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Abstract

Demonetization is an act of cancelling the legal tender status of a currency unit in circulation. Countries across the globe have used Demonetization at some or the other point to control situations such as inflation and to boost economy. In November 2016, Indian government banned the high denomination notes of Rs.1000 and Rs.500 as a move to curb counterfeiting and money laundering. It also announced the issuance of new Rs.500 and Rs.2000 banknotes in exchange for the demonetized banknotes. The announcement of demonetization was followed by prolonged cash shortages in the weeks that followed, which created significant disruption throughout the economy.  People seeking to exchange their banknotes had to stand in lengthy queues, and several deaths were linked to the rush to exchange cash. Initially, the move received support from several bankers as well as from some international commentators. The move was also criticized as poorly planned and unfair, and was met with protests, litigation, and strikes against the government in several places across India. This paper studies whether the act of demonetization fulfilled its said objective or not and compares the state of Indian economy before and after demonetization.

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