---DEMONETISATION 1eco. project 5.pptx--

EXPLAINS ABOUT DEMONITISATIO N IN INDIA

1. DEMONETISATION

2. WHAT IS DEMONITISATION?

3. Demonetization is the act of stripping a currency unit of its status as its legal tender. It occurs whenever there is a change in national currency. The current form(s) of money, is Pulled Down From Circulation, and is often Replaced with New Notes or Coins. Sometimes, a country completely replaces the Old Currency with a New Currency.

4. ADD A FOOTER WHY DEMONETISATION? Demonetization has been used to Stabilize the Value of a Currency in an Economy and to Combat Inflation. For Example, The Coinage Act of 1873, Demonetized Silver as The Legal Tender of the United States, and Fully Adopted The Gold Standards, in Order to Stave Off Disruptive Inflation. Several coins, including Two-Cent Piece ,Three-Cent Piece and Half-Dime Coins were Withdrawn. Again, Silver Coins were withdrawn from the Economy, The withdrawal of Silver Coins from the Economy resulted in the Contraction of the Money Supply, which automatically paved a way for Recession throughout the Country.

5. Some Countries have Demonetized Currencies in order to Facilitate Trade or form Currency Unions. 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 the Year 2002. When the Physical Euro Bills and Coins were Introduced, the Old National Currencies, such as the German Mark, French Franc and Italian Lira were Demonetized. However, these Varied Currencies remained Convertible into Euros at Fixed Exchange Rates , Assure a Smooth Transition.

6. THE FIRST CURRENCY BAN: In 1946, for the very First Time, T he Currency N otes of Rs 1,000 and Rs 10,000 was removed from C irculation, in the Economy. The Ban really did not have much of impact, as such Higher D enomination Currency was not accessible , to most of the people. Rs 500 and Rs 1000 notes were only introduced in 1934 and after four years, that is only in 1938, Rs. 10,000 notes were introduced. .

7. THE SECOND CURRENCY BAN: Former PM of India ,PM Morarji Desai, a nnounced a Currency B an of withdrawing Rs 1000, Rs 5000 and Rs 10,000 Out of Circulation from the Economy. The Main Objective of the Ban was to S top Curbing Black M oney in the Economy. Demonetisation was done on the Basis of The High Denomination Bank Notes Act,(which is otherwise called as the Demonetization Act), An act that was passed in 1978.

8. THE THIRD CURRENCY BAN: Recently, Demonetization has been used as a Tool to Modernize a Cash-Independent Developing Economy and to Combat Corruption and Tax Evasion. In 2016, The Indian government decided to Demonetize the Rs 500 and Rs 1000 Rupee Notes, The Biggest Denominations in The Currency System of India. India’s Current PM Narendra Modi made an Annoucement , on November 8’2016, that these notes will not be valid anymore. These notes accounted for 86% of the Country’s Cash that was in Circulation. The Citizens had time until the end of the year to Deposit or Exchange them in Banks for newly introduced 2000 and 500 Rupee Notes.

9. The Government’s Goal and Rationale was to Combat India's thriving Underground Economy on Several Fronts: Firstly, to Eradicate Counterfeit Currency, Fight Tax Evasion (Only 1% of the Population pays Taxes Honestly, According to a Survey taken in 2011), Eliminate Black Money gained from Money Laundering, Monitor Terrorist Financing Activities and Promote a Cashless Economy. Individuals and Large Entities with Huge Sums of Black Money got from Parallel Cash Systems were forced to take their Large-Denomination Notes to bank, which was required by Law to Acquire Tax Information from them. If the owner could not provide any Proof of making any tax payments, then a Penalty of 200% of the Owed Amount was Imposed.

10. ADVANTAGES OF DEMONETISATION: The Main Aim of Demonetization is to Curtail Criminal Activity as the Supply of Money is No longer A Legal Tender. It can Prevent Tax Evasion as those who were Evading Taxes must come forward to Exchange their Existing Currency at which time the Authorities can Retroactively Tax them. Finally, the Economy can move to digital currency by Slowing down the Circulation of Physical Currency, in the Economy.

11. DIMINISHING FRAUDULENT PRACTICES : The Main B enefit of D emonetisation , is the Minimization of Fraudulent Acts in Our Country. During the Process, People with Black M oney would have Fear of being prosecuted, while H oarding C ash for Exchange with Banks, s ince I ndividuals would be unable to Exchange B lack M oney with Banks. Hence, it is an Excellent Way to Deal with Terrorism or any other Criminal O ffences related to Counterfeiture of Currency. ADVANCED INVESTMENT SYSTEM : With D emonetisation , the Banking System will Improve Considerably. If the economy moves towards a Cashless D irection, it paves a way for Better A ccess to Credits in the Economic S ystem in the Long run. Banks and Financial I nstitutions can therefore utilize the newly legalized money to confer loans to the needy borrowers and aid the banks in generating interest .

12. LOWERED LIABILITY: Allowing Demonetization , can Reduce the Risks of handling Liquid Cash. All Produced Notes are a Liability for the Government, and For those who decide to Turn in their Income, the Current Notes would lose their value. Hence, it is way Easier for the Government to Administer the Country’s Economy in the form of Demonetisation . DECREASED CASES OF TAX EVASION: The sudden Severe Movement can considerably Reduce Tax voidance if executed successfully. Tax avoidance can give a terrific boost to the Indian economy. The increased flow of taxes can enable the government to undertake public welfare measures. GDP increase: Higher tax collection gives scope to decreasing the rate of interest on bank loans; hence, reducing tax avoidance can bring clean money into the currency stream and increase the disposable income of the country’s economy.

13. According to the RBI data, Almost the Entire Money (More than 99 Percentage) was Invalidated came to the Banking S ystem. Out of Rs 15.41 L akh Crore I nvalidated N otes, Notes worth Rs 15.31 Lakh C rore have been Returned. In February 2019, F inance M inister, Piyush Goyal told that Rs 1.3 lakh Crore B lack money has been Recovered through All A nti-Black M oney Measures including D emonetization. But, Despite all these, the d ata S uggests that Demonetization is a F ailure in Unearthing the Black M oney in the System. OVERALL VIEW:

14. According to the Financial Express Report , UPI Transaction’s V alue w ent U p from Rs 1.09 Lakh C rore to Rs 21.31 lakh Crores during that Period. Total D igital P ayments, in Terms of Volume, have gone up to Rs 3.4 L akhs in 2020 from Rs 70,466 in 2016. But Not all Economists agree with this view. Some say that , Demonetization B roke the Back of Rural E conomy where Cash was Dominated and Disrupted S upply C hains. The N ote-Ban I mpact Weighed Heavily On the Economy.

15. The Government has however Claimed that Demonetization has Positive I mpacts on the Economy. Several studies conducted have shown that , D emonetisation lowered the growth rate of economic activity by at least 2 percentage points in the quarter of demonetization,  said  a working paper  entitled ‘Cash and the  Economy : Evidence from India’s Demonetisation .’ The debate is still on with respect to the effectiveness of demonetization as a move to attack blackmoney . According to an RTI reply,  the RBI’s Board didn’t support demonetization as a measure to counter blackmoney .

16. DEMONITISATION CHART:

17. THANK YOU!