Introduction
Demonetization is the process by which a currency unit ceases to be recognized as legal tender. This economic tool has been employed by various governments globally to address concerns such as inflation control, money laundering, and the curbing of counterfeit currency. In India, demonetization has been used as a significant policy intervention on multiple occasions, with the most notable instance being the November 8, 2016, demonetization of ₹500 and ₹1000 banknotes. This move was announced by the Government of India as an effort to tackle black money, eliminate counterfeit currency, and promote digital transactions. The policy had profound legal, economic, and social ramifications, affecting millions across the country.
Historical Context of Demonetization in India
Demonetization is not a new concept in India; the country has witnessed three major instances of demonetization:
- 1946: The British government demonetized Rs. 1,000 and Rs. 10,000 notes to curb hoarding of wealth and illicit transactions. However, it had minimal impact as a large section of the population was not financially included.
- 1978: Under the leadership of Prime Minister Morarji Desai, the government demonetized Rs. 1,000, Rs. 5,000, and Rs. 10,000 banknotes. This was executed under the High Denomination Bank Notes (Demonetization) Act, 1978, aimed at eradicating black money from the economy.
- 2016: The most extensive demonetization initiative, where Rs. 500 and Rs. 1,000 banknotes, constituting 86% of the total cash in circulation, were abruptly withdrawn overnight[1]. This initiative was presented as a bold move to curb black money, disrupt terror financing, and push India towards a cashless economy.