Demonetization in a common language is the act of replacing the old currency/notes with the new currency/notes. In other words, it means opening the door for the new currency. The goal of demonetization is to encourage cashless systems, online banking systems, and counterfeit currency and to eradicate corruption/black money. After 1946 and 1978, the government announced the third demonetisation on 8 November 2016. Reserve Bank of India has withdrawn the legal identity of Rs. 500, Rs. 1,000 and introduced new Rs. 2,000 currency notes on the same date.

• Marginal Cost of Lending Rate has been introduced by RBI and those who are under the MCLR scheme may enjoy the benefits of lower lending rates due to demonetisation.
• As of December 30, demonetization made up to 97% of the old banknotes deposited into banks which have received a total of Rs. 14.97 trillion out of the Rs. 15.4 trillion that was demonetized.
• Cash withdrawals by the customer from their bank accounts were restricted to Rs.10,000 per day and Rs. 20,000 per week per account from 10th to 13th November 2016. Later on, this limit was increased to Rs. 24,000 per week from 14th November 2016
• There was a limit on daily withdrawals from ATMs and was changing from Rs. 2,000 per day till 14 November 2016 and Rs. 2,500 per day till 31 December 2016. This limit was again changed to Rs. 4,500 per day from January 1, 2017, and again to Rs. 10,000 from January 16, 2017. Limits were imposed vide the circulars cited above on cash withdrawals stand withdrawn with immediate effect later on. RBI increased the withdrawal limit from the Savings Bank account to Rs 50,000 from the earlier Rs 24,000 on 20th February 2017 and then it removed all withdrawal limits from Bank Accounts on 13 March 2017.
• The total expenditure of the Reserve Bank of India has increased by 107.84% or by Rs 16,165 crore to Rs. 31,155 crore in 2016-17 primarily due to an increase in expenditure on the printing of new currency notes as part of remonetization of currency and provisions.
• Income Tax department (IT) official revealed that since November 9, 2016 more than Rs 10,700 crore cash was deposited in different bank accounts in North Eastern states. IT official said that more than Rs 2,00,000/-as deposited in over 60 lakh bank accounts, post demonetisation.
• As per the statement of Finance Minister Arun Jaitley (Business Standard, September 11,2017) demonetisation had decelerated economic activity and put the common man at many problems, was aimed at flushing out black money, removing fake currency, changing the non-formal economy into a formal one to expand the tax base and employment and giving a big upturn to the digitization of payments to make India a less cash economy.
• As per the BJP president's statement (Business Standard, September 7, 2017), demonetization has not had any negative impact on economic growth. The fall in GDP is due to some other technical reason and not because of demonetisation.

 

The goal of demonetization is to encourage cashless systems, online banking systems, and counterfeit currency and to eradicate corruption/black money.

Learning Objectives

1. What is meant by demonetization?
2. Elucidate the marginal cost of lending rate due demonetization.
3. What is limit on daily withdrawals from ATMs during demonetization period?
4. Identify the effect on economic growth due to demonetization.