Citing the increase in the circulation of black money in the country, Prime Minister Narendra Modi had initiated the demonetization policy on November 8, a step by which Rs 500 & Rs 1,00 notes will be replaced with new currency notes. While the policy adopted by the government had shaken up black money-holders, with many desperately trying to save their currency notes, of the present value 500 and 1,000, from turning into useless piece of papers, the primary implementation of the policy had been a pain for several common citizens, with many of them finding themselves in long, tiring lines outside banks and ATMs. Despite facing the opposition’s ire, the Prime Minister, in an impassioned plea on Sunday, urged the people to support the move while asking them to bear the “pain for 50 days” to help him deliver the “India of your dreams”.“But what is demonetisation, what are different ways of demonetisation, and demonetisation in India? We decode all of this for you:
What is demonetisation?
Demonetisation is a radical monetary step in which a currency unit’s status as a legal tender is declared invalid. This is usually done whenever there is a change of national currency, replacing the old unit with a new one. Such a step, for example, was taken when the European Monetary Union nations decided to adopt Euro as their currency. However, the old currencies were allowed to convert into Euros for a period of time in order to ensure a smooth transition through demonetisation. In India’s case, the move has been taken to curb the menace of black money and fake notes by reducing the amount of cash available in the system.
Demonetisation in India by PM Narendra Modi
On November 8 evening, Prime Minister Modi, in his televised address to the nation, made Rs 500 and Rs 1000 notes invalid, saying that it was aimed at curbing the “disease” of corruption and black money which have taken deep root. People holding notes of Rs 500 and Rs 1,000 can deposit the same in their bank and post office accounts from November 10 till December 30. All notes in lower denomination of Rs 100, Rs 50, Rs 20, Rs 10, Rs 5, Rs 2 and Re 1 and all coins continued to be valid, and new notes of Rs 2,000 and Rs 500 were introduced. There was no change in any other form of currency exchange be it cheque, DD, payment via credit or debit cards etc. The weekly limit of Rs 20,000 for withdrawal from Bank accounts was increased to Rs 24,000 and the limit of Rs 10,000 per day has been removed yesterday. The exchange limit over the counter has also been increased from the existing Rs 4000 to Rs 4500.
Demonetisation of 1978
The government’s move to demonetise, even then, was to tackle the issue of black money. In January 1978, the Indian government demonetised Rs 1,000, Rs 5,000 and Rs 10,000 notes. The move was enacted under the High Denomination Bank Note (Demonetisation) Act, 1978. Under the law all “high denomination bank notes” ceased to be legal tender after January 16, 1978. People who possessed these notes were given till January 24 the same year — a week’s time — to exchange any high denomination bank notes. The main difference between then and now is that currency of higher denomination was barely in circulation, unlike the Rs 500 and Rs 1000 note today.