Demonetisation Success or Failure

What is demonetization of currency?

Demonetization is the act of stripping a currency unit of its status as legal tender. In current scenario demonetization was when RBI decided to withdraw the old Rs 500 and Rs 1000 notes as a official mode of payment. The reason why government chose to ban the old 500 and 1000 notes is because the notes of higher denominations make transactions in cash easier since one require only few notes to make high value transactions. Government’s decision favoring demonetization was meant to curb black money, encourage digital transactions and deal a blow to terrorists using counterfeit currency. The demonetization policy is being seen as a financial reform in the country but this decision is fraught with its own merits and demerits.

Why demonetization was needed into system:

Demonetization of currency means discontinuity of the particular currency from circulation and replacing it with a new currency. Demonetization was introduced as a policy because it was thought to have numerous advantages. Below are some of the key advantages that are often associated with demonetization.

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  • To tackle black money in the economy. The surprise move by government is a disaster for people who have accumulated lakhs and crores of unaccounted cash under their pillows and mattresses. The winter is coming and these worthless pieces of paper can provide the corrupt some ephemeral warmth.
  • To lower the cash circulation in the country which is directly related to corruption in our country?
  • To eliminate fake currency and dodgy funds which have been used by terror groups to fund terrorism in India.The move will stop funding to the unlawful activities that are thriving due to unaccounted cash flow. Banning high-value currency will rein in criminal activities like terrorism etc.
  • The move is estimated to scoop out more than more than Rs 5 lakh crore black money from the economy. The demonetization policy will help India to become corruption-free. Those indulging in taking bribe will refrain from corrupt practices as it will be hard for them to keep their unaccounted cash.
  • Finally, it is an attempt to make a cashless society and create a Digital India.

Effects of Demonetization

  • The announcement of the demonization of the currency has caused huge inconvenience to the people. They are running to the banks to exchange, deposit or withdraw notes. The sudden announcement has made the situation become chaotic.
  • It has deeply affected business. Due to the cash crunch, the entire economy has been made to come to a standstill.
  • Many poor daily wage workers are left with no jobs and their daily income has stopped because employers are unable to pay their daily wage.
  • Demonetization was not necessary to eliminate corruption in India and was largely unsuccessful in meeting its declared goal and caused significant damage to the economy

Achievement post Demonetization

  • This move helped the government to track the black money. Cash stashed at home is unproductive cash, government demonetization policy forced people to bring all the currency in circulation through the banking system. Since the entire system is transparent, government revenue will increase as now tax evasion will be closely checked.
  • The demonetization policy forced people to file and pay income tax returns. Most of the people who have been hiding their income are now forced to come forward to declare their income and pay tax on the same.
  • The ultimate objective  to make India a cashless society was achieved. All the monetary transaction has to be through the banking methods and individuals have to be accountable for each penny they possess. It was a giant step towards the dream of making a digital India.


Demonetization failed to achieve the main objective it was meant to serve, namely, dealing a blow to the “black economy”; instead all it managed to do was to shift vast amounts of cash from the possession of the people who were using it as means of circulation to the vaults of the banks where it lay idle.However, if we compare the merits verses demerits, it will be safe to conclude that the former outweighs the latter.

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Even though there was suffering and agony among the masses and people faced problems by standing in long queues outside the ATM, but these were short term disadvantages people were facing. In the long run, this move will benefit everyone. All we need to do is give the government some time.

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