With the year coming to a close, Prime Minister Modi’s demonetization plan rang the death knell for the old 500 and 1000 rupee notes. Banks and ATMs were flooded with people depositing and demanding cash almost immediately. People were enraged by the lack of currency, which appears to have hindered economic activity in the country. The long-term benefits of this short-term hardship are being emphasized as a transition to a cashless and corruption-free society. Below given the history of demonetization till now. The history of demonetization started in 1873 in the United States of America.
UNITED STATES OF AMERICA (1873):
The history of demonetization was started from the United States of America. One of the oldest examples of demonetization may be found in the United States, where the Coinage Act of 1873 ordered the elimination of silver as legal tender in favour of the gold standard. This resulted in a money supply contraction and, as a result, a 5-year economic downturn in the country. Due to the terrible circumstances and demand from silver miners and farmers, the Bland-Allison Act was passed in 1878, re-monetizing silver as legal cash.
UNITED STATES OF AMERICA (1969):
To combat the existence of black money in the country and restore the country’s lustre, President Richard Nixon declared all currencies over $100 null and worthless in the United States of America in 1969. The move was a huge success, and it is credited with kicking off the formation of the American banking system. Until now, the $100 note has been the most extensively circulated denomination.
Demonetisation occurred in India earlier, in 1978, when the Janata Party coalition agreed to eliminate the 10,000, 1000, and 500 rupee notes in order to combat black money in the economy. Surprisingly, IG Patel, the RBI governor at the time, was opposed to the move because it was thought to be aimed at corrupt preceding government leaders. A week was provided to anyone to swap any high-denomination bills. Higher currency denominations made up such a small percentage of the total money stock that they had no discernible effect on the money supply or the pricing of essentials.
The nation demonetized its 50 cedi currency to curb tax evasion and eliminate excess liquidity. The exercise was a complete failure, as the population began to place their trust in foreign currency and actual goods. Furthermore, the general population lost faith in the financial system, resulting in the emergence of a new currency illicit market.
In an attempt to render the old currency notes obsolete, the military government of Muhammadu Buhari began producing new currency notes with new colours. The effort aiming at repairing the economy’s debt-ridden and inflated state failed tragically.
To combat the growing black economy, the military invalidated roughly 80% of the value of money in circulation. It sparked a student protest, which was followed by a government crackdown the next year.
SOVIET UNION (1991):
In an attempt to combat the parallel economy, 50 and 100 ruble notes were removed from circulation under Mikhail Gorbachev’s leadership. About a third of the money in circulation was made up of the notes that were deleted. Economic disruptions occurred, and several Soviet republics, like Kazakhstan and Ukraine, were severely impacted. People began to lose faith in the government as economic activity began to deteriorate. The demonetization effort failed, and Gorbachev was overthrown a few months later in August. Some historians believe that these events contributed to the USSR’s eventual disintegration.
The Australian government withdrew all paper-based notes, replacing them with long-lasting polymer-based notes of the same amount, in order to strengthen security and combat black money in the economy. The strategy worked to extend the life of the bills. Despite the early costs of producing polymer-based notes, this helped to make Australia a business-friendly country.
EUROPEAN UNION (2002):
The introduction of the ‘Euro’ as a unified currency on January 1, 2002 necessitated the demonetization of the current currencies of the European Union’s 12 member countries. Through 218,000 banks, post offices, and 2.8 million sales outlets, around eight billion notes and 38 billion coins were dispersed. A considerable chunk of the nine billion national notes and 107 billion national coins were gathered at the same time. Preparations began in mid-1998), and citizens were informed well in advance, resulting in a successful currency switch.
NORTH KOREA (2010):
The Kim Jong–II regime proposed currency adjustments to stop the black market and strengthen the economy. The move backfired when the cost of essential products rose, and many rejected the change vehemently. Following it, the finance minister was assassinated.
In 2015, the government chose to replace the Zimbabwe dollar with the US dollar in order to stabilize the country’s hyperinflation-plagued economy. The hasty decision backfired, as most wealth holders saw the value of their amassed money plummet. Along with public resentment, the economy suffered as a result of the loss of competitiveness, which resulted in a significant drop in exports.
On November 8, 2016, Prime Minister Narendra Modi said that 500 and 1000 rupee notes would cease to be legal tender at midnight. This generated outrage, and within an hour of the announcement, an estimated 15 tones of gold for Rs 5000 crores had been purchased. People flooded ATMs and banks, demanding and depositing cash. The problem only got worse after that. Because the Indian economy is so reliant on cash, the change has had an impact on consumption and trade (evident from record low 3.63 percent retail inflation rate for November 2016).The history of demonetization has stopped in India in 2016.
In the short term, cash-heavy industries like real estate, construction, and fast-moving consumer goods are expected to suffer. On the plus side, increased government investment and increased financial inclusion will strengthen the economy in the long run. Furthermore, since the declaration, cross-border terrorism has been contained. Governments and leaders from all over the world who pushed for demonetization almost always failed to achieve their goals or were overthrown. In an effort to punish particular groups for their wrongdoings, governments inflict hardship on people who have up to this point followed the law. The success of this practise is determined by how well the animosity among these folks is addressed.
Although Indian governments have used demonetization in the past to phase away notes (in 1946 and 1978), the removal of 85 percent of the notes in circulation is unprecedented. Reduced economic activity is anticipated to occur from a reduction in money supply and liquidity, which will affect sectors such as agriculture and the informal sector, which rely heavily on cash transactions. Demonetization has had its own history and has proven to be beneficial. The economy will not recover until the government is able to reintroduce the deleted notes into circulation. Bringing defaulters into the tax net will have a multiplier effect on the economy as a whole, resulting in growth.