What is Demonetization?

Demonetization is the process of finishing to produce and circulate particular forms of currency. It is usually the case when the money is no longer regularly used in the country of origin. While the coin is no longer minted or printed, any discontinued coins featured still accept as legal tender.

Going through the demonetization process can be helpful for a couple of reasons. The most common is the addition of one form of currency with another. For example, some countries have chosen to replace their smaller bills with coins of the same value. Although the banknotes no longer prints, merchants can accept them as legal currency and deposit the banknote value in a bank account. Over time, the banknotes exchange for the newer coins, and the demonetization process is considered complete.

Another reason to withdraw the currency is to completely renew the value and type of money used in the country. It is often due to foreign exchange rate issues with other countries. At other times, this wholesale change is due to the desire to rationalize the currency. However, to facilitate the use of the money for all concerned. In both scenarios, older notes and coins generally declare no longer legal tender after a specific date. However, the ancient capital can remain exchanged for an equivalent amount of the new forms of currency.

Description :

Deciding to participate in the demonetization process is something that will not do lightly. There is usually a strong reason behind currency change. Countries typically go through a learning curve as citizens begin to get used to the phasing out of one form of currency and the simultaneous introduction of a new form of money.

Demonetization rarely takes place without some public outcry. However, in most cases, the general public’s outrage short-lived, and soon everyone begins to accept the changes and gradually discontinue the use of the old currency. It is particularly true when the government only allows a specific time to exchange the discontinued money for other types of legal tender.

Rarely does demonetization take place without a certain amount of public outcry? However, in most cases, the general public’s outrage short-lived, and soon everyone begins to accept the changes and gradually stop using the older currency. It is particularly true when the government only allows a specific time window to redeem the money it stopped offering other types of legal tender.

Examples of Demonetization

Demonetization has use to steady the value of a currency or to combat inflation. The Currency Act of 1873 demonetized silver as the legal tender of the United States. In favor of full adoption of the gold standard, to avoid disruptive inflation, as new deposits of silver discovered in the West of the United States. Several coins, including the two-cent, three-cent, and half-dimes discontinued. The withdrawal of silver from the economy caused a contraction of the money supply. The contributing to a recession across the country. In response to the recession and political pressure from farmers, silver miners, and refiners, the Bland-Allison Act re-monetized silver as legal tender in 1878.

The three-month process included removing the Zimbabwe dollar from the country’s financial system and solidifying the US dollar, the Botswana pula, and the South African rand as the country’s legal tender to stabilize the economy business.

Recent Demonetization in India

Demonetization has attempted to modernize a developing economy dependent on cash and fight corruption and crime (counterfeiting, tax evasion). In 2016, the Indian government definite to demonetize the 500 and 1000 rupees notes, the two largest denominations in its monetary system; these bills represented 86 percent of its circulating cash. Without prior notice, the Prime Minister of India, Narendra Modi, announced to citizens on November 8, 2016.  These banknotes were worth nothing. They were effective immediately and had until the end of the year to deposit or redeem them for newly introduced 2,000 and 500 rupees banknotes.

Chaos ensued in the cash-dependent economy (about 78 percent of all Indian customer transactions are in cash). And also, meandering lines formed outside ATMs and banks, which had to close for a day. The new rupee notes have different specifications. And also, including size and thickness, requiring recalibration of ATMs: only 60 percent of the country’s 200,000 ATMs were in operation. Even those who dispensed low-value bills faced shortages. The government’s restriction on daily withdrawal amounts added to the misery, although a waiver of transaction fees helped a bit.

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