Currency Demonetization is an Central Bank regulatory action that withdrawal/taking back to official and legal Mode of currency payments. In other Words it is process of Conversion of Currency in Colored Paper that is not in Circulation.
Demonetization in concern of India, Means that Reserve Bank of India (central Bank ) has withdrawn the old Rs 500 and Rs 1000 notes as a official mode of payment. As The PM Narendra Modi announced at 8th November that the notes of Rs 500 and Rs 1000 “will not be legal tender from midnight tonight” and these will be “just worthless pieces of paper.
Is Demonetization Is good for Economy ?
Demonetization is good For Long run Economy(after 9 months of Demonetization , While it have so many hurddles in Short runs (in first Six-9 months of Demonstrations ).
how Demonetization is Good :
Demonetisation is going to be a death blow on corruption. The exchange of hoarded cash by people with black money will end or will be minimized. Hoarders will be afraid to exchange black money as doing so may trigger penal action, monetary penalties, and/or criminal prosecution.
The society will gradually move towards a cashless one. Improvement in the banking systems and digitization of money will lead to sharp decrease in cash transactions. Cashless economy will be beneficial for all as it will be marked by financial inclusion and increased and easy access to credit.
Banking and Loan
The interest rates will fall with a fall in inflation caused by demonetisation. Also, higher deposits in banks will lead to increased ability of banks to give loans at lower interest rates, which in turn will decrease the price of commodities, real estate, etc., as well as enhance access to such commodities by those who could not previously afford it.
Tax collected via IT department search and seizure activities as well as voluntary disclosure will fill the government coffers. Increased tax revenue can help offset the fiscal deficit. Also, better tax compliance and increased tax collection in a cashless economy will result in a less complex tax system. Such a system will be marked by tax savings which will increase the disposable income of the population. This will result in increased spending by consumers and economical growth of the nation in the long term.
Negative Points of Demoentisations
Higher Liquidity in short Run
The banking system is currently flush with huge deposits. All analysis of the positive impact of demonetisation on the banking sector as well as the eventual transition towards a cashless society is based on the fact that banks will have large sums to lend. However, after the government eases the limits on cash withdrawals it remains to be seen whether consumers keep their money in banks or take them out.
Cash Crunch or Liquidity in society
The cash crunch caused by demonetisation has and will continue to affect sectors that are largely cash based. For example, jewelry, real estate, retailing, logistics, restaurants, luxury brands, consumer durables, and cement, etc. will face short-term downturn and reduced revenue.
The transition to a cashless society post demonetisation is going to require a tremendous effort and will be not easy.
Infrastructure for cash less economy
The banking infrastructure in India is way behind other emerging markets. Access to ATMs and point-of-sale terminals is limited and typically available mostly in towns and cities and in organized sector. Rural India has limited access to even banks.
The demonetization Impact in short run are not good due the poor quality banking infrastructure . While demonetization would improve in the economic transparency and profitability in long run.