Demonetization means a country decides to demonetize its economy by introducing new currency changes in place of old currency. The goals behind demonetization are to cope up with black money, reduce inflation, and encourage electronic transaction, tax evasion and to eliminate the criminal activity that is done through money. It is, no doubt, influential on the economy because it is a matter of economic activity through the medium of currency. Changes in this respect can either boost the economy or slow down the growth. Impacts are both negative and positive.
What is the impact of demonetization?
Demonetization makes the government bear the cost of printing of the new economy which falls into the category of negative impacts. Additionally, demonetization brings huge changes to the economy which means economic activity will slow down. This slow down means the GDP will be likely to fall. Demonetization also creates inconvenience to the people because the banks and ATMs are crowded with people.
Besides the negative impacts, there are positive impacts as well. The goal of demonetization is to cripple down the illegal activity in the economy which creates a huge amount of black money. This black money does not help the national economy. It only benefits the black money holders only. Secondly, by demonetizing currency government can encourage advanced forms of exchange of goods and services by electronic means.