Demonetization Advantages and Disadvantages

Demonetization refers to discontinuing of current currency units and replacing those currency units with new currency units. It is a major decision and it impacts all the citizens of the country because overnight all the money you have become a piece of paper which has no value if you do not exchange it with new currency units or deposit it in the banks. In order to understand demonetization better let’s look at advantages and disadvantages of demonetization –

Advantages of Demonetization

  1. The biggest advantage of demonetization is that it helps the government to track people who are having large sums of unaccounted cash or cash on which no income tax has been paid because many people who earn black money keep that money as cash in their houses or in some secret place which is very difficult to find and when demonetization happens all that cash is of no value and such people have two options one is to deposit the money in bank accounts and pay taxes on such amount and second option is to let the value of that cash reduced to zero.
  2. Since black money is used for illegal activities like terrorism funding, gambling, money laundering and also inflating the price of major assets classes like real estate, gold and due to demonetization all such activities will get reduced for some time and also it will take years for people to generate that amount of black money again and hence in a way it helps in putting an end this circle of people doing illegal activities to earn black money and using that black money to do more illegal activities.
  3. Another benefit is that due to people disclosing their income by depositing money in their bank accounts government gets a good amount of tax revenue which can be used by the government towards the betterment of society by providing good infrastructure, hospitals, educational institutions, roads and many facilities for poor and needy sections of society.

Disadvantages of Demonetization

  1. The biggest disadvantage of demonetization is that once people in the country gets to know about it than initially for few days there is chaos and frenzy among public as everybody wants to get rid of demonetized notes which in turn sometimes can lead to law and order problem and chaotic situation especially in banks and ATMs which are the only medium to change the old currency units to new currency units.
  2. Another disadvantage is that destruction of old currency units and printing of new currency new units involve costs which has to be borne by the government and if the costs are higher than benefits then there is no use of demonetization.
  3. Another problem is that majority of times this move is targeted towards black money but if people have not kept cash as their black money and rotated or used that money in other asset classes like real estate, gold and so on then there is no guarantee that demonetization will help in catching corrupt people.

As one can see from the above that demonetization has both advantages and disadvantages and it is up to the government to see and analyze all the pros and cons and then decide whether it is beneficial to go ahead with demonetization or not.

60 comments… add one
  • Arjun

    People in India are smarter than you think.
    No use of demonetization as most of the cash in circulation has come back into the banking system and the amount spent in printing new notes is higher.

  • Deekshika

    I think this step is just awesome!!!
    Modi ji is the best… At least he is doing something or the else…

  • Diksha jain

    A very very good step to remove black money from India

  • vikas

    Nice well done


    Mr. Modi is not an economist. The major economists of India either resident or NRI kept mum on this step and the people on tea-stall or a student of geography etc. carried on commenting.Those who are in favour of the decision should produce the comparative factual data of cost of replacement of money and benefits of this step,if no then there is no matter either one agrees or not. Please keep in mind that Modi is a human being not a deity.

  • Deepali Bhardwaj

    Yes I think modi Ji had taken a good step in the beginning some have to face a little problemsomething but at last everything will all right…
    At first I have also negative points towards narender modi but now I am totally satisfied. ….

  • Snigdha bhanja

    Whosoever thinks that Modi ji has took a wrong step towards demonetization is a fool because though there was some problem while exchanging the notes but government found a good amount of black money and it is going to be used for our convenient only .

  • Our prime minister is very clever He work just like a wolf. It is good decision.

  • Subrat kumar paikaray

    Though demonetisation help in progressment of our country,its also a duty of every citizen to pay their tax revenue at right time

  • good job Mr.Modi to remove black money from our country.

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