Demonetization is the process of ceasing to produce and circulate particular forms of currency. The Indian government recently demonetized high-value banknotes to curb black money in the economy. This will impact sectors that rely heavily on cash transactions like real estate and movies. In the long run, demonetization could lower bank lending rates, increase tax revenues as black money is recovered, and push more households towards formal banking increasing financial inclusion. However, it may not fully address the root causes of black money generation unless mechanisms are introduced to track the new currency notes.

1. By
Okeke Chizoba Gideon
MODINOMICS ANY EFFECT
ON
THE BLACK ECONOMY?

2.  Demonetization is the act of stripping a currency unit of its
status as legal tender. It is the process of ceasing to produce
and circulate particular forms of currency.
 This is necessary whenever there is a change of national
currency. The old unit of currency is retired and replaced with
a new currency unit.
What is Demonetization?

3. Why Demonetization.
 The Financial Action Task Force, a global body that looks at
the criminal use of the international financial system notes that
high-value bills are used in money laundering schemes,
racketeering, and drug and people trafficking.
 Unearth black money from the economy.
 Stall the circulation of counterfeit currency.
 Remove the election funding for polarization
 Control the inflation and price rise.
 Fight corruption and money laundering.
 Curb the funding for anti-social elements like smuggling,
terrorism, espionage etc.

4. Percentage share of currencies.

5. Impact of Demonetization
• The effect of this policy is not going to be
uniform across the economy. Sectors that have a
larger cash component in their transactions will be
hit harder, such as real estate, movie production,
campaign finance, etc.
• This will then be followed by a correction in these
markets. Whether these corrections are
deflationary (reducing prices) or contractionary
(reduce business) is something to watch closely.

6. Impact of Demonetization

7. Long Term Impact
• This could also have the effect of bringing down deposit and lending rates
further without the RBI having to cut its repo rate. A rise in deposit base
will allow banks to lower the blended cost of funds
• Rising use of credit/debit cards, net banking and other online payment
mechanisms will be another positive, as these would not only lower
transaction costs but some of these could help earn some fee income as
well.
• It also provides a boost to the government’s financial inclusion drive,
pushing more households towards efficient banking and payment
infrastructure.
• Tax revenues will increase.
• Bank deposits will increase and they will have more capacity to support the
economy. It will boost growth as it will expand and clean the formal gross
domestic product.

8. Long Term Impact

9. Huge amount of money have been recovered by
I.T department as attempt was made to make
them white money.
Sinha's Presentation

10. Any impact on the black economy?
• Black money hoarders will definitely lose out, eventually
boosting the formal economy in the long run.
• Despite having many positives such as rising tax to GDP,
higher GDP growth, lower inflation, higher financial
savings, this demonetization move may not curb the root
cause of black money.
• This initiative addresses the ‘stock’ of black money but not
necessarily the “flow or fresh” creation of black money
unless some mechanism is built to track the movement of
the new high-value currency notes.

11. THANK YOU