Demonetisation

 #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.

The country which demonetized its currency after India but immediately backtracked was Venezuela. The Government of Venezuela demonetized the 100 bolívares notes on December 11, 2016.

Abstract: The demonetisation was done in an effort to stop counterfeiting of the current bank notes alleged to be used for funding terrorism, controlling black money and reducing income inequalities among the people of the country.

Demonetisation has been implemented twice -1946 and 1978 – in the past. The first currency ban: In 1946, the currency note of Rs 1,000 and Rs 10,000 were removed from circulation.

Because of demonetization there is less liquidity and less cash flow in the market thats why inflation becomes down. As the black money goes out of the system the money supply will shrink to some degree. This will reduce inflation rate in the Lower absence of any open market interventions by the Reserve Bank of India.

Increased Savings – As a result of demonetization, people will tend to deposit their cash in the bank rather than at home. This will help them save more. Lower lending rates – With currency demonetization, money moves from people to banks and financial institutions. Thus, there is a better circulation of money.

Examples of demonetization include: 1. United States: In 1873, the Coinage Act demonetized silver as legal tender to stave off inflation from the growing discovery of silver deposits in the West. This led to significant economic disruption, culminating in a recession and leading to the remonetization of silver in 1879.