon and cease being legal tender after a particular date. When this happens,
people genuinely start refusing to take old currency notes and opt for the new ones.

A majority of the old notes are taken out of circulation by simply announcing the
campaign and the recirculation that happens with money going to banks. The few that are left
will cease to be legal tender after a certain date, which forces people to come in before the
deadline and exchange the old notes for new.

Once the date has pass, those old currency notes are now just worthless. They are not
legal tender anymore.

The old notes would have their serial numbers notes, and the notes are physically
destroyed so that the note cannot be used for forgery, etc.

The other scenario is when the government decides to simply remove the notes from
circulation, but still keep them as legal tender, in which case, as cited, whenever money currency
notes are deposited in banks, there is a physical sorting done, that separates the old notes and the
bank will send these notes to the central bank in exchange for new notes. Over many months,
eventually, all notes are removed from circulation and the few that are left, are either lost,
damaged, or people start to hold on to them for value / collection purposes. Most become too
used and abused to be in circulation any longer, and here in their serial numbers, and series are
denoted and these notes are destroyed and equal new notes are created.

6
 REVIEW
OF
LITERATURE
Review of Literature:

Vedashree Mali researcher analyzed Demonetization a step towards modified India. In this
paper, discusses about the move of demonetization taken by Central Government of India with
respect to its reasons and effects on different sectors in India. Demonetization created effect on
different sectors in different manners resulting into boom for some sectors like E-Wallet
businesses and somewhere resulting into temporary slowdown like micro businesses like
vegetable vendors or some small seasonal businesses, where most of the transactions are on cash
basis. Selected sectors have been covered for the study which, according to me, can have major
effects of demonetization.

The study concludes that Demonetization though it has created some positive and some
negative impacts on different sectors but in long run it definitely will have positive impact in
controlling black money and fake money.

International Journal of Commerce and Management Research

Demonetization: A step towards modified India
Vedashree Mali
Prof., Assistant Professor, MIT School of Business, Pune, Maharashtra, India

Prof Sandeep Kaur researcher analyzed the Demonetization and Its Impacts in India. Need
of Demonetization and its impacts of demonetization on India economy and system is analyzed
by the researcher. According to the study, the impacts behind the Demonetization are Black
Money and Corruption, Elections, Gold/Silver and Jewellery, Digital payments, Fake Currency,
Decrease in Interest Rates, Lower Inflation.

The study concludes that demonetization could be negative for sectors like Consumer
Durables, Luxury items, Gems and Jewellery, Real Estate and allied sectors, in the near to
medium term. This move can lead to improved tax compliance, better fiscal balance, lower
inflation, lower corruption, complete elimination of fake currency and another stepping stone for
sustained economic growth in the longer term.

International Journal of Research presents

Demonetization and Its Impacts in India
Prof Sandeep Kaur
(Assistant professor in commerce department) SGGS Khalsa College, Mahilpur.

7
 K. Veerakumar researcher analyzed A Study on People Impact on Demonetization. In this
paper, an attempt has been made to find impact of demonetization on the public. There are both
pros and cons of demonetization in the Indian economy. The reasons for demonetization are to
control counterfeit notes that could be contributing to terrorism, and to undermine or eliminate
the “black economy”.

The study concludes that demonetization of the highest denomination note undertaken by
the government is a big shock to the Indian. The demonetization is taken for several measures
such as tax evasion, counterfeit currency and funding of illegal activities. Some people are
depositing currency notes in excess of specified limits directly into bank accounts has showed
the unaccounted income, subject to higher tax and other penalties. Alternative payment methods,
such as e-wallets, online transactions using e-banking, debit and credit card usage have been
increased and this will shift an efficient cashless infrastructure.

International Journal of Interdisciplinary Research in Arts and Humanities (IJIRAH)

A Study on People Impact on Demonetization
K. Veerakumar
Assistant Professor in Commerce - BPS, NGM College (Autonomous), Coimbatore, Tamilnadu

Dr. Ambalika Sinha and Divya Rai researcher analyzed Aftermath of Demonetization on
Rural Population.In this paper, discusses about reviewing the general implications of
demonetization on rural people. Declaration of 86 percent of currency notes as illegal tender in
just a blink of time on eve of 8thNovember 2016 mandated the creation of immediate
interruption in daily lives. This move is targeted for flushing the stocks of “black money “out of
our economy and getting them legitimate, banked and taxable so that it becomes a part of our
economy. However on macroeconomic level large number of population is considering this
move as unfair due to the problems faced by them.

The study concludes that without adequate and proper planning; the demonetization-
driven cash crunch has rendered Indian economy paralyzed for short duration as the informal
sector which comprises of 40 percent share in GDP has become unviable. However the effects of
change are emergent from the system itself and cannot be determined beforehand. Hence we can
only speculate future macroeconomic effects of demonetization.

International Journal of Research in Economics and Social Sciences (IJRESS)

Aftermath of Demonetization on Rural Population
Dr. Ambalika Sinha and Divya Rai
Motilal Nehru National Institute of Technology, Allahabad

8
OBJECTIVES

&

SCOPE
Objectives of the study:

 To understand the concept of Demonetization.

 To evaluating the performance of the selected countries with reference to

Demonetization.

 To study the effect of Demonetization on India.

10
Scope of the study:

This project will be a learning device of Demonetization processes no selected Countries.

The scope of the study is related to performance of selected countries in demonetization process.
Demonetization simply means that that signature and promise is no longer valid which means
that the note loses its value is a mode of transaction and has its value regained only when
submitted to the bank.

The basic idea behind selection of this topic is mainly due to its nature and importance
overall impact of demonetization on various countries. This move was targeted towards tackling
black money, corruption, checking the inflation, cashless transactions and terrorism in countries.
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. There is usually a solid
reason behind the change in currency, and countries normally go through a learning curve as the
citizens begin to get used to the phasing out of one form of currency and the concurrent
introduction of a new form of currency.

The demonetization policy helps Countries to; first, it is an attempt to make country
corruption free. Second it is done to curb black money, third to control escalating price rise,
fourth to stop funds flow to illegal activity, finally it is an attempt to make a cashless society.

This study has wider scope to cover Demonetization processes and impact of
demonetization processes on various countries.

11
 RESEARCH

METHODOLOGY
 Research Methodology

The data required for the project report was collected through secondary data.

Secondary Data:

Secondary data consists of information that already exists somewhere, having been
collected for another purpose. Researcher has collected secondary data from the websites of
different operators and library. Secondary data inthis study has provided him an insight and
helped him to form an outline for the core objectives established. It also helps him to get
elaborate information to do my research.

 Books
 Magazines
 Websites
 Research papers
 Government publications

13
DATA ANALYSIS

&

INTERPRETATION
Following are those countries which implemented demonetization:

Pakistan

 Pakistan officially the Islamic Republic of Pakistan, is a federalparliamentary republic in

South Asia on crossroads of Central Asia and Western Asia. It is the sixth-most populous
country with a population exceeding 200 million people.

 The Pakistani economy is the 24th largest in the world in terms of purchasing power and
the 41st largest in terms of nominal GDP (World Bank). It is characterized among the
emerging and growth-leading economies of the world, and is backed by one of the
world's largest and fastest growing middle classes. The country continues to face
challenging problems, including illiteracy, healthcare and corruption, although it has
significantly reduced poverty, substantially reduced terrorism and has expanded her per
capita income. The structure of the Pakistani economy has changed from a mainly
agricultural to a strong service base.

 Pakistan has one of the lowest literacy rates in the world and according to the United
Nations Educational, Scientific and Cultural Organization (UNESCO), it is 55 per cent
and Pakistan stands at 160th in total countries of the world.

 Economy of Pakistan is open for trade, it is moderately important to Pakistan economy.

Value of export and import taken together equals 28% of GDP. The average applied tariff
rate is 8.9%. The judicial and regulatory systems can deter foreign investment and state
owned enterprises distort the economy. In Pakistan the number of credit cards issued so
far, the number is too small but the growth in number of credit cards during the last
couple of years, it is phenomenal. Along with this, the number of ATM cards and debit
cards has also increased tremendously.

14
Demonetization of Pakistan

Step Taken: – June 2015

The Government of Pakistan has announced the demonetization of Rs.5 and Rs.500 in
June 2015 with immediate effect and phase out of all other denominations. The people
of Pakistan had one-and-half year time to exchange these notes, after which (December
1, 2016) the notes will be declared null and void.

Status: – Messed Up. Can’t curb black money neither counterfeit notes.

15
Interpretation

 In a highly informal economy like Pakistan demonetization will have a huge affect
because of the fact that when the large denomination of the currency notes are extracted
from the informal economy, then the transactions are going to get reduced and the
businesses are going to suffer ultimately. Case of Pakistan is quite different from that of
India when we talk about the level of formal and informal economic activities in both the
countries.

 Another point which arisen in Pakistan when the demonetization was in process is that it
would better to promote banking reforms in direction of digitalization so that dependence
on currency is reduced. This step will also increased the level of documentation in
economy and further will contribute in increasing the tax to GDP ratio of Pakistan which
was very low at that point of time.

 Basis motive of government of Pakistan was to curb black money and counterfeit notes
but the time allotted by them to gather back the demonetized currency notes with the state
bank of Pakistan was one and half years. This time period was too much and was the
basic reason which can obstruct the purpose of demonetization in Pakistan. In this long
duration of time the black money holders can use different ways to transfer it and hide it
from authorities.

16
Demonetization implemented in Zimbabwe

Zimbabwe

 Zimbabwe officially the Republic of Zimbabwe, is a landlocked country located in

southern Africa, between the Zambezi and Limpopo Rivers. The capital and largest city
is Harare. A country of roughly 13 million populations. Zimbabwe is leading the literacy
rate in Africa, coming in at 91% in the latest survey. This, despite a decade long
economic crisis that has impacted negatively on the quality of education.

 The Economy of Zimbabwe is meanly base on Mineral exports, gold, agriculture, and
tourism. The mining sector remains very lucrative, with some of the world's largest
platinum reserves being mined by Anglo American plc and Impala Platinum. Tourism
was an important industry for the country, but has been failing in recent years. Zimbabwe
maintained positive economic growth throughout the 1980s (5% GDP growth per year)
and 1990s (4.3% GDP growth per year). The economy declined from 2000: 5% decline in
2000, 8% in 2001, 12% in 2002 and 18% in 2003. From 1999-2009, Zimbabwe saw the
lowest ever economic growth with an annual GDP decrease of 6.1%.

 Inflation rose from an annual rate of 32% in 1998, to an official estimated high of
11,200,000% in August 2008 according to the country's Central Statistical Office. This
represented a state of hyperinflation, and the central bank introduced a new 100 billion
dollar note. In 2016 Zimbabwe allowed trade in the United States dollar and various other
currencies such as the rand (South Africa), the pula (Botswana), the euro, and the Pound
Sterling (UK). GDP grew by 8-9% a year between 2009 and 2012.

 Zimbabwe's central bank has embarked on a program to promote the use of credit and
bank debit cards in the rural areas to ease the country's cash shortages that have rocked
the southern Africa nation for more than a year. The use of plastic money has increased
by 152% since the Reserve Bank of Zimbabwe (RBZ) announced measures to encourage
the use of credit and debit card as a means of reducing pressure on physical cash
transactions amid a biting bank note shortage in the country.

17
Demonetization of Zimbabwe

Step Taken: – 2010

Due to chronic inflation in Zimbabwe, the government started printing notes with a face
value of 1 hundred trillion Zimbabwean Dollars’ worth just 40 cents. The Zimbabwean
economy went for a toss when President Robert Mugabe issued edicts to ban inflation
through laughable value notes.

 In 2015, the Zimbabwean government demonetized the Zimbabwean dollar as a

way to combat the country’s hyperinflation that was recorded at 231,000,000%.

 The 3-month process involved expunging the Zimbabwean dollar from the
country’s financial system and solidifying the US dollar, Botswana pula, and
South African rand as the country’s legal tender in a bid to stabilize the economy.

Status: – Failed. The country replaced their currency with US Dollars later.

18
Interpretation

 Hyperinflation in Zimbabwe was a period of currency instability that began in the late
1990s shortly after the confiscation of private farms from landowners, towards the end of
Zimbabwean involvement in the Second Congo War. During the height of inflation from
2008 to 2009, it was difficult to measure Zimbabwe's hyperinflation because the
government of Zimbabwe stopped filing official inflation statistics. However,
Zimbabwe's peak month of inflation is estimated at 79.6 billion percent in mid-November
2008. In 2009, Zimbabwe stopped printing its currency, with currencies from other
countries being used. In mid-2015, Zimbabwe announced plans to have completely
switched to the United States dollar by the end of 2015.

 Hyperinflation in Zimbabwe and in an attempt to stabilize its economy, Zimbabwe

decided to replace the Zimbabwe dollar with the American dollar in 2015. The process
was carried out hurriedly and this speed hurt wealth-holders. Many of the wealth holders
saw their accumulated savings turn valueless due to the move.

 A monetarist view is that a general increase in the prices of things is less a commentary
on the worth of those things than on the worth of the money. This has objective and
subjective components:

 Objectively, that the money has no firm basis to give it a value.

 Subjectively, that the people holding the money lack confidence in its ability to
retain its value.

 Crucial to both components is discipline over the creation of additional money. However,
the Mugabe government was printing money to finance involvement in the Democratic
Republic of the Congo and, in 2000, in the Second Congo War, including higher salaries
for army and government officials. Zimbabwe was under-reporting its war spending to
the International Monetary Fund by perhaps $23 million a month.

19
 Another motive for excessive money creation has been self-dealing. Transparency
International ranks Zimbabwe's government 157th of 177 in terms of institutionalized
corruption. The resulting lack of confidence in government undermines confidence in the
future and faith in the currency.

 Economic mis-steps by government can create shortages and occupy people with
workarounds rather than productivity. Though this harms the economy, it does not
necessarily undermine the value of the currency, but may harm confidence in the future.
Widespread poverty and violence, including government violence to stifle political
opposition, also undermines confidence in the future. Land reform lowered agricultural
output, especially in tobacco, which accounted for one-third of Zimbabwe's foreign-
exchange earnings. Manufacturing and mining also declined.

 Government instability and civic unrest were evident in other areas. Zimbabwean troops,
trained by North Korean soldiers, conducted a massacre in the 1980s in the southern
provinces of Matabeleland and Midlands, though Mugabe's government cites guerrilla
attacks on civilian and state targets. Conflicts between the Ndebele ethnic minority and
Mugabe's majority have led to many clashes, and there is also unrest between blacks and
whites, in which the land reform was a factor. An aspect of this reform that seeks to bar
whites from business ownership induced many to leave the country.

 Even though the move brought a small amount of monetary stability, it led to resentment
among most people, who claimed that the compensation against the loss of their earlier
holdings of Zimbabwean dollars was too low.

 The decision to shift to the American dollar had another unintended effect: depressing
economic growth, as Zimbabwean exports got decreased due to a loss of competitiveness
with the countries.

20
Demonetization implemented in Australia

Australia

 Australia officially the Commonwealth of Australia, is a country comprising

the mainland of the Australian continent, the island of Tasmania and numerous
smaller islands. It is the world's sixth-largest country by total area. Australia
has the world's 13th-largest economy and ninth-highest per capita income
(IMF).With the second-highest human development index globally, the country
ranks highly in quality of life, health, education, economic freedom, and civil
liberties and political rights.

 Australia has a well-developed education and training system with high

participation rates, secondary school completion and efforts to ensure that the
sector responds to changing social and economic needs. The 2006 Adult
Literacy and Life Skills survey found almost half of Australia´s adult
population has low levels of prose and document literacy and 7.9 million It has
been estimated by the Australian Productivity Commission that improved
literacy and numeracy could increase total labor productivity by 1.2%.

 Australia is a wealthy country; it generates its income from various sources

including mining-related exports, telecommunications, banking and
manufacturing. It has a market economy, a relatively high GDP per capita, and
a relatively low rate of poverty. In terms of average wealth, Australia ranked
second in the world after Switzerland in 2013, although the nation's poverty
rate increased from 10.2% to 11.8%, from 2000/01 to 2013.

 The Australian dollar is the currency for the nation. Australia is ranked third in
the Index of Economic Freedom (2010). Australia is the world's twelfth largest
economy and has the fifth highest per capita GDP (nominal) at $66,984.
Australia’s national currency is the Australian dollar which comes in
denominations of $5, $10, $20, $50 and $100 notes. Coins come in 5, 10, 20
and 50 cent and one and two dollar denominations.

21
Demonetization of Australia

Step Taken: – 1996

In 1996, Australia decided to replace its paper-based notes with polymer bank notes.

 This move changed all the currency in the country to a new type of banknote that
was made of a different more durable material.
 The first plastic currency in the country was released in 1992 and by 1996, all the
banknotes being produced were polymer-based.
 The notes released by Reserve Bank of Australia were the world’s first long-lasting
banknotes. Also, the polymer base made them counterfeit-resistant.
 Since the purpose was to replace paper with plastic and only the material changed, it
did not had any side-effects on the economy.

Status: – Success. This improved the life of the bills and helped in making Australia a business
friendly country, despite the initial costs incurred to manufacture polymer-based

22
Interpretation

 Purpose of Australian demonetization was to curb counterfeit notes and reduce the loss to
central bank due to damage to the currency notes. Utilization of more durable material
was used to serve this purpose.

 First motive which was about getting rid of counterfeit notes was catered by introducing
first long-lasting polymer for the new banknotes. This new material was less damage
prone and reduced loss of central bank of Australia. Using this material high level of
monetary losses is avoided.

 Use of Polymer for the bank notes eventually made difficult the process of counterfeiting

the notes. Counterfeit notes get reduced from a very large extent and fake currency was

shown an exit by demonetization in Australia.

23
Demonetization implemented India

India

 India’s 11.8 percent of economy deals in cash. India’s cash-to-GDP ratio is more or less

parallel to many big economies. Germany’s cash-to-GDP ratio comes in at 8.7 per cent

while the same ratio in France is at 9.4 per cent. Japan has 20.7 per cent cash economy.

 The first instance was in 1946 and the second in 1978 when an ordinance was

promulgated to phase out notes with denomination of Rs 1,000, Rs 5,000 and Rs 10,000.

The highest denomination note ever printed by the Reserve Bank of India was the Rs

10,000 note in 1938 and again in 1954. But these notes were demonetized in January

1946 and again in January 1978, according to RBI data.

 The Rs 50 and Rs 100 banknotes were issued in August 2005, followed by Rs 500 and Rs

1,000 denominations in October 2005 and Rs 10 and Rs 20 in April 2006 and August

2006, respectively. the early ’70s, the Wanchoo committee, a direct tax inquiry

committee set up by the government, suggested demonetization as a measure to unearth

and counter the spread of black money in the economy Then, in 1977, the Janata Party

coalition government came into power. A year into the government’s term, party leader

Morarji Desai was more bullish about cracking down on counterfeits and black money,

instated by the ruling party on Jan. 16, 1978, deemed the Rs1,000, Rs5,000 and Rs10,000

notes illegal for the second time.

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Demonetization of India

Step Taken: 1946

 Rs 1,000 and higher denomination notes were first demonetized in January 1946 and

again in 1978.

 The highest denomination note ever printed by the Reserve Bank of India was the Rs

10,000 note in 1938 and again in 1954.

 But these notes were demonetized in January 1946 and again in January 1978, according

to RBI data.

 Rs 1,000 and Rs 10,000 bank notes were in circulation prior to January 1946.

 Rs 500 note came into circulation in October 1987.

 Bank notes in Ashoka Pillar watermark series in Rs 10 denomination were issued

between 1967 and 1992, Rs 20 in 1972 and 1975, Rs 50 in 1975 and 1981 and Rs 100

between 1967-1979.

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Interpretation

 While Prime Minister Modi might have taken India by surprise, the move to demonetize
high denomination notes in not unprecedented in Indian history. In January 1978, the

Indian government had demonetized that Rs 1,000, Rs 5,000 and Rs 10,000 notes in a bid

to counter black money in the economy. Under the law all “high denomination bank

notes” ceased to be legal tender after January 16, 1978. There was a prohibition of

transfer and receipt of high denomination bank notes. Plus, all banks and government

treasuries had to send to the Reserve Bank the total value of high denomination bank

notes held by it at the close of business on the January 16.

 12.People who possessed these notes were given till January 24 the same year — a

week’s time — to exchange any high denomination bank notes. The one big difference

with the announcement Tuesday is that Rs 1,000 and higher value notes were almost

impossible to possess then for the common man given the value of these amounts then.

 8 years ago, in the year 1978, right after emergency was lifted from India, Janta Party

government led by another politician from Gujarat Prime Minister Morarji Desai, had

decided to demonetize Rs 1,000, Rs 5,000 and Rs 10,000 notes in a bid to combat

corruption and blackmoney. During that time too, people were as surprised by the

decision as they are now with PM Modi's move. Prime Minister Narendra Modi on

Tuesday announced the scrapping of high denomination currency, with an aim to curb

black money. Usually, high value notes are the basis of any form of corruption and illicit

deals related to unaccounted money. According to a TOI report, the difference between

that time and now is that in 1978, a Rs 1000 note could buy 5 sq ft of real estate space in

26
 south Bombay, but at this moment a Rs 500 note cannot even buy even a hundredth of a

square foot in that area.

Background and History of Demonetization of Indian Currencies:

 The sudden move to demonetize Rs 500 and Rs 1,000 currency notes is not new. Rs

1,000 and higher denomination notes were first demonetized in January 1946 and again

in 1978. The highest denomination note ever printed by the Reserve Bank of India was

the Rs 10,000 note in 1938 and again in 1954. But these notes were demonetized in

January 1946 and again in January 1978, according to RBI data. Rs 1,000 and Rs 10,000

bank notes were in circulation prior to January 1946. Higher denomination banknotes of

Rs 1,000, Rs 5,000 and Rs 10,000 were reintroduced in 1954 and all of them were

demonetized in January 1978. The Rs 1,000 note made a comeback in November 2000.

Rs 500 note came into circulation in October 1987. The move was then justified as

attempt to contain the volume of banknotes in circulation due to inflation.

 A 10000 rupee notes from 1937

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 A 500 rupee from 1987

 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 India’s anti-corruption

drive and is very likely to improve the country’s reformist stance. It also provides a boost

to the government’s financial inclusion drive, pushing more households towards efficient

banking and payment infrastructure. In the immediate run, we are likely to witness larger

bank deposits, price corrections and better tax collection possibilities in the economy—all

great for Indian bonds. This is not the first government to demonetize large currency

bills. The European Central Bank has announced that it will phase out the €500 mega-

note, much against the preferences of cash-loving Germans. The benefits of phasing out

large paper currency are significant to an economy and even more to a society such as

India where corruption has become an acceptable way of life. Modi has tightened the seat

belts and honest Indians are optimistic about the joyride

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29
 Brief Introduction of Recent Demonetization

 On the evening of 8th November 2016, Indian Prime Minister Mr. Narendra Modi
announced a sudden denomination of ₹500 and ₹1000 rupee notes.
 Instead of RBI Governor Urjit Patel, surprisingly Prime Minister announced the news
of demonetization that these banknotes would not be legal tender after midnight of
the 8th November. Means the high value notes will not be legal for transaction.
 Although the old notes can be exchanged till 31st December 2016. There were set an
upper limit of cash withdrawals from bank is ₹10,000 per day (up to ₹20,000 per
week) per account and from ATM ₹2000 per day per account from 10 to 13
November which is changed from 14 Nov. to ₹24,000 per week from bank and
₹2,500 per day from ATM per account till 31st Dec., although a needy person can
withdraw with valid reason.
 According to RBI report on 31st march 2016, ₹500 and ₹1000 banknotes consist
around 86% of total cash circulation having value of ₹15.44 lakh crore. In this

30
 process 97% of old notes around ₹14.97 lakh core were deposited in bank before 31st
December.

Effect of Recent Demonetization on Indian Economy

1. Effects on Parallel Economy

 The removal of these 500 and 1000 notes and replacement of the same with new 500 and
2000 Rupee Notes is expected to – remove black money from the economy as they will
be blocked since the owners will not be in a position to deposit the same in the banks.
 Temporarily stall the circulation of large volume of counterfeit currency.
 It would curb the funding for anti-social elements like smuggling, terrorism, espionage,
etc.

2. Effects on Money Supply

 With the older 500 and 1000 Rupees notes being scrapped, until the new 500 and 2000
Rupees notes get widely circulated in the market, money supply is expected to reduce in
the short run.
 To the extent that black money (which is not counterfeit) does not re-enter the system,
reserve money and hence money supply will decrease permanently.
 However gradually as the new notes get circulated in the market and the mismatch gets
corrected, money supply will pick up.

3. Effects on Demand

 The overall demand is expected to be affected to an extent. The demand in following

areas is to be impacted particularly:
 Consumer goods
 Real Estate and Property
 Gold and luxury goods
 Automobiles (only to a certain limit)
 All these mentioned sectors are expected to face certain moderation in demand from the
consumer side, owing to the significant amount of cash transactions involved in these
sectors.

4. Effect on Prices

 Price level is expected to be lowered due to moderation from demand side. This demand
driven fall in prices could be understood as follows:

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  Consumer Goods: Prices are expected to fall only marginally due to moderation in
demand as use of cards and cheques would compensate for some purchases.

 Real Estate and Property: Prices in this sector are largely expected to fall, especially for
sales of properties where major part of the transaction is cash based, rather than based on
banks transfer or cheque transactions.

5. Effect on GDP

 The GDP formation could be impacted by this measure, with reduction in the
consumption demand.
 However with the recent rise in festival demand is expected to offset this fall in overall
impact.
 Moreover, this expected impact on GDP may not be significant as some of this demand
will only be deferred and re-enter the stream once the cash situation becomes normal.

6. Effect on Online Transactions and alternative modes of payment

 With cash transactions facing a reduction, alternative forms of payment will see a surge
in demand
 Digital transaction systems, E wallets and apps, online transactions using E banking,
usage of Plastic money (Debit and Credit Cards), etc. will definitely see substantial
increase in demand
 This Will Bring More transparency In System and You can easily track Online Money
Transactions.

Limitations of Recent Demonetization on Indian Economy

 According to the recently released RBI report, 98.86 % of the high-denomination notes
that were demonetized have been deposited into the banks. Before demonetization, the
official estimate was that around 20% of the notes (which is black money) will not return.
To put this into perspective, in the Demonetization of 1976 and 1978, about 14 % and 10
%, of high denomination currency respectively did not return to the system. The banned
notes that did not return would have led to a reduction in liabilities of the RBI. This is
because the currency issued is a liability for the RBI. Hence, it was predicted that the
notes that did not return will have the impact akin to confiscation of money and this
money could be used to recapitalize the banking system.
 It was also expected that RBI’s dividend to the Government would increase due to a
reduction of its liabilities as explained in the previous point. Instead, RBI’s dividend to

32
 the Government fell by half (Rs.30659 crore) in the year ended June 2017. This reduced
transfer was due to increased expenditure due to demonetization. The increased
expenditure was on account of the cost of printing currency post demonetization and
managing the logistics, which amounted to a whopping Rs.30000 crore.
 RBI had to incur huge costs in paying interests. Post demonetization, banks were flushed
with excess liquidity. They made large deposits with RBI. The Indian economy grew at
5.7% in the June quarter 2017 from 6.1% in the last quarter. Though it is not sure that the
decline in GDP growth rate is due to demonetization. There has been no significant dent
on corruption and terrorism.
 It increased to record Rs.957.50 million in November 2016 and gradually declined to
Rs.862.38 million in July 2017. The Government has failed to sustain the momentum.
Lastly, though the digital transactions reached a peak in November 2016 due to cash
crunch imposed by demonetisation, it has been declining since.

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 FINDINGS

&

CONCLUSIONS
FINDINGS:

This study has been taken up with main intention of analyzing the impact of demonetization on
different countries. The finding result of analyzing data of five countries with respect to the
financial position and economic conditions of various countries. The brief description of the
finding of the study is given below.

 Demonetization happens in order to improve the financial and economic condition of the
countries. It is a process of removing currency from general usage, or circulation or it is a
withdrawal of particular form of currency. This move was targeted towards tackling
black money, corruption and terrorism in countries.

 In case of Pakistan, the demonetization got messed up because of insufficient awareness

among the people about demonetization of money and non-satisfactory response of
people. The time allotted by them to gather back the demonetized currency notes with the
state bank of Pakistan was one and half years. This time period was too much and was the
basic reason which can obstruct the purpose of demonetization in Pakistan and it could
not curb black money neither counterfeit notes.

 In case of Zimbabwe demonetization process got failed, because of chronic inflation in

their economy and Zimbabwe decided to replace the Zimbabwe dollar with the American
dollar this process was carried out hurriedly and people who holding the money they lack
confidence in ability to retain its value.

 In case of Australia, this country succeeded in demonetization process. Purpose of

Australian demonetization was to curb counterfeit notes and reduce the loss to central
bank due to damage to the currency notes. They did not change anything accept they just
replaced notes with polymer bank notes and had no side effects on economy.

 In case of India, According to recently released RBI report, 98.86% of the high-
denomination notes that were demonetized have been deposited into the banks. Before
34
demonetization, the official estimate was that around 20% of the notes (which is black
money) will not return. To put this into perspective, in the demonetization currency
respectively did not return to the system.

35
CONCLUSIONS:

A Study of Demonetization with reference to selected Countries is to evaluating the performance

of the countries with reference to Demonetization process.

1. Pakistan:-
 Time period given for currency exchange was long.
 Basic preparation were lacking before the Demonetization.
 No effective step was taken against the illegal currency exchange.
 The timing of Demonetization as per economy was not suitable.

2. Zimbabwe:-
 Hyperinflation inflation in their economy and timing was not proper for demonetization.
 Long term effect of currency change was not considered in effective way.
 Lack of response from common public led to failure of demonetization.

3. Australia:-
 The main reason for success of demonetization was change of currency notes from paper
to polymer.
 They did not change anything accept they just replaced notes with polymer bank notes
and had no side effects on economy.

4. India :-

 The basic objective behind demonetization in India was to control the corruption.
 The effect of demonization is partial; i.e. some are in the favor of the process, some are
criticizing it, while GOI claims that corruption is arrested by the process.
 According to me the best effect of demonetization is that, idle currency from the Indian
citizens flowed into banking system which ultimately will boost the industrial growth in
the long run.
 Probably after one year from now we will be in better position to form an opinion on
demonetization in India.

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BIBLIOGRAPHY
 BIBLIOGRAPHY

References:-

A. Definition
 www.Investopedia.com
 www.BusinessDictionary.com

B. Review of Literature
 International Journal of Commerce and Management Research
 International Journal of Interdisciplinary Research in Arts and Humanities
(IJIRAH)
 International Journal of Research presents
 International Journal of Research in Economics and Social Sciences (IJRESS)

37