Saturday, 7 January 2017

What is Demonetisation?

Demonetization is the act of stripping a currency unit of its status as legal tender. Demonetization is necessary whenever there is a change of national currency. The old unit of currency must be retired and replaced with a new currency unit.
There are multiple reasons why nations demonetize their local units of currency. Some reasons include to combat inflation, to combat corruption, and to discourage a cash system. The process of demonetization involves either introducing new notes or coins of the same currency or completely replacing the old currency with new currency.

Historically, previous Indian governments had demonetised bank notes. In January 1946, banknotes of 100 and 1,000 rupees were withdrawn and new notes of 100, 500 and 1000 rupees were introduced in 1954. The Janata Party coalition government demonetised banknotes of 1000, 5000 and 10000 rupees on 16 January 1978 as a means of curbing counterfeit money and black money.

On 8 November 2016, Prime Minister of India Narendra Modi announced the demonetisation in an unscheduled live televised address to the nation at 20:15 IST. In the announcement, Modi declared circulation of all Rs.500 and Rs. 1,000 banknotes of the Mahatma Gandhi Series as invalid effective from the midnight of the same day, and announced the issuance of new Rs. 500 and Rs. 2,000 banknotes of the Mahatma Gandhi New Series in exchange for the old banknotes.

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