THE DEMONETIZATION

On 8th November 2016 GOI made history by taking a striking bold step to
demonetize Rs.500 & Rs.1000 note to reform the finance sector.. Making 86 per cent
of the currency in circulation illegal in one stroke.
History of Demonetization in India:
First demonetization : Pre Independence era in year 1946.
The highest denomination note ever printed by the Reserve Bank of India was the Rs
10,000 note in 1938 and again in 1954. But these notes were demonetized in January
1946 and again in January 1978, according to RBI data to curb counterfeit and black
money.
Countries Implemented Demonetisation:
a. Nigeria: During the government of Muhammadu Buhari in 1984, Nigeria introduced
new currency and banned the old notes. However, the debt-ridden and inflation hit
country did not take the change well and the economy collapsed.
b. Ghana: In 1982, Ghana ditched their 50 cedis note to tackle tax evasion and empty
excess liquidity. This made the people of the country support the black market and they
started investing in physical assets which obviously made the economy weak.
c. Pakistan: From December 2016, Pakistan will phase out the old notes as it will bring
in new designs. Pakistan legally issued the tender a year and a half back, and therefore,
the citizens had time to exchange the old notes and get newly designed notes.
d. Zimbabwe: Zimbabwe used to have $100,000,000,000,000 note. Yes, a one
hundred trillion dollar note! The Zimbabwean economy went for a toss when President
Robert Mugabe issued edicts to ban inflation through laughable value notes. After
demonetisation, the value of trillion dollars dropped to $0.5 dollar and were also put up
on eBay.
e. North Korea: The demonetisation that happened in North Korea in 2010 left people
with no food and shelter. Kim-Jong ll introduced a reform that knocked off two zeros
from the face value of the old currency in order to banish black market.
f. Soviet Union: Mikhail Gorbachev ordered to withdrew large-ruble bills from
circulation to take over the black market. The move didnt go well with the citizens
which resulted into a coup attempt which brought down his authority and the led to
Soviet breakup.
g. Australia: Australia became the first country to release polymer (plastic) notes to
stop widespread counterfeiting. Since the purpose was to replace paper with plastic and
only the material changed, it did not had any side-effects on the economy.
h. Myanmar: In 1987, Myanmars military invalidated around 80% value of money to
curb black market. The decision led to economic disruption which in turn led to mass
protests that killed many people.
2. The Reserve Bank of India (RBI) has clarified that banks will have to bear the full
liability in the event of any security breach or compromise in the authorised card
network.
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3. Reserve Bank of India has given an approval to British payments company Earthport
for outbound cross-border payment services to banks in India.
4. RBI has opened a second office of the Banking Ombudsman in New Delhi, taking into
account the significant increase of the banking network
The first office of the banking ombudsman at RBI, New Delhi, would have control
over Delhi and Jammu & Kashmir. The second office would have jurisdiction
over Haryana
5. The Reserve Bank of India on November 23, 2016 declared to increase the limit of
the Prepaid Payment Instruments (PPIs) from Rs. 10,000 to Rs. 20,000 per
month and Rs. 50,000 for Merchant Bank to facilitate digital transactions.

6. The Reserve Bank of India increased the Cash Reserve Requirement (CRR) for
incremental deposits between September 16 and November 11 to 100% while the
current CRR is 4%, effective from November 25, 2016
7. The RBI has planned to open Islamic window in conventional banks.
Aim: Gradual introduction of Sharia-compliant ( interest-free banking) in the country.
8. Due to Increase in NPA, 16 of 22 public sector banks skipped Dividends in FY 16.