The document discusses the history and impact of demonetization in India, including the demonetization of Rs 500 and Rs 1000 banknotes announced on November 8, 2016, aimed at reducing black money and corruption. It also reviews past instances of demonetization in various countries and their negative consequences, and specifically addresses the severe cash shortage and economic challenges faced by the state of Kerala due to its reliance on cash transactions and cooperative banking. The report highlights how the state’s economic structure exacerbated the detrimental effects of the demonetization policy.

1. DEMONETIZATION
Dr. VINOSH PETER K . V

2. History of India’s Demonetizes Currency
The Indian rupee (INR) is the official currency of the Republic of
India. The rupee is subdivided into 100 paise (singular paisa), though
as of 2011 only 50 paise coins are tender. The issuance of the currency
is controlled by the India. The Reserve Bank manages currency in
India and derives its role in currency management on the basis of the
Reserve Bank of India Act, 1934. The rupee is named after the silver
coin, rupiya, first issued by Sultan Sher Shah Suri in the 16th century
and later continued by the Mughal Empire.
In 2010, a new symbol was officially adopted. It was derived from the
combination of the Devanagari consonant “र (ra) and the Latin capital
letter “R” without its vertical bar (similar to the R rotunda). The
parallel lines at the top (with white space between them) are said to
make an allusion to the tricolor Indian flag. and also depict an equality
sign that symbolizes the nation’s desire to reduce economic disparity.
The first series of coins with the new rupee symbol started in
circulation on 8 July 2011.

3. In a major step to check undeclared black money, the Government of
India on the 8 November 2016 announced demonetization of Rs 500
and Rs1000 banknotes with effect from the same day’s midnight,
making these notes invalid. Apart from combating black money, the
stated purpose is also to check fake currency (used to finance terrorism)
and corruption. A new redesigned series of Rs500 banknote, in addition
to a new denomination of Rs 2000 banknote is in circulation since 10
November 2016.

4. History and Background
 The sudden move to demonetize Rs 500 and Rs1,000
currency notes is not new. Rs 1,000 and higher denomination
notes were first demonetized in January 1946 and again in
1978.
 The highest denomination note ever printed by the Reserve
Bank of India was the Rs 10,000 note in 1938 and again in
1954. But these notes were demonetized in January 1946 and
again in January 1978, according to RBI data.
 Rs 1,000 and Rs 10,000 bank notes were in circulation prior
to January 1946. Higher denomination banknotes of Rs 1,000,
Rs 5,000 and Rs 10,000 were reintroduced in 1954 and all of
them were demonetized in January 1978.
 The Rs 1,000 note made a comeback in November 2000. Rs
500 note came into circulation in October 1987. The move
was then justified as attempt to contain the volume of
banknotes in circulation due to inflation.

5. Here is the list of Countries where Demonetization was a Big Disaster
for Government
 Soviet Union
In the year 1991, Mikhail Gorbachev Government banned the
currency note of Ruble 50 and 100 in Soviet Union to end black
money in the country. Government expected that it will decrease
the market of black money and give a proper life to common
people. But this decision of Gorbachev took a very wrong turn and
people started doubting on government and because of this he also
faced the problem of change of government.
 Ghana
In 1982, government of Ghana demonetized currency notes of
Cedi 50 to control black money in the country. But after this
people lost their faith from the economy policies of the country,
and after few days, when time period of exchanging notes ended
then crores of money were found on roads.

6.  Congo
Dictator Mobutu Sese made some changes with currency of Congo for
the smooth running of economy during 90s. However, these changes
didn’t give any better result of it in economy. Resultant prices of
necessity goods increased and share market saw a heavy downfall.
 Myanmar
Military government discontinued currency notes in Myanmar in 1987
with the same thought of end of black money and corruption. But this
led political dispute among government and resultant thousands of
people died because of this. And so, demonetization came to an end.
 Nigeria
In 1984, Muhammadu Buhari was the President of Nigeria, that time he
started new currency notes with design and colour to bring economy in
stable position. But it didn’t bought any changes in the economy and
resultant Buhari resigned from his position. It took long 21 years for
him to become President again.

7.  North Korea
In 2010, dictator Kim Jong-2 changed made some changes with
currency to lower down the market of black money and to
improve the economy of the country. But this decision of Kim
Jong saw opposite face of it in economy. Price of necessity goods
increased and this led people to become angry on this decision
and resultant Kim Jong murdered finance minister and asked for
apology.

8. Demonetization on Kerala Economy
The committee to study the impact of demonetization on the state
economy of Kerala appointed by the Kerala State Planning Board and
Submitted its interim report. The interim report points out that
demonetization have brought about a huge cash shortage, with severe
restrictions on access to currency. The shortage has a significant impact
in the Indian economy, which has a relatively high cash-to-GDP ratio
and in which more than 90 percent of transactions are estimated to be
in cash. The immediate consequence of the cash crunch has been a
severe curtailment of effective demand.
A number of features of Kerala’s economy have made it particularly
vulnerable to the adverse impact of the poorly planned and
implemented demonetization exercise.

9.  First, cash transactions are predominant in the state’s economy.
Secondly, some of the major contributors by sector to the state’s
economy are in the informal or unorganised sector, where cash
transactions dominate. Millions of people in Kerala are dependent on
incomes gained in the traditional sectors of fisheries, coir,
handlooms, and cashew processing as well as in crop and plantation
agriculture. More than a two and half million migrant workers work
as wage labourers in the state. Thirdly, the three-tiered cooperative
banking structure, with PACS at the bottom of the pyramid, is an
overwhelmingly large part of the financial structure. Fourthly,
outside of the financial structure, Kerala has a cooperative sector that
is an important component of manufacturing and services activity,
which banks substantially with the cooperative banking sector.
 Fifthly, earnings from tourism are an important share of Kerala's
state income. Lack of access to cash deals a blow to tourism.

10. Sixthly, remittances play an important part in Kerala's economy, and
the economic constraints caused by the present policy can cause
disruption in the flow of remittances. These features, inter alia,
contribute to the intensity of the impact of the demonetization on the
state’s economy and its people.
The impact of the demonetization in terms of the cash deficit and its
consequences has been particularly severe in Kerala also because of
the distinct character of its banking sector, in which the cooperative
sector and the Primary Cooperative Societies play a central role.
Overall, the cooperative banking sector is much more active and
vibrant in Kerala than elsewhere. As a result, over 70 percent of the
deposits in PACS in India come from Kerala; over 70 percent of the
non-agricultural loans and advances made in India are made in Kerala;
and over 15 percent of the agricultural loans and advances disbursed in
India are disbursed in Kerala.

11. Thus, the notifications issued by the Reserve Bank of India after the
November 8 withdrawal of 500 and 1000 rupee notes (especially on
November 14), which kept the cooperative banks and societies out of
the note exchange process, was particularly damaging for Kerala.

12. THANK YOU