The stated reasons for the sudden demonetization were: First, curbing black or unaccounted money

and bringing it back into the banking system. This would decrease the parallel economy and make
people pay taxes for financial transactions and this in turn would enhance the Govt.s revenue which
could be used for welfare and other schemes. Demonetization has achieved this to an extent. As per
reports, about 95% of the estimated cash in circulation (as Rs. 500/- and Rs. 1000/- notes) has come
back into the banks. That leaves about 5% of unaccounted money. Even though this percentage
seems to be small, in actual terms, it is substantial and this can be counted as the gain that the RBI
and the Govt. has got. Moreover, those who have deposited very large amounts of old currency notes
into the banks will be under the scrutiny of the Income Tax Dept. and they will have to pay additional
tax if the source of the money cannot be accounted for.

A second aim of demonetization was to tackle the menace of counterfeit money which is mainly
thought to come from neighboring countries, especially Pakistan. Clearly, this money has been wiped
out, at least temporarily. It will take some time for new counterfeit money to get printed.

A third objective was to cut the finances of terrorists. This too would have been achieved to a certain
extent because the terrorists mainly operate from neighboring countries, Pakistan in particular, and
they are the ones who mainly use counterfeit cash to finance their operations.

A fourth objective was to increase the use of digital means for financial transactions. Since the
amount of paper cash in the system was and continues to be in short supply, there has been an
exponential increase in the number of people doing business transactions with the help of debit and
credit cards and e-wallets. The aim is to make digital transactions the main mode of doing business.
In this way, transactions can be easily monitored and the extent of money unaccounted for will
become much less in the future. For this to be a success, the Govt. will have to restrict the amount of
new notes that are printed. As of now, only about 50 to 60% of demonetized notes have been
replaced by new ones.

Demonetization has greatly increased the number of persons having active bank accounts. That
information will be useful to increase the number of people who are brought under the tax net. In the
past, since most transactions were made through cash, it was possible to evade paying tax. Now,
since most large transactions will be through digital means, the tax authorities will be aware and the
correct amount of tax will have to be paid.

Arun Jaitley: Current Finance Minister of India; Senior Advocate,

Delhi High Court

Eventually, the government will be able to invest more money in agriculture and
social sector: A lot of money that operates in the shadow economy will now become
a part of the banking structure itself. Banks will have a lot more money to support the
economy. Private sector investment, which was so far lacking, will now get back into
the economy. The banks which were struggling because of the NPA problem will have
a lot more money to lend for agriculture, infrastructure sector, social sector, trade and
industry.
Bibek Deb Roy: Leading economist; Member of the Niti Ayog, a
policy think-tank for the GOI
In an interview with Karan Thapar, Deb Roy spoke about the note banning and its
repercussions.
His take on the impact on daily wage laborers and loss of jobs: What
happened on November 8 is part of a broader jigsaw. There are several other measures
that have happened. The Indian economy, in certain sectors, is going through a
slowdown. If these figures are going to be taken seriously, you have to demonstrate to
methat these job loses are because of 8th of November alone and not because of
other things, he told Karan Thapar.
On why the notes are different sizes, which deter quick production
and circulation of the notes: There have been several arguments pitched by
economists as to why the different denomination notes vary in sizes. The difference in
sizes are delaying the printing and therefore taking longer to circulate within the
country. Mr. Deb Roy argued that the notes vary in sizes because the sizes inform
those who are visually impaired about what denomination they are holding: You
must realize that there are ordinary, sensible people who also happen to be disabled.
For them the way to distinguish between currency notes is often in terms of size
Therefore accept that the currency notes have to be different in size!
Note: The argument that the size needs to be different for visually disabled doesnt
hold water. This is because the RBI has introduced two features in the notes which
make it easier for the visually impaired to distinguish between the denominations.
First, the RBI has introduced the new notes which can be read in Braille. It was a
feature the Finance Minister, Arun Jaitley had mentioned in his budget speech in
2014: The government will print currency notes with Braille-like signs to assist
visually challenged people. Two, the notes also have angular bleed lines, which are
elevated markings that appear on the upper right and upper left frame of the notes.
The number of bleed lines are unique to each denomination, and are therefore easy to
distinguish between. Different sizes therefore, dont really matter.
Arvind Virmani: Leading economist; Former Indias representative at
IMF; Former Chief Economic Adviser, GOI
Useful method; secrecy was a per-requisite: This is a useful method of
flushing out black money, given that a large percentage of cash holding is in these two
denominations. The manner in which it was implemented is not surprising such
actions are always secret till announced, so that insiders do not take advantage of the
information at the cost of the outsiders, he told The Wire.
However, he agreed it would have a negative impact on the small
businesses: How it will affect requires a deeper study, but the first thing one
knows is when you demonitise such a large proportion of currency, the immediate
effect is a collapse of retail trade in goods and services, Virmani told Business World
adding that this effects how quickly you replace the transaction demand. He said the
currency needed for everyday transactions have has to be replaced quickly. The
longer that is delayed, the more the negative effect.
Surjit Bhalla: Chairman, Oxus Investments, a Delhi-based economic
research/advisory firm; Former Professor at Delhi School of
Economics; Previously worked at the World Bank
Surjit Bhalla

Calls it a bold step on PMs part: Bhalla wrote in The Indian Express that,
There should be no question that this BJP policy is bold and courageous. The trading
community has long been identified as the BJPs core constituency and Prime
Minister Narendra Modi has gone against this powerful support group. So let us give
Modi a considerable amount of credit for taking a bold step for the country
genuinely in the name of the nation.
Its bigger than the GST: In the same piece he argued, The fight against
corruption and black money in India has just begun. If successful, this will go down as
the biggest reform in India, bigger than the GST (though the two are related) and
bigger than the industrial policy reform of 1991. But, and there is a but, while the
policy is very effective in its attack on past black money, it is silent on the creation of
money.
Black money hoarders are suffering: Most of the spending of this black
money is for expenditures on gold, purchase of foreign exchange, and purchase of real
estate. Transfer of money abroad into anonymous accounts is now a difficult
exercise for all the worlds black money residents. Gold purchases and hoarding are
also becoming more difficult. So, the prime outlet for big-time black money use is real
estate, he continues.

And here is a guess. When was the last time anyone heard a member of the
Opposition saying or discussing or even mentioning the nuances of the
economics of demonetisation? Sure, Rahul Gandhi is worried about the people
dying in queues. Mayawati wants the PM to dissolve the Parliament. Mamata
Didi called the PM, Hitler. It is said that it is against the Constitution to put a limit
on a man from withdrawing his own hard earned money. But here is what the
Opposition is missing. People are standing in queues and it has been weeks
now. And irrespective of how lame PM Modis app survey was, a lot of these
people are willing to stay in these queues in larger interest of the nation. The
Winter session of the Parliament started a week after the announcement of
demonetisation. Instead of being prepared and digging deep, the Opposition
chose to sit on the surface and resort to name calling; Hitler, Mussolini, Gaddafi
even Modi Antoinette. In fact, Ghulam Nabi Azads comment on the Uri attack
and comparison with terrorists was simply uncalled for. It seems that our elected
leaders have poor reading skills. Or they believe themselves to be too good to
even try scratching beneath the surface. It could clearly be seen from Arvind
Kejriwals outburst during an interview with the BBC!
The public may be naive, but not stupid. When Mamata Banerjee goes to the
streets against demonetisation, what the public sees is a politician out for
campaigning for 2019 elections. Rahul Gandhi standing in front of ATM queues
creates even more inconvenience for the crowd that has been standing there for
hours. These steps are just juvenile. The Opposition has demanded that the PM
speak up in the Parliament. All things considered, are we actually expecting
Prime Minister Narendra Modi to explain the nitty-gritty demonetisation scheme?
Well, Finance Minister Arun Jaitley remains present in the Parliament!

It has to be understood that the Opposition is playing it safe. These leaders,

including Yuva Neta Gandhi, are having trouble finding words to criticise the
economical impracticality of demonetisation without being termed corrupt and
anti-nationals. Rupa Ganguly, BJP leader had even said that the long queues
were made by the people of the Opposition. The Bharatiya Janata Party and its
allies have had a longstanding habit of nuking the arena they stand in with a
heavy dose of nationalism. Besides, the various emotional breakdowns by the
Prime Minister on various occasions just cater to an audience that loves soap
operas and had voted him to majority.

The fight over demonetisation is no longer a logical battle in the Parliament by

intelligent people chosen to rule over the people. It has merely turned into a
battle of attrition in a much bigger show. And the audience is troubled and
uninterested.
Prime Minister Narendra Modi's demonetisation decision is widely being regarded as one of the most
landmark economic decisions in the India history. With the country still coming to grips with the
outcomes of this decision, people have strongly raised their voices both in favour and against this
decision. Resultantly, many myths have also started floating in the country which is making things
worse. From the point of view of the students, this is an extremely important topic and needs to be
studied in detail since the future examinations can have questions in connection to this move. To
help you out, we are presenting before you all the information you need about demonetisation.

1.Though there is no official confirmation about this fact but it is believed that this move by PM Modi
came after Arthakranti Sansthan suggested this to him in a meeting. The idea was put forward by
Anil Bokil, a critical member of the NGO. Arthakranti Sansthan is essentially an economic advisory
body made up of several Chartered Accountants and Engineers. According to their proposal of
recalling and scraping high denomination currencies of 1000, 500 and 100 would help in combating
Black Money menace, Price Rise, Fiscal Deficit, GDP, Ranson, GDP, Corruption and Inflation.

2. India is majorly a cash-based economy and close to 98% of the total

transactions by volume and 65% transactions by value are done in cash
which makes it extremely difficult for the government to keep a track of all
these transactions.

3.This is not the first time that the decision of demonetization has been taken in the country. This has
been done twice earlier also. But this time its impact is huge because of the increased circulation of
higher denomination notes in the economy.

4. Though this move is expected to root out the black money held in cash
at hand, it does nothing to curb black money held in the form of gold,
property and dollars. Resultantly, it is not correct to assume that this move
will cleanse the entire economy in a matter of a few days.

5.It must be noted that before this monumental, the government had been running a voluntary
income disclosure scheme, allowing people to inform the authorities about their undisclosed wealth
and convert it into legitimate money by paying 45% tax on it. Hence, to blame the government for not
giving a way out to the guilty people would be harsh on the government.

Demonetization is the biggest step in Indian economic history. The 7th largest
economy of the world is moving many spots above in the best business
countries in the world, this post will take you back into history. This post will
deal with what happened in 1946 and 1978 demonetization (facts about
demonetization) , why they failed and 2016 demonetization will become a
success. As an additional feature, I have included the countries which have
tasted success, failed and messed-up demonetization in the modern era.

Unknown facts about demonetization of 1946,1978 and 2016

For simplified general information all people must know

All you need to know about Demonetization in India 2016

WHAT HAPPENED IN 1946?

Historic Date: 12th January 1946 announced by the Reserve Bank of India

The World War II just concluded. The allied powers led by the United Kingdom
won the war bearing huge cash burnt. The situation in most of its colonial
countries wasnt good as people didnt have food to eat. Honourable Prime
Minister of United Kingdom Winston Churchill has allowed the massacre of 3
million people in the man-made Bengal famine in 1943 to supply food to the
soldiers in the war. He just hated Indians. The rich Indians were on their toes
to help the colonial power to make more money. With the introduction of
Rs.10000 bill from the newly formed Reserve Bank of India in 1938, the rich
hoarded money at the expense of the poor increasing inflation - Sorry..
Hyper-Inflation

In 1946 and 1978 the high denominations were accessible to the rich only.

The government announced demonetization of denominations above

Rs.1000 with effect from 12th January 1946 and gave little time for exchange
too. As the notes were accounted only to 3% of the Indias population, it
didnt affect normal life to an extent. The crown princes were exempted from
the same and only 40% of todays India-Pakistan-Bangladesh was in effect, of
the demonetization (by area directly controlled by the British)

The government through this drive collected Rs.134 crore of the total Rs.143
crore available in the market (according to RBI estimates), only Rs.9 crore
was not exchanged therefore demonetized.

It turned out to become more like a currency conversion drive as the

government couldnt achieve much of profit in the cash-strapped economy at
that time.

WHAT HAPPENED IN 1978?

Historic Date: 16th January 1946 announced by the Reserve Bank of India at
9 AM on the All India Radio.

We repeated the same mistake by reintroducing Rs.1000, Rs.5000 and

Rs.10000 bills in 1954. The Wanchoo committee has stated in the late 1960s
to the government to withdraw all high denominations, but it wasnt heard
till 1978 when Janata Party-led Morarji Desai.
 In the Morarji Desai-led Janata Party Govt, the RBI had declared
denominations over Rs.1000 as void.

The Wanchoo Committee had recommended the government to withdraw the

currency because the country was going through a difficult period. Difficult
period reminds me of June 6, 1966 the day our currency lost value.

JUNE 6, 1966

Due to lack of purchasing power in US Dollars by under-developing countries,

the developed world would accept the payments for their goods and return
the same in the local currency.

In 1950s and 1960s the trade deficits had reached an all-time high. In 1965,
despite India winning the Indo-Pak war, the military expenditure pushed our
inflation close to 7%. The trade deficit was close to Rs.950 crores at that
time. Then the Honourable First Woman Prime Minister of India, Mrs Indira
Gandhi announced the devaluation of the Indian Rupee pegged at Rs.4.75 to
Rs.7.50 per US Dollar, 57% devaluation. This move reduced the trade deficit
to Rs.100 crore (other factors were increasing exports Green Revolution
and reducing imports, making it difficult to get a Bajaj Chetak despite full
payment on time)

She saved the day, but, sadly, we lost the value of Indian Rupee. Indian
Rupee was the major currency used in the Middle East in the 1950s and
1960s printed in Bombay. Due to severe fluctuation in Indian currency, from
1954 by Kuwait and lastly Oman in 1971, they adopted their own currencies
pegged to the US Dollars. While there were other factors like Kuwait became
extremely rich from 1950s to 1980s due to the oil discovery till Iraq attacked
them. Yemen and Oman with governance change in the country and oil
discovery also adopted their own currency.

1978 WHAT HAPPENED???

Coming to the initial agenda of what happened in 1978. After the Emergency
period in 1977, Indira Gandhis government was overthrown due to lack of
political, economic and social stability.

The demonetization in 1978 failed because there were rumours that the
demonetization would come into effect sooner or later. If the previous
government had heard the committees recommendations by agreeing to
print 3.5 Billion currency notes in 1972, the public nature of the Wanchoo
Committee wouldnt have created such a problem to encounter the same
issue Inflation.

WHAT HAPPENED BEFORE 8TH NOVEMBER

2016?

In 2016, the Modi-led government had controlled the inflation, made India
more investment friendly, and getting strong leaders on board, we didnt
have much of a problem like in 1946 and 1978. It was a kind of Swacch
Bharat Abhiyan drive by the government to get more perspective points and
reduce black money effect on the economy controlled by some powerful
politician and businessmen.

Except for Fin Min and top officials of the RBI, no one had the news
about the activity which was on cards since 6 months.
The Cabinet was briefed early on Tuesday and were not allowed to
move out of the premises till the PM finishes his address.
It came as a shocker, but the government seemed well prepared to
handle the situation. Mr.PM has left no stone unturned for any hue and
cry among the public (let alone the politicians). Mr.PM had got most of
the unbanked sector into the banking ecosystem by the Jan Dhan Yojana
with Rupay Cards. He then gave an opportunity without extension
(through the Income Declaration Scheme) to declare the black money
and strictly warned of action to be taken by the government against
hoarders.
The Indian Media is the freest media in the world. Media starts
protesting for even a small issue. NDTV India received a ban for 24-
hours of the Pathankot Attack coverage (later upheld by the MIB till
December 5, 2016) on 9th November 2016. All newspapers, journals, TV
reporters spoke about this issue as a serious matter diverting the
attention of the media from the demonetization. (P.S. Rumours had
made the 1978 demonetization drive a culmination)
The government announced the decision after Diwali, making fewer
problems for the general public.
The Best part: The announcement was done by Mr.PM at 8 pm IST
(ish) rather by the RBI in the morning. Most of the businesses were
shut for the day and people were wrapping up from their days work.
Banks remained closed for the next day paralysing the country. Black
money hoarders couldnt find a way out to funnel the black money,
making it a fool proof plan to nab all the hoarders under the tax radar.

BUT THERE IS MORE TO BE DONE..

I hate to do this, but lets see the political side of this move. Narendra Modi
has been in power since May 2014. Why November 8th, 2016 was chosen
because after November 15th 2016, media and political parties will start
releasing their performance reports on Prime Ministers 2 year Journey.
While he came to power with high hopes thanks to his performance in
Gujarat from 2002-2014 despite the earthquake and the riots, he made
Gujarat, an industry friendly state. Getting Tata Nano in Gujarat after being
moved from West Bengal, Gujarat is posing a threat to Tamil Nadus Detroit
of the East dream.
Narendra Modis performance is good with respect to all other Prime
Ministers of India, but our youth is becoming restless. This move got him a
lot of perspective points from the laymen who see political parties promising
to end corruption but never do it.

But the best fact is black money in cash accounts to only 6% of the total
black money in India with the rest being in the form of gold, properties in
fictitious names, loss-making fake companies, etc.

The brightest spot is the end of Hawala racket and rising property prices.
Hawala is the way of transferring money from a different country to India in
Indian denominations. Although illegal, the people in this racket make their
money white through this process in different countries (not necessarily
India). To attract more people to remit through this form, they pay a premium
over the existing exchange rates (in early 2000s) mostly for remitters from
African-based nations. Come 8th November, 2016, the government scrapped
all high denominations making the notes lying with the Hawala traders null
and void just a piece of paper. This racket will remain dormant for next six
months at-least.

Narendra Modi announced his ambitious dream for every Indian to own a
house by 2022. Property prices are sky-rocketing controlled by land-mafia.
This move will reduce the prices to an extent (hopefully) to make homes
affordable for all.

The government doesnt want to repeat the same mistakes again, so they
are hinting to target benami properties, fictitious gold purchases, and
fictitious loan takers from the black money hoarders from January 1, 2017.
The government must take serious steps to stop the Hawala to breed again
by stringent rules and regulations.

This move will become a success if the government does correct follow-up by
not stopping at currency demonetization like the other governments have
done in India. The World Bank, Rich Businessmen, Foreign governments,
etc has lauded India for this move as it has helped India get more
perspective points which will be visible in the next World Banks Ease to do
business rankings too.

SPECIAL FEATURE: FACTS ABOUT

DEMONETIZATION IN DIFFERENT NATIONS
ACROSS THE GLOBE

Country: 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. One and Half Years for demonetization.. To exchange
notes. Cant curb black money neither counterfeit notes
Demonetization in different countries in the world before 8th November 2016

Country: Zaire

Step Taken: 1990

The Dictator Mobutu ran the demonetization drive which led to economic
instability in the country which won freedom in 1970 making it more
vulnerable to foreign funding at that time. The country recovered in 2000.

Status: Failed

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

Country: United States of America

Step Taken: 1969

Due to black money existence in the nation, the country was losing its sheen
built on Silicon Valley and the so-called even today existent American Dream.
In 1969, US President Richard Nixon announced all bills above $100 null and
void.

Status: Success. Even today $100 bill is the maximum available for
circulation.

Country: Australia

Step Taken: 1996

The government to the curb black money crisis and improve security
features on the notes, they withdrew all paper-based notes and replaced
them with long life polymer-based notes of the same denomination.

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 notes.

Country: North Korea

Step Taken: 2010

The then dictator of North Korea Kim Jong-IL has decided to remove two
zeroes from the currency denominations to curb black money menace and
tightly control the economy.

Status: Miserably Failed. Due to bad harvest and high inflation, this move
was highly criticized by the International Media, making the dictator to
apologize in the public.

Country: Nigeria

Step Taken: 1984

The government run by Muhammadu Buhari has announced demonetization

of all existing currencies to improve the high-inflation-debt economy

Status: Failed. He was thrown out of power in 1985-86.

If we have a look on all the other demonetization drives, only the ones done
by developed nations have been successful and African nations have
suffered a lot because these countries are still a victim of neo-colonialism.
We Indians must be happy with the fact that it is only our country that
flourished to become an economic power after independence.