The nation’s future and hope depends upon the government in power and the people and not the nation itself for a hope of better tomorrow and propelled future of the nation. And that costs a price, huge for all. Government of India on 8th of November, 2016 announced 500 rupees and 1000 rupees notes illegal from that day onwards and the notes could be exchanged only by banks and post-offices till 31st of December, 2016.
Withdrawal of a particular kind of currency from circulation is termed demonetisation. And through this process, either new currency replaces the old currency or a circulation of currency is blocked. The various reasons for doing so may include promoting cashless transactions, curbing growing corruption or checking the inflation; hence bringing transparency in all present legal transaction modes of the country providing a boost to the economic development of the country.
There are several countries in the world that implemented demonetisation to target and strengthen the failing economy of the country. Some of the countries that underwent demonetisation are briefly explained below:
- In the year 1971, the government of Britain introduced 5 pounds and 10 pounds’ coins thus ceasing the circulation of pounds and pennies that prior existed. The government of Britain had prepared itself and its citizens for this change 2 years prior thus putting little impact on the economy and people by providing sufficient time to exchange and its availability in all banks ensuring smooth functioning of the economy of the country.
- The dictator of Congo Mobutu Sese brought modifications in the currency in 1990s so as to improvise the economic conditions. Since the economy of Congo then was strife with ethnic war and corruption, it resulted in exorbitant rise in the price of essential goods and heavy downfall in the share market. The downfall of demonetisation led to the fall of the dictator thus an end to his demonetisation.
- Ghana in 1980 demonetised their 50 Cedi’s notes to empty excess of liquid funds and to tackle evasion of tax. Despite the efforts, the people rather invested in physical assets and supported the black market hence making the economy weaker.
- In 1984 under the government of Muhammadu Buhari, Nigeria brought out new currency by banning the old ones but the inflation hit and debt-ridden country could not take the change thus collapsing the economy.
- Russia (formerly U.S.S.R), under Mikhail Gorbachev withdrew the large ruble bills in circulation to curb the black market but the attempt failed resulting in bringing down his authority and the breakup of soviet union.
The impact of demonetisation in various countries across the globe differs since some countries were prepared for the change but some incorporated it without any safety checks thus worsening the economy. Global economists criticise the move of demonetisation since its implementation can be potentially lethal to the economy and growth of a country but it can be prevented by rechecking and plugging the existing faults in the system to curb malpractice and bring transparency.
India being considered a developing nation and growing economically has undergone the purge of demonetisation not once but thrice. On 12th January of 1946, India was hit by the first wave of demonetisation when the government demonetised the 1000 rupees and 10000 rupees notes to cease unaccounted money. Out of 143 crore rupees in the market, the government collected only 134 crore rupees thus only 9 crore rupees being demonetised.
Under Moraji Desai’s reign in 1978, the next wave of demonetisation hit when 1000 rupees, 5000 rupees and 10000 rupees notes were recalled from circulation by the Wanchoo Committee of the government to reduce inflation. Modi-led government on the evening of 8th of November, 2016 announced the third wave of demonetisation to curb the black money in the economy handled by few major businessmen and politicians.
The 1946 and 1978 demonetisation had significant impact for a few years on the country’s economy but the present government had adequately prepared for the impending change by minting new notes and coins for smooth cash transactions to put mere impact on small businesses and the common people. Despite all the efforts, the demonetisation of 2016 had adverse impact on the whole of India since all changed spontaneously overnight bringing foreign exchange and business trade to a pause.
Out of all this, the business sector was tremendously affected by the demonetisation of 2016. The demonetisation of 2016 hit during the festive season of Diwali, Christmas and New Year for which the business sectorsaspire of making profit from. The most affected were the ones with small trades and those of daily basis traders. 2000 rupees notes were introduced to provide relief to the masses but inadequate change made all fume with rage. And the promotion of cashless or digital transactions meanwhile was to implement transparency in the economy but the traders refused to do so since they would not be able to earn profit from it and many hesitated regarding the risks of online transactions. Public sector units like post offices, banks, stock exchange and cash trading institutions underwent the purge of demonetisation since they weren’t prepared for people pouring in to demonetize their cash.
The industrial sector was also influenced by the wave of demonetisation of 2016. Industries with migrant labours and workers from West Bengal, Odisha, Jharkhand and Bihar were particularly influenced since they lacked identity proofs to open bank accounts and hence had to be paid in cash which made the entrepreneurs apprehensive during the usual disbursal period. The demonetisation of 2016 also disrupted the agricultural supply chain since the cash-crunch in the market forced the farmers to sell their crops and perishable commodities in the harvest season lower than the market price.
The worst affected by the wave of demonetisation of 2016 were the poor, Dalits and tribals since they mostly worked as labours and daily wage workers. With no or mere access to government facilities, their hard-earned money could not be demonetised since they could not make use of bank accounts.