Pros & Cons of Demonetization of Big Currency Notes

Demonetization of currency

Introduction

It is a transformational decision taken by the government to ban Rs.500 and Rs.1000 notes from circulation in the market. The decision was taken to minimise the black money and corruption. The RBI will be issuing Rs.500 and Rs.2000 notes from today onwards. They have released a statement by saying that all the Rs.500 and Rs.1000 notes are to be deposited at nearby banks or post-offices. This will be a regular currency circulation all throughout India. All those people who are panicked with this move by the government need not worry at all as the government has assured that ‘Your money will be yours. You will not lose anything so there is no point in being scared. There will be no restrictions on non-cash payments by cheques, demand draft’s, and electronic fund transfer.

Reasons Of Demonetization


We knew terrorism is a frightening threat, but who funds these terrorists? Our enemies they use the fake currency to sponsor terror-this was proven many a times. 
Corruption and black money are the major obstacles in our country. It is weakening the efforts to remove poverty. Our country is rapidly increasing in terms of growth and we are in No.1 position in terms of growth but we are ranked 76 in Global Corruption Perception ranking. It clearly shows how corruption and black money have spread their tentacles.

Impacts of Demonetization


Inflation : It will cause deflation in the market as people who have earned money through illegal ways would be afraid to declare the money as they may be prosecuted by the Income tax department on the legitimacy of their income. 

Reduction in Monetary Circulation: This will lead to reduction of money circulation in the economy leading to deflation. Value of money will be increasing which we have because the total money supply will be going down but the commodities and things available in the market have not gone down. It will lead to inflation slowly but not overnight. 

Cash Deposits in Banks: A lot of cash which are legally earned will be deposited in the banks and now the banks with more deposits will be able to do more lending. 

Easy Loans: Loans will become easier and interest rates may come down. As banks will have more money so more loans will be given out which will increase the money supply in the market and it will create inflation.

Advantages:

  • The major decision which is made by the government will help us to eradicate black money, corruption to some extent.
  • Due to lack of funding there will be no arms smuggling and all the terrorist activities will also be choked.
  • The government has proposed the new limits on ATM withdrawals being restricted to Rs.2000 per day, withdrawal from bank account is Rs.10000 a day and Rs.20000 a week. It indicates that card transactions will slowly replace the cash transactions in our daily prone activities.
  •  Exchange of money in banks can only be done producing a valid identity cards like PAN, aadhar card and electoral card from 10 to 24 November with a daily limit of Rs.4000. By doing so it will be easy for the government to track the money which is being exchanged in banks. There is no limit if the amount which we are exchanging is legal amount.
  • Financial Intelligence Unit will track all details of the transactions from the banks. So now it is really difficult to get rid of the black money.
  • Real estate industry is totally corrupted and now by this stringent decision the real estate sector will bring in more transparency. By doing it in this way we will have more credibility, making it more attractive to the foreign investors as well as domestic investors.

Disadvantages

  •  It will cause great inconvenience to common man who will start running to bank to exchange Rs.500 and Rs.1000 notes.
  • By replacing all the Rs.500 and Rs.1000 denomination notes, as ordered by the government, could cost the RBI at least Rs.12000 crore.
  • It will be very difficult for half of the population who are not well versed with the card transactions.
  • The major problem is that big fishes will be left out whose black money is in the form of foreign currency, gold and property and stashed in tax havens.

Conclusions

The advantages are much dominating and it will be in the long term interest of our country comfortably outweighing the disadvantages. Government need to take all the necessary steps so as to ensure that there will be a smooth flow of currency exchanges. It would turn into chaos if government takes no necessary steps to circulate money correctly. It will make a massive change in our economy. We congratulate the entire government and those hidden brains of our democracy who brought this decision.

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