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Demonetisation: A worldwide phenomena
Currency, known as money, is used for exchanging of goods and services and it is basis for trade in the country too. Currency is circulated within economy of a country by the government. However, some times, demonetisation is done by the government, which is called an act of stripping currency unit of its status as legal tender and the old currency is replaced with a new currency unit.

Prime Minister Narendra Modi, in a surprise and special broadcast to the nation announced (November 8, 2016) demonetisation of existing Rs.500 and Rs.1,000, which had invalidated about 86 percent of the value of rupees in circulation. Demonetisation of such notes was primarily inter alia done against counterfeiting currencies, black money and to stop funding terror activities.

Earlier, in India, denomination was done twice, before and after independence, as in January 1946, banks notes of Rs.1,000 and Rs.10,000 were demonetised  and after independence the banknotes of Rs.10,000; Rs.5,000 and Rs.1,000 were demonetised on 16 January 1978,  respectively. On June 30, 2011, coin of 25 paisa was also withdrawn. However, coin of 50 paisa is still in circulation in India.

Meanwhile, according to a survey conducted by IPSOS (India) ,which is a part of Paris-based international research business company, having branches in 84 countries, in a nationwide survey in India found that over 82 percent participant Indians favored the decision of Prime Minister Modi of demonetiaation of Rs.1,000 and Rs.500 notes. Survey was conducted in 10 metro and major cities of India. Survey had received over 5 lakh responses from 2,69,293 app users and more than 85 percent who were surveyed were below the age of 35 years.

Presently 164 official currencies are being used in 197 countries and 60 countries do not have their own currency and have been using foreign currency like US dollar. While European euro (Euro) is used in 35 independent countries and overseas territories, the US dollar is used in the USA as well as 10 foreign countries. US dollar is considered as most powerful currency in the world as about forty seven percent share of payments made in world is through US dollar and eighty seven percent of the forex market's daily turnover. 

Meanwhile, Euro has about twenty eight percent of share of payments made by the international banks and it has share of thirty three percent of daily transactions in the forex. Meanwhile, there are twenty countries in the world, including Pakistan and Sri Lanka which have lower currency value than the Indian Rupee (IR).  

Process of demonetisation has been undertaken in the recent past by several countries of the world, including erstwhile Soviet Union, North Korea, Libya, Zaire, Ghana, Myanmar, Nigeria, Zimbabwe, Australia, Libya, Iraq and the European Union (EU), a union of initially 28 countries. In February 1971, the United Kingdom and Ireland had also decimalized their currencies.

In 1982, 50 cedi notes were withdrawn in Ghana, in 1984 Nigeria's military government under Muhammadu Buhari had replaced old notes with new once  to eradicate corruption in the country and in 1987 Myanmar's about  eighty percent of the value of money  in circulation was  invalidated by the military junta, which had resulted into political unrest in the country. 

In January 1991, the erstwhile Soviet Union had withdrawn large-rubles bills with the aim of taking on the black money. The invalidation of 50 and 100 rubles notes had led to the invalidation of about one-third of money in circulation in the Soviet Union. However, this currency reform to fight with menace of black money failed to give any positive result and the government could not stop the increasing high inflation.

People lost their faith in the leadership of Mikhail Gorbachev and finally on December 25, 1991, this resulted into the breakup of Soviet Union. In 1993, the Zaire government under the dictatorship of Mobutu Sese Seko had undertaken the process of withdrawing obsolescent currency from the system, which led to unexceptional inflation in the country following which country faced a civil war which resulted into dismissal of President Mobutu in 1997.   

In 1996, Australia had replaced all paper-based notes with polymer bank notes with the aim of stopping widespread counterfeiting. Such polymer notes were developed by the Reserve Bank of Australia (RBA), Commonwealth Scientific and Industrial Research Organization (CSIRO) and the University of Melbourne and Australia become first country in the word in introducing such type of currency.    

Later in 2010, North Korea, under the dictatorship of Kim Jong-Il had initiated currency reform in the country to eradicate black markets as well as to tighten government's control over the economy. In 2012, Libya's central bank had also withdrawn old currency notes to restore liquidity when vast portions of funds were not being kept in the country's banks. Meanwhile, during 1998-2000 the European Union (EU) undertook world's biggest exercise of creation of a single currency called European euro (Euro), which led to demonetisation of various currencies of the member countries.

In some cases, several countries had given sufficient times to its nationals and other concerned to exchange old currencies with new ones. In 2002, the European Council (EC) had replaced a large number of currencies and EU nationals were given two months time. In Philippines the government had announced to withdraw old peso notes in December 2014 starting from January 2015 but allowed to its customers to replace the withdrawn note up to January 2016. Similarly, in 2009, when the US dollar was withdrawn as a Zimbabwean currency, citizens were given a three-month window before replacing the dollar. 

In  mid-2015, the State Bank of Pakistan (SBP), which is the central bank of the country, had announced  that  all old design bank notes would cease to be legal tender from December 2015. Earlier in March 2015, the SBP had directed all commercial and microfinance banks not to issue old designed bank notes from April 1, 2015. The SBP had started issuing new notes from the year 2005 and completed this process by the end of year 2008, when all other denominations received new designs. It was done mainly to improve the security and durability of the Pakistani currency notes.

Incidentally, citing India's example of demonetisation, Pakistan People's Party (PPP) Senator Osman Saifullah Khan, submitted (November 11, 2016) a resolution in the Senate, the Upper House, asking the Pakistan government to withdraw 1,000 and 5,000 rupee notes from circulation in the country to tackle corruption.

Despite expected criticism of Prime Modi's decision of demonetisation of existing Rs.500 and Rs.1,000  by leading opposition parties of the country, majority of the countrymen, particularity youth have favored it ignoring the hardship faced by them in exchanging the old currency with new notes.

Critics fear that demonetisation of notes may have some negative effects in infrastructural and housing projects and e-commerce for the time being. But it would have positive results also such as gaining by banks, bringing down deposit and lending rates, better tax collection, larger bank accounts and increase in tax allocation and GDP growth. However, the most positive effect would be curbs on black money in the country.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of merinews.com. In case you have a opposing view, please click here to share the same in the comments section.
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