Demonetization of currency and its objectives

Currency Demonetization refers to the process of discontinuing the present currency units and replacing them with new currency units. It is basically the act of stripping a currency unit of its status as legal tender.

Process of demonetization
Demonetization impacts all the citizens of a nation because overnight all the money that they possess, become a piece of paper which has no value unless they deposit them in the banks or exchange them with new currency units. The process of demonetization involves either completely replacing the old currency units with new currency units or by introducing new coins or notes of the same currency denomination within a stipulated time period. The opposite of demonetization is referred to as remonetization. In the process of remonetization a form of payment is reinstated as legal tender.

Demonetization is necessary whenever there is a change of national currency. There are several reasons as to why a government chooses to demonetize a currency unit. Some of the reasons are discussed below:

a) Getting rid of black money: this is one of the prime reasons for currency demonetization. Black money is a parallel economy which not only encourages corruption but can cripple the economy of a country. Through demonetization, the government aims to render useless all the cash that are illegally stocked up by businessmen, politicians, mafia and other corrupt individuals.

b) Discourage fake note printing: another important reason for demonetizing currency units is to end the circulation of fake currency notes in the economy.

c) Stopping terror fundings: with no black money or fake notes in circulation, the funding of terror activities will also come to a screeching halt; thereby, saving a lot of innocent lives.

d) Stopping corruption: black money and corruption go hand in hand. With the black money becoming useless piece of papers, corruption will automatically reduce to a great extend.

e) Stopping illegal share trading: the illegal share trading tends to cease to exist with the implementation of the currency demonetization. This, in turn, ensures stability in the share markets, which, in turn, will attract more investors both from within and outside the country.

f) To gain public confidence & support: the bold step of demonetizing currency units will send a clear message to the general public that government is making a constant effort to improve the economy of the country. This will help the government to gain public confidence and support.

Currency demonetization affects the general public in different ways. Demonetization is a major decision which is taken by the government after carefully analysing the various pros and cons of its implementation in the economy. Recently in India denominations of rupees 500 and 1000 were demonetized overnight. The act caught a lot of people unaware and was the cause of a lot of trouble but the general public welcomed the idea in view of a better and cleaner economy.

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