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In Conclusion

Demonetization is the process by which a currency unit loses its status as legal tender. It occurs when there is a change in a country's national currency. The existing form of currency is removed from circulation and replaced with new notes or coins, or the country replaces its old currency entirely. Demonetization is undertaken to stabilize currency value and combat inflation, facilitate trade and access to markets, and push economic activity into more transparent spaces away from black markets. A famous example is India's demonetization of 86% of its currency in 2016.

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19 views3 pages

In Conclusion

Demonetization is the process by which a currency unit loses its status as legal tender. It occurs when there is a change in a country's national currency. The existing form of currency is removed from circulation and replaced with new notes or coins, or the country replaces its old currency entirely. Demonetization is undertaken to stabilize currency value and combat inflation, facilitate trade and access to markets, and push economic activity into more transparent spaces away from black markets. A famous example is India's demonetization of 86% of its currency in 2016.

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Athena Magistrate
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© © All Rights Reserved
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In Conclusion, banking holds a crucial role in our day-to-day life.

We must adhere to the banking system as responsible citizens. The


banking system acts as a crucial base for the financial system as
well as the entire economic system of the country. It provides a
base to the market and the companies.

Money is the backbone of any country's economy.It is the main


source of exchanging nowadays. For the savings and other
economical aspects banks are the most reliable option for us where
we can save,invest or borrow money by a given terms and
conditions.

Demonetisation
In simple words, demonetisation is the process by which the
demonetised notes cease to be accepted as legal currency for any
kind of transaction. After demonetisation is done, the old currency is
replaced by a new currency, which may be of the same
denomination or may be of a higher denomination.

What Is Demonetization?
Demonetization is the act of stripping a currency unit of its status as legal
tender. It occurs whenever there is a change in national currency. The
current form or forms of money is pulled from circulation and retired, often
to be replaced with new notes or coins. Sometimes, a country completely
replaces the old currency with a new currency.

KEY TAKEAWAYS

 Demonetization is a drastic intervention into the economy that


involves removing the legal tender status of a currency.
 Demonetization can cause chaos or a serious downturn in an
economy if it goes wrong.
 Demonetization has been used as a tool to stabilize the currency
and fight inflation, facilitate trade and access to markets, and push
informal economic activity into more transparency and away from
black and gray markets.
 A famous example of demonetization occurred in 2016 when India
demonetized 86% of its nation's currency.1
 Demonetized may also refer to social media or digital content that
formerly qualified for revenue distribution but has since been denied
income proceeds.

Understanding Demonetization
Removing the legal tender status of a unit of currency is a drastic
intervention into an economy because it directly affects the medium of
exchange used in all economic transactions. It can help stabilize existing
problems, or it can cause chaos in an economy, especially if undertaken
suddenly or without warning. That said, demonetization is undertaken by
nations for a number of reasons.

Demonetization has been used to stabilize the value of a currency or


combat inflation. The Coinage Act of 1873 demonetized silver as the legal
tender of the United States, in favor of fully adopting the gold standard, in
order to stave off disruptive inflation as large new silver deposits were
discovered in the American West. Several coins, including a two-cent
piece, three-cent piece, and half-dime were discontinued.

The withdrawal of silver from the economy resulted in a contraction of


the money supply, which contributed to a recession throughout the
country.2 In response to the recession and political pressure from farmers
and from silver miners and refiners, the Bland-Allison Act remonetized
silver as legal tender in 1878.3

In a more modern example, the Zimbabwean government demonetized its


dollar in 2015 as a way to combat the country’s hyperinflation. At its peak,
Zimbabwe's hyperinflation reached month-over-month growth of 79.6
million percent growth and year-over-year growth of 89.7 sextillion
percent.4 The three-month process involved expunging the Zimbabwean
dollar from the country’s financial system and solidifying the U.S.
dollar, the Botswana pula, and the South African rand as the country’s
legal tender in a bid to stabilize the economy.5

Some countries have demonetized currencies in order to facilitate trade or


form currency unions. An example of demonetization for trade purposes
occurred when the nations of the European Union officially began to use
the euro as their everyday currencies in 2002. When the physical euro bills
and coins were introduced, the old national currencies, such as
the German mark, the French franc, and the Italian lira were demonetized.
However, these varied currencies remained convertible into Euros at fixed
exchange rates for a while to assure a smooth transition.6

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