Demonetization refers to an economic policy where certain currency unit ceases to be used as a form of legal tender. In other words, a currency unit loses its legal tender status as a new one comes into circulation. It refers to the process of deciding that certain coins and banknotes can no longer be exchanged for goods and services.
There are multiple reasons why nations demonetize their local units of currency:
- To track unaccounted black money
- To eliminate fake currency
- To lower the cash circulation
- To reduce illegal activities
- To make people accountable for every rupee they possess and pay income tax return
Demonetization in India was initiated with a wide array of motives like stripping the Indian economy of its black money, push people to pay taxes for the unaccounted pile of cash, curb terrorism, promote the digital India movement and make India a cashless economy.
On 8 November 2016, the Government of India announced the demonetisation of all ₹500 and ₹1,000 banknotes of the Mahatma Gandhi Series. Prime Minister of India Narendra Modi announced the demonetisation in an unscheduled live televised address at 20:00 Indian Standard Time (IST) on 8 November. In the announcement, Modi declared that use of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series would be invalid past midnight, and announced the issuance of new ₹500 and ₹2000 banknotes of the Mahatma Gandhi New Series in exchange for the old banknotes.
As a first step the government had urged people to create bank accounts under Jan Dhan Yojana. They were asked to deposit all the money in their Jan Dhan accounts and do their future transaction through banking methods only. The second step that the government initiated was a tax declaration of the income and had given October 30, 2016 deadline for this purpose. Through this method, the government was able to mop up a huge amount of undeclared income. However, there were many who still hoarded the black money, and in order to tackle them; the government announced the demonetization of 500 and 1000 currency notes.
Most of the people hailed the Modi’s strong decision, while poor were shocked by the move. The overnight decision changed the life of many as black money holders were worried about the pile of cash they were sitting on. Many poor daily wage workers were left with no job and income as owners were unable to pay their daily wage.
It is no doubt a bold step taken by the government which will definitely help India to become corruption-free.