Positive and negative effects of currency demonetization:-

Negative Effects:-

1. As government has announced it in a hastiness, it may effect its execution.

2. Allow withdrawal from ATM is upto Rs. 2500 and from bank its Rs 10000 only. Long queues
will not allow a person to get money on time. It will be a little difficult for a family person to
survive with this amount.
3. The Average Population per Bank Branch (APBB) as on 31.3.2013 stands at 12,100 (source).
Government has given us 50 days to deposit all our cash money into our bank accounts. Lets say
40 days are working out of 50. It means, on banks have to deal with average of 300 people daily.
Yes, I agree that this number includes every living human being (children, senior citizens,
women), so you can say that this number will reduce on practical scale. But wait, what about
people who will come along? What about people who will come repeatedly, or I can say, daily?
What about people who have to come again due to closing time or any other reason? This
number will surely exceed. Believe me, public dealing is a very tough job and when you have
300 hassled brains in front of you, it becomes horrible.
4. Running out of Money: Though, everyone needs new currency notes, it is very hard to provide
cash on time, even by RBI. Because, there is a limit on printing currency notes.
5. Empty ATM’s: Same as bank branches, queues on ATM’s will also have to face same fate.
Standing in long queues and returning with nothing will not please anyone.
6. Patients: Government hospitals have been allowed to accept old Rs 500 and Rs 1000 notes.
According to National Family Health Survey-3, the private medical sector remains the primary
source of health care for 70% of households in urban areas and 63% of households in rural areas.
So its easy to understand that what will be the effects on these 63% and 70% patients.
7. White Into Black: As Indian, we do believe in cash. Even if our money is purely white, we go to
bank, withdraw some money and go for shopping. Cheques and ATM swipes are not available
everywhere. Like, if someone in family is hospitalized or, have marriage in house, we do
withdraw our cash and feel comfortable. So, whatever the reason is, if someone has withdrawn a
decent amount from his account then it will create a huge problem for him to prove himself
innocent. So, in this case, instead of converting black money into white, a person has
accidentally converted his white money into black.
8. Patience of People: Considering all of the above points (and many more in the line), it will need
a superman effort from a common man to keep his patience in balance. Any outburst in the
tolerance of people will make the situation more terrible. Though, for now, people are more in
favor of respected PM because right now they are not suffers. But when they will face hurdles in
their routine jobs due to shortage of money then it will be their patience which will make this
historic move a success story.
9. Downfall in Economy: Though, it will be a very temporary effect, but for the next few months,
there will be a visible effect on economy due to the decreased purchased capacity of consumers.
Worst effects will be on startups and medium sized companies and firms.

Positive Effects:-

 Foreign Trust: Transparency is always welcomed, specially in business. It is the most important
gradient for foreign investors. Everyone like to have their money in safe hands. Black money is a
major factor in India which inhibits the rapid growth in private sector. When a company decides
to invest in a product they can calculate almost every kind of expenditure they will have to face
except bribe. Ratan Tatahas shown his irritation about corruption and bribe many times. So
decreased black money will surely help Indian government to gain trust from foreign investors.
 Lubrication in Circulation: Money is the lubrication that makes the market economy possible.
A large portion of this lubricant was immobilized in the form of black money. Rs 500 and Rs
1000 shares a major part. Due to this immobilization government is bound to circulate more
currency notes in the market to keep it running.

 Hard Money to Digital Money: Though, it is the first of its kind, but we may have to face these
surgical strikes on black money in the future too. This will give some time to people to
understand the need of digital money in the current era. We have seen some inspiring pictures
where vegetable seller is accepting money via PayTm. India is changing.
 New Hope: Black money was a key agenda for BJP during election campaigns. But people were
disappointed when there was no major step taken by the current government. Now when PM
Modi has declared the demonetization of Rs 500 and Rs 1000 notes, a positive vibe has been
spread through out the country.
 Zero Counterfeit Notes: In India, the circulation of fake Indian currency notes (FICN) has been
on the rise, according to the Reserve Bank of India’s (RBI) annual reports. The year 2014-2015
saw a steep rise, with 594,446 FICN detected, up from 488,273 in the year 2013-14. When it
comes to the type of notes counterfeited in 2014-15, RBI data showed that counterfeited Rs 500
 notes were most common, with 273,923 recorded. Rs 100 and Rs 1000 notes were the second
and third most counterfeited bills, respectively (source).

Most of the FICN are printed in Pakistan. Major transit points include India’s neighboring countries
Nepal and Bangladesh. Other transit routes includes Dubai, Thailand, Malaysia, Sri Lanka and
China (source). Now all this FICN is equal to ZERO.

 Rein on Terrorism: The ISI has been making a profit of 30-40% on the face value of each
counterfeit Indian note produced in Pakistan, according to the report. The cost of printing a Rs
1,000 counterfeit note, for instance, is Rs 39 (the RBI spends Rs 29 to print a Rs 1,000 note), but
it is sold at Rs 350-400, according to the report. It is a measure source of funding for these
terrorist groups. Now all these funding will be equal to ZERO.
 Increased Income Tax Revenue: It would be an exaggeration to say that all black money
holders will deposit all of their stored cash into bank accounts. But they will also not let
their hard-earned cash to become worthless paper. And whatever they will do it will convert
their black money into white, at least for once. Someone is surely going to pay income tax on
that amount. It will drastically increase the revenue generated from tax.
 Deflation: Deflation refers to situation, where there is decline in general price levels. It increases
the real value of money and allows one to buy more. goods with the same amount of money over
time. All of the above mentioned points will lead to the decrease in inflation which will
automatically increase deflation rate. Goods will be cheaper and facilities will be in the range of
poor people.

Growth of Mobile wallets after demonetization:-

The demonetization policy announced by the government last month, led to cash crisis in the Indian
economy. This forced people to make transactions through electronic modes, especially via
mobile wallets.

“With Prime Minister Narendra Modi announcing on November 8 India’s first major ‘currency
vasectomy’, and amid the resultant cash squeeze coming as a disruptive step to fast-forward the
country into a breakaway economy, as many as 23.3 crore unbanked people, out of 38 crore
smartphone users, are skipping the plastic money stage altogether and embarking directly into
 digital transactional stage,” Abhijeet Vijayvergiya, VP and Country Head-India, Capillary
Technologies told Business Line.
Citing RBI data, he said that 10 lakh new e-wallet users joined the bandwagon every day in the first
two weeks of demonetisation. The mobile wallets which were 20 crore before demonetization, is
estimated to grow to 65 crore with a 9.5 per cent month-on-month growth rate. In terms of value,
mobile wallet transactions are estimated to leapfrog from Rs 5,500 crore in 2015-16 to Rs 30,000
crore in 2022.
While supporting supporting demonetization, Nandan Nilekani, creator of Aadhaar, said digital
transactions will escalate in the next three to six months to a rate that would otherwise have
taken three to six years.In contrast, the growth of plastic money has been dismally low in the last
month, with credit cards and debit cards registering a month-on-month growth rate of only 1.7
per cent and 2.2 per cent, respectively.

Roadmap for cashless economy:-

The cashless economy should be achieved in the phased manner and step by step process instead of
forcing it on people overnight without expanding/providing banking infrastructure to every nook
and corner of the country, internet connectivity with high speed at cheap rate and unbroken
power supply. The government should continue the demonetisation program of high valued notes
one by one along with making the cashless transactions step by step and from top to bottom i.e;
from the super-rich to rich; from the rich to middle class; from high valued goods to low valued
goods; from luxury items to essential commodities

India is moving towards a cashless economy to prepare a roadmap to boost transparency and
financial inclusion. The digital or electronic transaction of the capital by using net banking,
credit cards etc. is called cashless transfer. People can easily pay their bills online, shop and
schedule transactions and manage all the finances using their laptops or smart phones.

India has one of the highest cash to gross domestic product ratios in the word, and practicing
economic activity with paper has costs. Production of coins and paper currency is indeed an
expensive endeavor and the life span of most of the paper currencies is about 6 years. So, by
going electronic the cost of production gets reduced.

Also, shift away from cash will make it more difficult for tax evaders to hide their income. The
overall idea to reduce usage of cash and increase transparency.

Greater usage of digital payments will save trillions of rupees for the Indian economy as it will help
bring down the cost of cash, says a report by payments company Visa.

This helps to curb corruption and the flow of black money which results in an increase of economic
growth.
 Effect of currency demonetization on Indian society and economy:-

Demonetization is a generations’ memorable experience and is going to be one of the economic

events of our time. Its impact is felt by every Indian citizen. Demonetization affects the economy
through the liquidity side. Its effect will be a telling one because nearly 86% of currency value in
circulation was withdrawn without replacing bulk of it. As a result of the withdrawal of Rs 500
and Rs 1000 notes, there occurred huge gap in the currency composition as after Rs 100; Rs 2000
is the only denomination.
Absence of intermediate denominations like Rs 500 and Rs 1000 will reduce the utility of Rs
2000. Effectively, this will make Rs 2000 less useful as a transaction currency though it can be a
store value denomination.
Demonetization technically is a liquidity shock; a sudden stop in terms of currency availability. It
creates a situation where lack of currencies jams consumption, investment, production,
employment etc. In this context, the exercise may produce following short term/long term/,
consumption/investment, welfare/growth impacts on Indian economy. The intensity of
demonetization effects clearly depends upon the duration of the liquidity shocks. Following are
the main impacts.

1. Demonetization is not a big disaster like global banking sector crisis of 2007; but at the same
time, it will act as a liquidity shock that disturbs economic activities.
2. Liquidity crunch (short term effect): liquidity shock means people are not able to get sufficient
volume of popular denomination especially Rs 500. This currency unit is the favourable
denomination in daily life. It constituted to nearly 49% of the previous currency supply in terms
of value. Higher the time required to resupply Rs 500 notes, higher will be the duration of the
liquidity crunch. Current reports indicate that all security printing press can print only 2000
million units of RS 500 notes by the end of this year. Nearly 16000 mn Rs 500 notes were in
circulation as on end March 2016. Some portion of this were filled by the new Rs 2000 notes.
Towards end of March approximately 10000 mn units will be printed and replaced. All these
indicate that currency crunch will be in our economy for the next four months.
3. Welfare loss for the currency using population: Most active segments of the population who
constitute the ‘base of the pyramid’ uses currency to meet their transactions. The daily wage
earners, other labourers, small traders etc. who reside out of the formal economy uses cash
frequently. These sections will lose income in the absence of liquid cash. Cash stringency will
compel firms to reduce labour cost and thus reduces income to the poor working class.

There will be a trickle up effect of the liquidity chaos to the higher income people with time.
4. Consumption will be hit: When liquidity shortage strikes, it is consumption that is going to
be adversely affected first.

Consumption ↓→ Production ↓→ Employment ↓→ Growth ↓→ Tax revenue ↓

 5. Loss of Growth momentum– India risks its position of being the fastest growing largest
economy: reduced consumption, income, investment etc. may reduce India’s GDP growth as
the liquidity impact itself may last three -four months.
6. Impact on bank deposits and interest rate: Deposit in the short term may rise, but in the
long term, its effect will come down. The savings with the banks are actually liquid cash people
stored. It is difficult to assume that such ready cash once stored in their hands will be put into
savings for a long term. They saved this money into banks just to convert the old notes into new
notes. These are not voluntary savings aimed to get interest. It will be converted into active
liquidity by the savers when full-fledged new currency supply take place. This means that new
savings with banks is only transitory or short-term deposit. It may be encashed by the savers at
the appropriate time. It is not necessary that demonetization will produce big savings in the
banking system in the medium term. Most of the savings are obtained by biggie public sector
banks like the SBI. They may reduce interest rate in the short/medium term. But they can’t
follow it in the long term.
7. Impact on black money: Only a small portion of black money is actually stored in the form of
cash. Usually, black income is kept in the form of physical assets like gold, land, buildings etc.
Hence the amount of black money countered by demonetization depend upon the amount of
black money held in the form of cash and it will be smaller than expected. But more than
anything else, demonetization has a big propaganda effect. People are now much convinced
about the need to fight black income. such a nationwide awareness and urge will encourage
government to come out with even strong measures.
8. Impact on counterfeit currency: the real impact will be on counterfeit/fake currency as its
circulation will be checked after this exercise.
Demonetization as a cleaning exercise may produce several good things in the economy. At the
same time, it creates unavoidable income and welfare losses to the poor sections of the society
who gets income based on their daily work and those who doesn’t have the digital transaction
culture. Overall economic activies will be dampened in the short term. But the unmeasurable
benefits of having more transparency and reduced volume of black money activities can be
pointed as long term benefits.