On the evening of 8 November 2016, Prime Minister Narendra Modi made a sweeping declaration – a ban on Rs 500 and Rs 1000 notes across the country, in a bid to flush out the black money from its economy.
Whether Modi’s demonetisation policy has long-term benefits for the Indian economy remains to be seen. Many have called the experiment too risky.
Following the launch of the policy, the country witnessed a massive cash-crunch in the ATMs for weeks, with many turning towards digital payment apps in the stead.
While the matter was seemingly resolved in the past year-and-a-half, another wave of cash crunch has been reported in states such as Karnataka, Andhra Pradesh, Telangana, Uttar Pradesh, Madhya Pradesh and Maharashtra.
While the Reserve Bank of India assured that there is no shortage of cash in the banks, it also said that the shortage in the ATMs of certain states may be due to “logistical issues”.
The cash crunch, however, has reportedly worried Indians, much like it did in the weeks following Modi’s announcement of the demonetisation policy.
However, India isn’t the only country to have experienced the aftermath of the demonetisation policy.
According to a report by Free Press Journal, several countries had implemented the policy in the past, each with their own agendas. While some witnessed the positive effects of the policy on their economy, others termed it a disaster.
Countries Where Demonetisation Was Successful
A report by the Free Press Journal states that while demonetisation policy has been implemented by governments of various countries through the years, there are four countries and the European Union in which it actually worked in the favour of the economy.
In the European Union, 12 countries belonging to the Union introduced their single currency ‘Euro’ on 1 January 2002. About eight billion notes and 38 billion coins were distributed through 218,000 banks, post offices and 2.8 million sales outlets, the report mentions.
Pakistan launched its demonetisation policy in 2016, applicable to 10, 50, 100 and 1,000 rupee notes’ older design, with the State Bank of Pakistan (SBP) being asked to issue newly designed banknotes.
The government issued the tender way in advance of the launch of the policy, which gave citizens enough time to exchange their old notes for their new counterparts.
In a bid to “stabilise” its economy, which at the time was undergoing hyperinflation, the Zimbabwean government in 2015 replaced the Zimbabwe dollar with the American dollar, the report mentions.
Australia, in its attempt to flush out black money and for security purposes, decided to replace its paper-based notes with polymer bank notes of the same denomination. This, the report mentions, did not have any side-effects on the economy as such, and in fact, made Australia a more “business-friendly” country.
The United Kingdom, in the meanwhile, had in 1971 introduced the decimal currency against pounds, shillings, and pence.
Countries Where Demonetisation Failed
One of the worst cases of demonetisation policy failing was in North Korea in 2010, which under the then dictator Kim Jong II had knocked off two zeroes from the face value of the old currency. This, another Free Press Journal article pointed out, led to food shortage, increase in the price of necessary goods and no shelter.
The Soviet Union, under Mikhail Gorbachev in 1991, had withdrawn 50 and 100 ruble notes from circulation, in order to tackle black money.
The move backfired with the Soviet economy collapsing, leading to resentment of its people towards the government, a possible cause for its break up.
In Myanmar in 1987, the military had banned the circulation of about 80 percent of the country’s money, in hopes of destroying the black economy. However, this soon led to student demonstrations and mass protests, which led to a government crackdown, killing hundreds.
Ghana and Nigeria too reported terrible trials of demonetisation, in 1982 and 1984 respectively.
In Ghana, the government banned its 50 cedi notes to curb tax evasion and fight corruption. However, this led to the masses embracing the functioning of a black market, putting money into physical assets and embracing foreign currency,
In Nigeria, the Muhammadu Buhari’s government issued new currency notes with new colours, so that the old ones were fast outdated. This wasn’t a successful move, and the following year, Buhari was ousted from his seat in a coup.
(With inputs from Free Press Journal)
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