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500 and 1000 Rs are the top 2 denominations of the Indian currency by value. They also form the highest percentage of currency notes in circulation. They are also hoarded as ‘Black money’ by a significant percentage of the population. That was one of the main intent of this demonetization. Another problem was there was a lot of counterfeit money in circulation and was used for terrorism activities.

In finance circles globally, this news is as big as the fall of Berlin Wall. If not for Trump victory on the same night, this news would have flashed even in Canada as one of the main headlines. Many believe that the Indian PM made the announcement purposely on USA Election night so as to have minimum global media attention

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one of the major problem with demonetization is the restriction of liquid money usage.
Reminding the government that 90% of the workforce was in the informal sector and 55% of those in agriculture were in distress.These measures convince that the way the scheme has been implemented, it is a monumental management failure and, in fact, it is a case of organised loot and legalized plunder of the common people.

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The summary way demonetisation has been effected is leading to a riot like situation in the country. We demand that the Government ensure that common people have immediate access to enough money to pay for their daily needs and health emergencies. Failing which, we demand the rollback of demonetisation or suspension of demonetisation to enable the common person to make adequate arrangements for daily needs and for more orderly phasing out of the old notes. The role of the Government is to undertake honest tax administration and not to treat the common person like a criminal making him/her stand in line and filling forms to access his/her own legitimate money

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Tough the move by Mr. Modi to flush out the black money is a welcome measure, the impact it has on the intended result is to be seen and felt over a period of time. A brief list of advantages, disadvantages and what it does’t do as it is claimed will do are listed below.

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The government of India recently took a bold step to demonetize Rs 500 and Rs 1000 currency.Demonetization of currency means discontinuity of the said currency from circulation and replacing it with a new currency.

This panic and discomfort is temporary phase. Actually intention behind this move is to crub the black money which is source of terrorism, bribes and other anti social activities.

Is the decision all of sudden?

Answer is absolutely "NO".

Different Steps has been initiated before implementation of this brave decision

Step-1 Govt requested people for creating the bank Accounts under jan dhan yojna

Step-2 Opportunity provided for declaration of unaccounted income under the Scheme of IDS.

Step-3 Now the time for overwhelming turn as part of nation building.

Advantages:

Unearthed of cash which is not in circulation and locked within few hands.

Common man also can afford to buy the immovable assets.

Curb of black money and fake notes.

Protection from the illegal activities

Increase the transparency in earnings which may favorable impact on the revenue of govt. in terms of taxes.

Increase the subscribers under the upcoming tax regime (GST).

Reduction of Interest rates may be the favourable move in startups and making India.

Increase the job opportunities in future.

Ease of recovery of long term dues in public sector and banking Sector from public.

India is developing as best investment destination with the view of ease of doing business, reliability and strong govt. administration system.

Increase the transactions in digital system.

Disadvantages:

Business are encountering with the loss due to limited cash circulation.

Black money holders are searching the alternative ways for come out of the situation.

Overwhelming move in notes. However implementation is not in par with the expectation.

Unfavourable impact on GDP growth

High scarcity of money change.

Other expected Schemes

Uniformity in Government jobs reservation system with the view poverty.

Review mechanism for indentifying the black in the form of Non Monitory Assets.

We should respect and support this move and wait with the patience for better execution.

Every Indian including common man should be responsible for part nation building. And our temporary inconvenience is negligible as related with the outcome in future.

We should encourage and join together for the mission of India development. 🙂

77,371 total views, 15 views today

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Advantages and disadvantages of demonetisation of 500 and 1000 currency notes? -

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The government of India recently took a bold step to demonetize Rs 500 and Rs 1000 currency.Demonetization of currency means discontinuity of the said currency from circulation and replacing it with a new currency. This panic and discomfort is temporary phase.

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A parallel economy Counterfeit currency in circulation & Terror financing.

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A parallel economy Counterfeit currency in circulation & Terror financing.

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In simple words, In a layman language, money keeps growing, when spent or exchanged for some goods and services. Money should never sit idle at one place. You deposit money in the banks, do you think they just keep it in lockers and pay you the interests? The banks further rotate the money in different ways, through different kind of loans(Personal, Farmer, Education, Business, etc)

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DEFINITION of 'Demonetization'

The opposite of demonetization is remonetization, in which a form of payment is restored as legal tender.

BREAKING DOWN 'Demonetization'

There are multiple 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

Dramatic Examples of Demonetization

The Coinage Act of 1873 demonetized silver as the legal tender of the United States, in favor of fully adopting the gold standard. Several coins, including two-cent piece, three-cent piece, and half dime were discontinued. The withdrawal of silver from the economy resulted in a contraction of the money supply, which subsequently led to a five-year economic depression throughout the country. In response to the dire situation and pressure from farmers and silver miners and refiners, the Bland-Allison Act remonetized silver as legal tender in 1878.

An example of demonetization for trade purposes occurred when the nations of the European Union officially began to use the euro as their everyday currencies in 2002. When the physical euro bills and coins were introduced, the old national currencies, such as the German mark, the French franc and the Italian lira were demonetized. However, these varied currencies remained convertible into Euros at fixed exchange rates for a while to assure a smooth transition.

India's Demonetization

In 2016, the Indian government decided to demonetize the 500- and 1000- rupee notes, the two biggest denominations in its currency system; these notes accounted for 86% of the country's circulating cash. With little warning, India's Prime Minister Narendra Modi announced to the citizenry on Nov. 8 that those notes were worthless, effective immediately - and they had until the end of the year to deposit or exchange them for newly introduced 2000 rupee and 500 rupee bills.

Small businesses and households struggled to find cash and reports of daily wage workers not receiving their dues surfaced. The rupee fell sharply against the dollar.

Alternative Funds

Soon after the announcement, people rushed to buy gold, a demand that drove prices up, in some cases even to a 60% premium, prompting the tax authorities to conduct surveys, according to the Business Standard newspaper. The government emphasized the need to furnish PAN (Indian Permanent Account Number) card details on purchases for accountability purposes, and many jewelry shops that were flouting the norms came under crackdowns. Simultaneously, rumors of a gold ban started to float, which led to agencies ramping up the volume of gold imports - to around 100 metric tons during November, the highest since 2015, as reported by Reuters.

Prepaid cash cards were another option that customers found useful, and that meant good news for companies like ItzCash. Other alternatives include mobile payments systems linked to e-commerce businesses like Ola Money, FreeCharge, Flipkart Wallet. Ola Money, the payment portal for popular transportation app Ola Cabs, reported a 1500% jump in money added to the accounts in less than four hours.

Interest in Bitcoin also spiked: Sandeep Geonka, co-founder of Zebpay, told Investopedia that his bitcoin exchange was now adding about 50,000 new users per month. "We are seeing an increased demand for bitcoin and India clearly has shortage of supply, making the demand and lack of liquidity push up prices of bitcoin as compared to global exchanges," said Coinsecure CEO Mohit Kalra. The virtual currency was trading at INR 55,735 in India in November (about $836), compared INR 47,725 (about $712) ( Coindesk) elsewhere.

Long-Term Effects

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The opposite of demonetization is remonetization, in which a form of payment is restored as legal tender. There are multiple 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 The Coinage Act of 1873 demonetized silver as the legal tender of the United States, in favor of fully adopting the gold standard.

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Demonetization refers to discontinuing of current currency units and replacing those currency units with new currency units. It is a major decision and it impacts all the citizens of the country because overnight all the money you have become a piece of paper which has no value if you do not exchange it with new currency units or deposit it in the banks. In order to understand demonetization better let’s look at advantages and disadvantages of demonetization

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Prime Minister Narendra Modi surprised Indians today by announcing that India's highest denomination notes, the 500 and 1000 rupee, will cease to be legal tender. On first blush, India seems to be enacting Ken Rogoff's idea of cutting down on criminality and tax evasion by phasing out high-denomination notes, which I recently discussed here.

But this isn't the case. Rather than removing the Rs. 500, the Reserve Bank of India is replacing it with a new bill. Furthermore, it will also be issuing a Rs. 2000 note, a new highest denomination note. What India is doing is enacting what I'll call an aggressive demonetization. I'd argue that this is an alternative (though not mutually exclusive) idea to Rogoff's. Both schemes are intended to create a logistical nightmare for money launderers; but whereas Rogoff's entails altering the denomination structure of banknotes to get this effect, Modi's aggressive demonetization keeps that structure intact while using note redemption and re-issuance as its lever.

Demonetizations are usually non-aggressive drawn-out affairs. For instance, when Canada announced that it would withdraw its $1000 note, it gave Canadians an eternal window to bring them in for redemption. The $1000 remains legal tender in Canada, meaning that it can be used to discharge any debt. As another example, take the euro. The introduction of the euro meant an end to all the national European currencies. While each of these currencies lost legal tender status in 2002, many enjoy an unlimited time frame for conversion into euros, including the Deutsche mark and Belgian franc. See below:

India's demonetization is an aggressive one because legal tender status is to be removed immediately and the time limit for redemption is incredibly tight and scripted. Here is Modi's announcement:

- Narendra Modi (@narendramodi) November 8, 2016

To summarize, Indians have just a few weeks to exchange old notes for new ones at banks or post offices. Proof of ID is required and switches are limited to Rs 4000, around US$60. There is no size limit for directly depositing old notes in bank of post office accounts. But of course, this means that the depositor's identity will be known by the bank and transactions will be traceable. Deposits can be made at banks until the end of the year. After that date, the central bank will exchange old notes until March 31, 2017, although this will require some sort of declaration of origin.

The point of all this is to suss out anyone with large amounts of cash that has been earned from dubious sources. Say you've got one million paper rupees, worth around US$15,000. If you've got the receipts to show why you have that much cash, then you can safely bring it to the bank. But if you don't, you'll have to get rid of it as quick as you can by spending it, say on gold (or any other good). However, this will be an incredibly difficult task given the fact that there will be many other Indians trying to spend their undocumented Rs. 1000 and Rs. 500 notes on gold at that very same time, and only a limited number of gold dealers willing to accept them. After all, any gold dealer who accepts notes now inherits the same problem: what to do with newly-demonetized banknotes. Any gold dealer who starts to bring in larger-than-normal amounts of paper money to their bank for redemption will surely face questions. To compensate for this risk, gold dealers will either impose a large penalty on cash payments or they'll stop accepting cash altogether.

Some undocumented rupees will no doubt be successful in evading Modi's aggressive demonetization, but large quantities will be left stranded. Significant damage will have been dealt to anyone working in the underground economy.

As Tony Yates points out, the most aggressive demonetization in history was probably Saddam Hussein's recall of the Swiss dinar in 1993. Swiss dinars were Iraqi banknotes printed on high quality paper whereas dinars printed after the 1992 U.S. invasion were issued on shoddy and easily counterfeitable material. On May 5, Saddam announced that all Swiss dinars had to be turned into the central bank for an equivalent amount of post-war currency over a tiny six day exchange period. He then proceeded to close the border, preventing Kurds and other foreigners from making the switch. Huge amounts of currency was left stranded, although unlike the Indian situation it was foreigners, not criminals/tax evaders, who were the target. (I went into the Iraq story here. The Burmese kyat and North Korean won demonetizations of 1985 and 1999 were also quite awful, see here.)

If you think Modi's strategy is new, or confined to developing nations, think again. A few years ago, Sweden carried out out a (somewhat less) aggressive demonetization in order to catch illicit cash users. In 2012, the Riksbank announced that all 1000 krona banknotes without foil strips were to be declared invalid by the end of 2013 (each 1000 krona note is worth around $110). Until December 31, 2013, Swedes were permitted to get rid of 1000 krona notes by either using them to buy stuff or depositing them at a bank. To tighten the noose, no anonymous conversions of old notes into existing notes were permitted. Swedes had to have bank accounts, and therefore had to forgo their anonymity, in order to rid themselves of old currency.

Anyone who's seen Breaking Bad knows that laundering money takes time and patience. A Swedish criminal with ten million dollars worth of high denomination krona was suddenly faced with a significant problem; how to get this stash back into the legitimate economy within 400 or so days.

How tough was this challenge? We know that at the start of 2013 there were fourteen million 1,000 krona notes in circulation (worth 14 billion SEK, or US$1.6 billion). After the expiry date, the Riksbank noted that there were still some three million 1,000 krona notes that had not been redeemed, worth around $330 million. This gives a rough indication of the value of banknotes left stranded by criminals and tax evaders, around 25% of all notes outstanding.

After the December 31, 2013 deadline, the Riksbank itself offered to redeem invalid banknotes (it still does), albeit for a 100 krona fee. However, criminal and tax evaders have no doubt steered clear of this offer as the declaration form includes the following question:

Sweden is the only country in the world in which cash holdings are in decline. Might this have had something to do with the damage inflicted by the Riksbank's 2013 demonetization on the psyche of participants in the underground economy?

So let's compare the advantages of Modi's aggressive demonetization to Rogoff's abolition of high denomination notes. If an aggressive demonetization is chosen, then a central bank gets to enjoy high profits, or seigniorage, since it continues to issue an extended range of banknotes, unlike Rogoff's abolition. The more float, or 0% cash liabilities that remain outstanding, the more interest the central bank will earn on its bond portfolio. The central bank also earns significant earnings from 'breakage.' All illegitimate banknotes that never get redeemed are recognized as a one-time unusual gain on the central bank's statement of income. Finally, people engaging in legal activities who enjoy the anonymity afforded by high denomination notes still get to use them; they don't under Rogoff's abolition.

Unfortunately, an aggressive demonetization can only be effective for a little while. It's hard to see why people won't quickly re-adopt the highest denomination note as a medium for evading taxes and engaging in illicit activity. In response, the central bank will have to enact an followup demonetizations every few years, but of course the underground economy will do its best to anticipate these by moving into low-denomination notes or foreign paper whenever it suspects something is afoot.

To create a logistical nightmare for money launderers, maybe Peter Garber's idea beats Rogoff's abolition and Modi's demonetization?:

"Why not simply increase the physical dimensions of high-denomination notes without jumping through the flaming hoop of elimination? Before 1929, U.S. currency was 40 percent physically larger than it is now. Restoring that size or making it even larger would instantly work the wonders of decades of inflation. The iron law for subverting illicit economies: a percentage increase in physical note size is equivalent to the same percentage increase in the price level."

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Prime Minister Narendra Modi surprised Indians today by announcing that India's highest denomination notes, the 500 and 1000 rupee, will cease to be legal tender. On first blush, India seems to be enacting Ken Rogoff's idea of cutting down on criminality and tax evasion by phasing out high-denomination notes, which I recently discussed here.

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There is a shortage of currency in the economy. People have limited cash available with them, which has led to a slowdown in spending. As long as there is a limit on withdrawals, people would prefer to save the currency that they have. The rural areas are expected to be worse off as most transactions over there still happen in cash.

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The biggest advantage of demonetization is that it helps the government to track people who are having large sums of unaccounted cash or cash on which no income tax has been paid because many people who earn black money keep that money as cash in their houses or in some secret place which is very difficult to find and when demonetization happens all that cash is of no value and such people have two options one is to deposit the money in bank accounts and pay taxes on such amount and second option is to let the value of that cash reduced to zero.

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Advantages & Disadvantages of Demonetisation - IAStube

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Topics covered: -What is Demonetisation -Advantages of Demonetisation -Disadvantages of Demonetisation

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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.

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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.

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On 8th of Nov, 2016 Prime Minister Narendra Modi addressed the nation and announced the withdrawal of 500 & 1000 denomination notes from the circulation. This was an unprecedented decision as the 86℅ of the currency in circulation was rendered worthless. A decision of such magnitude, PM Modi tells us, will have a huge impact on:

1. Corruption.
2. Fake Currency.
3. Black Money.

This act of 'demonetisation', some experts argue, will also help in India's progress towards a 'cashless economy'. In this lecture find out answers to all your questions on demonetisation and the way forward. This lecture will focus on demonetisation from 3 W's angle: What? Why? Way forward?

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Demonetisation: What? Why? and the Way Forward!

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On 8th of Nov, 2016 Prime Minister Narendra Modi addressed the nation and announced the withdrawal of 500 & 1000 denomination notes from the circulation. This was an unprecedented decision as the 86℅ of the currency in circulation was rendered worthless. A decision of such magnitude, PM Modi tells us, will have a huge impact on: 1.