Demonetisation is a situation where the Central Bank of the

country (Reserve Bank in India) withdraws the old currency

notes of certain denomination as an official mode of payment.

On November 8, 2016, Prime Minister Narendra Modi in a

surprise announcement said the existing higher denomination
currency (Rs 500 and Rs 1000) will cease to be legal tenders.
PM said this is government’s biggest push to fight black money
and end corruption. The opposition, however, criticised the
government for poor implementation of the scheme and said a
lot of people have died standing in queues trying to get their
hands on the new currency.

The government also introduced new Rs 500 and Rs 2000 notes

and urged people to move towards cash-less economy. But the
opposition has been protesting the government’s decision, even
stalling Parliament. A ‘Jan Aakrosh Diwas’ was observed by
Left and other major parties.

This is not the first time that demonetisation has been

implemented in India. In 1936, Rs 10,000, which was the
highest denomination note, was introduced but was demonetised
in 1946. Though, it was re-introduced in 1954 but later, in 1978,
the then Prime Minister Morarji Desai in his intensive move to
counter the black money, introduced The High Denomination
Banks Act (Demonetisation) and declared Rs 500 , Rs 1000 and
Rs 10,000 notes illegal.

A lot of analysis in India and abroad claimed that

demonetization of November 2016 has failed to do what it was
supposed to do and its impact has turned out to be more
protracted than initially expected.

Even from the point of view of promoting digital money, the

government need not have put 86 per cent of all currency out of
circulation. Further studies pointed out that very little black
money was caught.

The Reserve Bank of India on August 30, 2017 released its

report on demonetisation. In the report, it said 99 per cent of the
banned notes came back into the banking system which trashes
all claims of Narendra Modi that the move will flush out the
black money and counterfeit currency.

With 99 per cent currency back in the system, the failure of

demonetization hints two things, either the black money held in
cash was very low or the government failed to implement the
demonetization efficiently and all the black money held in Rs.
500 and Rs. 1000 bank notes laundered back to the banking
system.