Essay on Demonetization – Essay on Demonetization in India, Impact of Demonetization
Essay on Demonetization –Demonetization is a process in which a currency unit is no longer considered as a legal tender, and a newer version replaces it. Many governments across the world have taken this measure to curb black-market and stop the counterfeiting of currency notes.
While some countries were successful, others failed miserably in their goals behind demonetization. Let us have a look at the demonetization scenarios in various countries before delving into the India case.
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The United Kingdom in 1971:
This was when the British adopted the decimal system, and the pound was divided into 100 pence. This was done after three years of spreading awareness and education campaign. The transition to decimal currency was a success in Britain.
Ghana and Nigeria tried demonetization in 1982 and 1984 respectively. Ghana wanted to curb tax evasion and corruption, whereas Nigeria desired to fix the debt-ridden economy. Both were unsuccessful, and it resulted in further weakening of the economy. The Zimbabwean government in 2015 replaced the Zimbabwe dollar by the American dollar. Before this, Zimbabwe had a currency denomination of one hundred trillion Zimbabwean dollars.
In 1987 the military rule in Myanmar invalidated eighty percent of the money in value. This caused terrible economic unease. There were mass protests, and it also resulted in the ruthless killing of around a thousand people.
In 1991 Mikhail Gorbachev led the decision to withdraw 50 and 100 ruble notes. As a consequence, the economy collapsed and even resulted in the break-up of the USSR.
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The Australian government was the first to introduce plastic notes in 1992. In 1996, Australia decided to replace all paper notes by plastic currency to fix the menace of counterfeiting. As polymer-based notes were already in use for four years, the transition was smooth and didn’t have any impact on the economy.
Pakistan, in 2016 decided to do away with a few of its denominations and replace them with newer designs. People were notified regarding the change before one and a half years. This gave them plenty of time to exchange old notes with new ones, and there wasn’t any chaos in the process.
Demonetization in India:
On November 8th, 2016 Prime Minister Narendra Modi, announced that the denominations of RS 500 and Rs 1000 would be invalid and couldn’t be used as a mode of payment. The two denominations were the biggest of all, and by demonetizing them, around 86% of the circulating cash became worthless. The reasons behind demonetization, as cited by the government, are as follows:
1. To curb the proceedings of the black-money market.
2. To eliminate fake currencies and put an end to terrorist operations dependent on them.
3. To fight rampant corruption in the country.
In exchange for the old notes, new Rs.500 and Rs.2000 rupees notes were issued. But the exchange was not immediate; people had to wait in long queues to get their money.
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Impacts of the bold measure:
It can be said that complete chaos ensued in our country as a result of the sudden action of the government. Before the 2016 demonetization, India had not embraced cashless digital payment methods, and 78 percent of the transactions were in cash.
All our ATMs had long, snaking lines. Another major problem was the different dimensions of the new notes. Even the thickness of the new currency notes varied and all the ATMs had to be re-calibrated. So, only 60 percent of the ATMs in the country were operational.
To add further to the misery, the government imposed cash withdrawal limits too. One could withdraw only 24000 rupees in a week from a bank and 2500 rupees from an ATM per day. These limits were imposed as the number of new currency notes printed was insufficient. This exposed the lack of proper preparation by the government. The withdrawal restrictions were eased gradually.
For the tech-savvy people, demonetization didn’t have much impact. But, it was the poor and the small businessmen who were affected the most. Business owners could not pay their staff, and daily wage workers had lost their livelihood for a brief period.
For the elderly, waiting outside the banks and ATMs was a herculean task. There are reports that people even collapsed while standing in the queues. People who had planned family functions like marriages and holiday trips, demonetization became an unexpected obstacle.
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Was demonetization in India successful?
The answer can be both yes and no. RBI had declared that 99.30% of the money had returned. Does it imply that people found means to convert black to white in a short period?
It is said that often the money was deposited under a different person’s name. What about the black money which is in foreign currencies? It wasn’t taken into account at all.
But after demonetization, the income tax filing and collection became higher. This means more people came into the financial system and became accountable. We should remember that demonetization was preceded by schemes like Jan Dhan Yojna and Digital India.
These were meant for financial inclusion, and it did happen after demonetization. Now online transactions are accepted in every nook and corner of the country. One could find shops with signboards like ‘Paytm accepted here’ even in small villages.
Therefore, demonetization did push Indians towards a digital world. Digitalization makes the system more transparent and business-friendly. Thus we can conclude that the demonetization process can have positive and negative consequences based on the implementation methods.
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The fact that Indian citizens supported and complied with the unexpected process is noteworthy. In the past, demonetization has been a gradual process or was taken as a responsive measure to war, hyperinflation, currency crisis, etc. Venezuela had to take demonetization back after strong protests by the people. So, we can say that many Indians felt that the intentions behind demonetization were good and required for our welfare and progress. Fake currency and black market weaken the value of rupee and indirectly endorse corruption. Therefore, let us pledge to adopt digital transactions and be prepared in case of another demonetization.
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