Demonetization was intended to curb black money, fake currency, and funding of illegal activities. It resulted in Rs. 14,179 billion worth of currency being demonetized. While it impacted the banking system and broader economy, supporters argue it will help reduce corruption and move India towards a cashless society with digital payment platforms like UPI, IMPS, and BHIM. However, critics argue it did little to curb the generation of black money and harmed ordinary citizens. Moving to a fully cashless economy also faces impediments like cybersecurity issues, infrastructure gaps, and an unbanked population.

1. Demonetization – A Precursor to Cashless Society
Dr.G.Veerakumaran
Professor
Department of Co-operative Management,
College of Co-operation, Banking and Management,
Kerala Agricultural University,
KAU Post-680656, Thrissur, Kerala,
Email: g.veeran@kau.in
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2. Content of Presentation
– Background and Justification for Demonetization
– Demonetized currencies
– Criticism on Demonetization
– Impact on Banking operations
– Impact on Society and Economy
– Cashless Society
– Different Platforms
– Impediments
– Conclusion
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3. Background and Justification for Demonetization in India
• The incidence of fake Indian currency notes in higher
denomination has increased.
• For ordinary persons, the fake notes look similar to
genuine notes, even though no security feature has
been copied.
• The fake notes are used for antinational and illegal
activities.
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4. Background and Justification for Demonetization in India
• High denomination notes have been misused by
terrorists and for hoarding black money.
• India remains a cash based economy hence the
circulation of Fake Indian Currency Notes continues
to be a menace.
• In order to contain the rising incidence of fake notes
and black money, the scheme to withdraw has been
introduced.
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5. Demonetized currencies
• The legal tender character of the existing bank notes
in denominations of Rs. 500 and Rs. 1000 issued by
the Reserve bank of India till November 8, 2016
stands withdrawn.
– Rs.16,634 billion notes were in circulation
– Rs.14,179 billion were demonetized(86 %)
• In consequence thereof these Bank Notes cannot be
used for transacting business and/or store of value for
future usage.
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6. The Specified Bank Notes (Cessation of Liabilities) Ordinance 2016
• President Pranab Mukherjee signed the Specified
Bank Notes (Cessation of Liabilities) Ordinance,
30th December, 2016 on Friday.
• After the period of exchange is over, the liabilities
of the Reserve Bank and the guarantee of the
central government towards the specified bank
notes will stand extinguished
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7. Criticism on Demonetization
• In the absence of steps to curb the generation
of black money, demonetization is a futile
exercise
– Tax reforms to tax evasion
– Make it easy to do business-red tape, lethargy and
corruption and coercion
• 5-6% of black money is kept in hard cash
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8. Criticism on Demonetization
• Fake currency is in circulation in the Indian
economy. This is only .028% of Rs 14,179
billion worth currency demonetized in Rs 500
and Rs 1000 notes
• Terrorists are not about to quit their evil acts
because of a currency change(Steve Forbes)
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9. Criticism on Demonetization
• By stealing property,
• further impoverishing the least fortunate among
population and
• undermining social trust,
• thereby poisoning politics and
• hurting future investment,
• India has immorally and unnecessarily harmed its
people,
• while setting a dreadful example for the rest of
the world(Steve Forbes)
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10. Impact on Banking operations
• Deposits close to 94% of total demonetized
currency
• CD ratio is decreasing 73% to 69%
• Jan Dhan accounts swell with large quantum of
deposits
• Banks have access to more deposits and large
proportion of low cost deposits
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11. Impact on Banking operations
• Fall in the interest rate will be gradual
• Fall in profitability as well
• We cant afford a flight of foreign funds invested
in the financial markets
• If SME are brought under banking system- banks
can lend more that will yield more than from
corporate lending
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12. Immediate Impact on Society and Economy
• Agricultural Sector
– input supply and
– Fall in price of agricultural produces
• Defunct of Cooperative Movement
• Increase in unemployment
• FMCG sales and trade drop
• Inflation fell
• Trade deficit widened
• Rupee Value has comedown
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13. Cashless Society
• The ability to pay for something with a card or
a mobile phone or internet account
• digital payments can improve the State’s
ability to
– curb tax leakages,
– funding of criminal activities and
– reduce cash related costs.
Source: Committee on Digital Payments
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14. Cashless Society
• Cashless vs. less cash society
• Present status of cashless transaction in India 2
%
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15. Top ten Cashless Countries
Source: Business Today 30.11.2016
Country % of Cashless
Transactions
Singapore 61
Netherlands 60
France 59
Sweden 59
Canada 57
Belgium 56
UK 52
USA 45
Australia 35
Germany 33
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16. Different Platforms
• Prominent Practices
– Demand Draft, Cheques,
– National Electronic Funds Transfer (NEFT) is one
of the most prominent electronic funds transfer
system of India, which facilitates one-to-one funds
transfer
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17. Different Platforms
• Prominent Practices
– Real-time gross settlement systems (RTGS) are
specialist funds transfer systems where the transfer
of money or securities takes place from one bank
to another on a "real time" and on a "gross" basis
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18. Different Platforms
• Immediate Payment Service (IMPS) is an instant
interbank electronic fund transfer service through
mobile phones.
• It is also being extended through other channels such
as ATM, Internet Banking, etc.
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19. Different Platforms
AEPS is a bank led model which
allows online interoperable
financial inclusion transaction at
PoS (MicroATM) through the
Business correspondent of any
bank using the Aadhaar
authentication.
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20. Different Platforms
Bharat Interface for Money is an app that lets you make
easy and quick payment transactions using UPI. Its easier
than Wallets! You will not have to fill-out those tedious
bank account details again and again.
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21. Different Platforms
• Unified Payments Interface (UPI) is a system that
powers multiple bank accounts into a single mobile
application (of any participating bank), merging
several banking features, seamless fund routing &
merchant payments into one hood.
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22. Government Intervention
• Committee of Officers constituted under the leadership
of CEO, NITI Aayog, are taking steps to identify
immediate steps to promote understanding and adoption
of available digital payment options.
• More recently, a Committee of Chief Ministers has been
constituted on 30 November 2016 under the
Chairmanship of Chief Minister of Andhra Pradesh to
accelerate digital payments.
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23. Government Intervention
• Initiatives of National Payments Corporation
of India
• DIPAYAN (Digital Payment Action Network)
from savings generated from cash-less
transactions to expand digital payments
• Legal Reforms by the Government
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24. impediments
• Large unbanked population- still around one
third of the adults
• Illiteracy and ignorance
• Income Level of People
• Age structure of People
• Use of internet by women and the suppressed
mass
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25. impediments
• Limited spread of E-commerce
• Lack of appropriate Mobile Phones
• Lack of Internet Connectivity
• There is issue of electricity
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26. impediments
• Communication lines are not robust
• Lack of Point of Sale Machines and ATMs
• Lack of merchant support
• Transaction Cost
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27. impediments
• Cyber Security and Privacy
– Frauds that can happen on electronic and digital
platforms
– There is no hack-proof technology
• Wiki leaks
• US Democratic Presidential Campaign
• Yahoo
• breach of Debit cards in October
– Cyber attack
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28. impediments
• ATMs and POS can be hacked with malware
• Increasing magnitude of Mobile wallets frauds
• Lack of clarity on grievances redressal and
reconciliation of customer complaints
A basic mistrust of humans and excessive faith in
machines(satish Despande)
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29. Immediate Beneficiaries
• E-com
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30. Conclusion
• India has a unique opportunity to leverage the Jan
Dhan, Aadhaar and Mobile (JAM) trinity to rapidly
enable ordinary Indians to participate in digital
payments.
• Cashless societies are generally corruption free.
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31. Conclusion
• One can think of endless objections to
change, but most are quite superficial and
can easily dealt with, especially given a long
transition period.
• Kenneth S Rogoff, Author of ‘The curse of Cash’
• Let us try
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32. இடும்பைக்கு இடும்பை ைடுப்ைர் இடும்பைக்கு
இடும்பை ைடாஅ தவர்.
• Who griefs confront with meek,
ungrieving heart, From them
griefs, put to grief, depart.
• They give sorrow to sorrow, who
in sorrow do not suffer sorrow.
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