COUNTRIES THAT HAVE TRIED

DEMONETIZATION IN THE PAST

BY GROWW.IN

CONTENTS:

INTRODUCTION LIST OF COUNTRIES CONCLUSION

INTRODUCTION:• With the year 2016 approaching an end, Prime Minister Modi’s announcement

on demonetization also sounded a death knell for the existing 500 and 1000 rupee notes.

• Instantaneously, banks and ATMs were engulfed with swarms of people depositing and demanding cash.

• A transition towards a cashless and a corruption free society are being cited as the long term benefits of this short term pain.

• But, are the inconveniences being faced by us well worth the gains that are accrued to us in the future?

LIST OF COUNTRIES THAT HAVE TRIED DEMONETIZATION:• UNITED STATES (1873)• UNITED STATES (1969)• INDIA (1978)• GHANA (1982)• NIGERIA (1984)• MYANMAR (1987)• SOVIET UNION (1991)• ZAIRE(1993)• AUSTRALIA (1996)• EUROPEAN UNION (2002)• NORTH KOREA (2010)• ZIMBAWE (2015)• INDIA(November, 2016)• VENEZUELA (December, 2016)

UNITED STATES (1873):

One of the earliest instances of demonetization can be witnessed in United States on mandated removal of silver in favour of adopting the gold standard as the legal tender.

This led to a contraction of the money supply and subsequently a 5-year economic depression in the country.

UNITED STATES (1969):

In 1969, the United States of America under President Richard Nixon declared all bills above $100 null and void ,to curb the existence of black money in the nation and restore the country’s sheen.

The $100 bill is the most widely circulated denomination till date.

INDIA (1978):

India witnessed demonetization before in 1978 when the Janata party coalition in order to counter black money in the economy decided to scrap 10000, 1000 and 500 rupee notes.

The RBI governor back then, was not in favour of the step since it was believed that the step was targeted at the corrupt predecessor government leaders.

GHANA (1982):

To reduce tax evasion and clear excess liquidity, the country demonetized its 50 cedi currency.

The exercise was highly unsuccessful as the public started turning towards foreign currency and physical assets.

NIGERIA (1984):

The military government under Muhammadu Buhari started issuing new currency notes with new colours in an attempt to make the old notes obsolete.

The movement aimed towards fixing a debt-ridden and inflated economy failed miserably.

MYANMAR (1987):

The military invalidated nearly 80 percent of the value of money in circulation with the motive to curb the rising black economy.

It resulted in a student demonstration followed by a government crackdown the very next year.

SOVIET UNION (1991):

Under the leadership of Mikhail Gorbachev, 50 and 100 rubble notes were removed from circulation in an attempt to combat the parallel economy.

The removed notes formed about one third of the total money in circulation. There were economic dislocations and several Soviet republics such as Kazakhstan and Ukraine were severely affected.

ZAIRE(1993):

Under the dictatorship of Mobutu Sese Seko, successive currency reforms were rolled out.

Obsolescent currency was withdrawn from the system in 1993. Increasing economic disruptions resulted in ouster of Mobutu in 1997.

AUSTRALIA (1996):

In order to improve upon the security features and curb black money in the economy, the Australian government withdrew all paper-based notes replacing them with polymer-based note.

This helped in making Australia a business friendly country, despite the initial costs incurred to manufacture polymer-based notes.

EUROPEAN UNION (2002):

Introduction of a unified currency ‘Euro’ on Jan 1, 2002 called for demonetization of the existing currencies of 12 countries under the European Union.

About eight billion notes and 38 billion coins were distributed through 218,000 banks, post offices and 2.8 million sales outlets.

Prior preparations starting from mid 1998 and informing the citizens well in advance resulted in this successful currency changeover.

NORTH KOREA (2010):

In order to halt black market and improve the economy, Kim Jong–II government introduced currency changes.

The move backfired as the price of necessity goods increased and people strongly resisted the move.

This was followed by the murder of the finance minister.

ZIMBAWE (2015):

In order to stabilize its economy racked by hyperinflation, the government decided to replace the Zimbabwe dollar with the American dollar in 2015.

The move, carried out in a haste turned out to be unsuccessful as most wealth holders saw the value of their accumulated savings receding.

INDIA(November, 2016):

On November 8,2016 PM Narendra Modi declared that from the stroke of midnight 500 and 1000 rupee notes would cease to be legal tender.

This immediately sparked unrest and an estimated 15 tonnes of gold worth Rs 5000 crores was bought within an hour of the announcement.

ATMs and banks were engulfed with people demanding and depositing cash. The situation only deteriorated thereafter.

VENEZUELA (December, 2016):

In order to curb the rising inflation rate that reached 425% and tackle the growing threat of the transnational mafias breeding in the country.

The Nicolas-Maduro led government announced demonetization of its 100 Bolivar notes (which form 77% of the nation’s cash in circulation).

CONCLUSION: More often than not, governments and leaders from around the world who forced

demonetization failed to see their dreams fruition or faced an ouster.

In an attempt to crack down upon the wrong doings of certain sections, governments also cause inconveniences to those who have hitherto complied with law and order.

How well the resentment among these people is tackled is what determines the success of this exercise.

Although, Indian governments have resorted to demonetization before in 1946 and in 1978 to phase out notes, removing 85% of the notes in circulation is unprecedented.