Demonetization is the process of bringing changes to the existing currency system in a country in which the state decides to demonetize the economy as well as to encourage a cash-less economy. Demonetization, in itself, holds many advantages for the country. Demonetization is one of the biggest decisions that a state can take because, during the process of implementation of demonetization, many economic and social aspects are surely at stake. However, the decision is worth it because demonetization is important for a state when:
- The flow of black money in the economy rises to uncontrollable scales. This black money damages the economy badly and it becomes important for the economy to ensure such policies in order to track down the flow of black money.
- Secondly, demonetization discourages funding to terrorist groups. Demonetization gives an effective system of check and balance overall type of transactions which helps the state to tackle such illegal activities.
- Instead of storing physical currency at home, people tend to deposit their cash with a bank which helps the nation to save more.
- With currency demonetization, there is a better circulation of money. Money moves from people to banks and financial institutions and eventually, banks and financial institutions provide a lower cost of funds which benefits the overall economy.