Demonetisation: Meaning, Advantages and Disadvantages

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Meaning of Demonetisation

The act to cease a currency unit or put an official stop on its status as a legal tender is known as demonetisation (alternate spelling: demonetization).

Demonetisation is the process that involves a change of national currency, where old currency is replaced with new currency.

The circulation of a specific currency unit is stopped, followed by the withdrawal of old banknotes or coins. The process of demonetisation is opposite to remonetisation, where the legal status is restored.

The demonetisation effects include both the positive and negative aspects. Let us now discuss the demonetisation benefits and demonetisation disadvantages as well.

Also read: Short Paragraph on Demonetisation

Advantages of Demonetisation

  1. Eradicate the use of fake currency.
  2. Tackle with corruption due to currency upholds.
  3. Withdrawal of old currency and bring unaccounted money back into the banking system by a considerable increase in bank deposits. With this the idle money becomes productive.
  4. Encourage digital payment modes to reach the target of a cashless society.
  5. Reduction of illegal activities.
  6. Reduced tax avoidance by encouraging higher tax payments.

With a perfect implementation, demonetisation policy can provide a great boost to any country’s economy.

Disadvantages of Demonetisation

Some of the disadvantages that may emerge could be:-

  1. Inconvenience to the public.
  2. Huge economic cost to the nation.
  3. Disruption of business activities.
  4. Decrease in sales, particularly cash based sales.
  5. Labour / Wage payment issues.
  6. Additional printing and distribution cost of new currency.
  7. Problem situation for small-scale business operations that deal in cash.

Conclusion

A well-planned demonetisation system can prove beneficial for any economy. However, in case of mishandled support, this may also cause problems. Hence, a public support must be sought for the overall success of this policy.

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