Demonetization effect involves destroying old currency notes and introducing a new currency into the economy. It is done for several reasons. Major reasons are: to control inflation, to track down black money, to stop the circulation of fake money, to control illegal activities and tax evasion by people. Demonetization affects the economy in both negative and positive ways. The story behind demonetization does not end with its motives.
- The biggest advantage of demonetization is it helps the government to track down black money and to reduce the rate of criminal activity in the country.
- Secondly, it also plays a crucial role to discourage fund transfers to terrorists.
- To improve the digital transaction of money, demonetization is used. It also helps to increase foreign reserves through digital transactions.
- Demonetization also helps to raise tax revenue by reducing tax evasion activity.
- Printing new currency is costly for the country. The government has to bear more costs than the actual benefits.
- Sudden changes in the currency create chaos in people who have to wait in long queues for hours in front of banks.
- The economy will surely experience a slowdown for a certain period.
- To make demonetization work, it is necessary to aware people of electronic payment systems that require time to be spread.