Demonetisation is referred to as the process of stripping a currency
unit of its status to be used as a legal tender. In simple words,
demonetisation is the process by which the demonetised notes cease
to be accepted as legal currency for any kind of transaction.
On 8 November 2016, the Government of India announced the demonetisation of all ₹500 and
₹1,000 banknotes of the Mahatma Gandhi Series. It also announced the issuance of new ₹500 and
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₹2,000 banknotes in exchange for the demonetised banknotes. Prime Minister Narendra Modi
claimed that the action would curtail the shadow economy, increase cashless transactions and
reduce the use of illicit and counterfeit cash to fund illegal activity and terrorism.
The announcement of demonetisation was followed by prolonged cash shortages in the weeks that
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followed, which created significant disruption throughout the economy. People seeking
to exchange their banknotes had to stand in lengthy queues, and several deaths were linked to the
rush to exchange cash.
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The move reduced the country's industrial production and its GDP growth rate. It is estimated that
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1.5 million jobs were lost. The move also saw a significant increase in digital and cashless
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transactions throughout the country.
Australia, in its attempt to flush out black money and for security purposes, decided to replace its
paper-based notes with polymer bank notes of the same denomination. This, in contrast to most, did
not have any side-effects on the economy as such, and in fact, made Australia a more “business-
friendly” country.
Pakistan launched its demonetisation policy in 2016, applicable to 10, 50, 100 and 1,000 rupee
notes’ older design, with the State Bank of Pakistan (SBP) being asked to issue newly designed
banknotes. This had a far less drastic outcome than their Indian counterparts.
One of the worst cases of demonetisation policy failing was in North Korea in 2009. .As part of the
process, the old notes ceased to be legal tender on 30 November 2009, but notes valued in the new
won were not distributed until 7 December 2009. North Koreans were thus unable to exchange any
money for goods or services for a week, and most shops, restaurants and transport services were
shut down. This led to food shortage, increase in the price of necessary goods and lack of shelter.
- Australia
- Pakistan
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- India