Unknown facts about demonetization
Demonetization is the biggest step in Indian economic history. The 7th largest economy of the world is moving many spots above in the best business countries in the world, this post will take you back into history. This post will deal with what happened in 1946 and 1978 demonetization (facts about demonetization) , why they failed and 2016 demonetization will become a success. As an additional feature, I have included the countries which have tasted success, failed and messed-up demonetization in the modern era.
For simplified general information all people must know
What happened in 1946?
Historic Date: – 12th January 1946 announced by the Reserve Bank of India
The World War II just concluded. The allied powers led by the United Kingdom won the war bearing huge cash burnt. The situation in most of its colonial countries wasn’t good as people didn’t have food to eat. Honourable Prime Minister of United Kingdom Winston Churchill has allowed the massacre of 3 million people in the man-made Bengal famine in 1943 to supply food to the soldiers in the war. He just hated Indians. The rich Indians were on their toes to help the colonial power to make more money. With the introduction of Rs.10000 bill from the newly formed Reserve Bank of India in 1938, the rich hoarded money at the expense of the poor increasing inflation —- Sorry….. Hyper-Inflation
The government announced demonetization of denominations above Rs.1000 with effect from 12th January 1946 and gave little time for exchange too. As the notes were accounted only to 3% of the India’s population, it didn’t affect normal life to an extent. The crown princes were exempted from the same and only 40% of today’s India-Pakistan-Bangladesh was in effect, of the demonetization (by area directly controlled by the British)
The government through this drive collected Rs.134 crore of the total Rs.143 crore available in the market (according to RBI estimates), only Rs.9 crore was not exchanged therefore demonetized.
It turned out to become more like a currency conversion drive as the government couldn’t achieve much of profit in the cash-strapped economy at that time.
What happened in 1978?
Historic Date: – 16th January 1946 announced by the Reserve Bank of India at 9 AM on the All India Radio.
We repeated the same mistake by reintroducing Rs.1000, Rs.5000 and Rs.10000 bills in 1954. The Wanchoo committee has stated in the late 1960s to the government to withdraw all high denominations, but it wasn’t heard till 1978 when Janata Party-led Morarji Desai.
The Wanchoo Committee had recommended the government to withdraw the currency because the country was going through a difficult period. Difficult period reminds me of June 6, 1966 — the day our currency lost value.
June 6, 1966
Due to lack of purchasing power in US Dollars by under-developing countries, the developed world would accept the payments for their goods and return the same in the local currency.
In 1950s and 1960s the trade deficits had reached an all-time high. In 1965, despite India winning the Indo-Pak war, the military expenditure pushed our inflation close to 7%. The trade deficit was close to Rs.950 crores at that time. Then the Honourable First Woman Prime Minister of India, Mrs Indira Gandhi announced the devaluation of the Indian Rupee pegged at Rs.4.75 to Rs.7.50 per US Dollar, 57% devaluation. This move reduced the trade deficit to Rs.100 crore (other factors were increasing exports — Green Revolution and reducing imports, making it difficult to get a Bajaj Chetak despite full payment on time)
She saved the day, but, sadly, we lost the value of Indian Rupee. Indian Rupee was the major currency used in the Middle East in the 1950s and 1960s printed in Bombay. Due to severe fluctuation in Indian currency, from 1954 by Kuwait and lastly Oman in 1971, they adopted their own currencies pegged to the US Dollars. While there were other factors like Kuwait became extremely rich from 1950s to 1980s due to the oil discovery till Iraq attacked them. Yemen and Oman with governance change in the country and oil discovery also adopted their own currency.
1978 What happened???
Coming to the initial agenda of what happened in 1978. After the Emergency period in 1977, Indira Gandhi’s government was overthrown due to lack of political, economic and social stability.
The demonetization in 1978 failed because there were rumours that the demonetization would come into effect sooner or later. If the previous government had heard the committee’s recommendations by agreeing to print 3.5 Billion currency notes in 1972, the public nature of the Wanchoo Committee wouldn’t have created such a problem to encounter the same issue — Inflation.
What happened before 8th November 2016?
In 2016, the Modi-led government had controlled the inflation, made India more investment friendly, and getting strong leaders on board, we didn’t have much of a problem like in 1946 and 1978. It was a kind of Swacch Bharat Abhiyan drive by the government to get more perspective points and reduce black money effect on the economy controlled by some powerful politician and businessmen.
- Except for Fin Min and top officials of the RBI, no one had the news about the activity which was on cards since 6 months.
- The Cabinet was briefed early on Tuesday and were not allowed to move out of the premises till the PM finishes his address.
- It came as a shocker, but the government seemed well prepared to handle the situation. Mr.PM has left no stone unturned for any hue and cry among the public (let alone the politicians). Mr.PM had got most of the unbanked sector into the banking ecosystem by the Jan Dhan Yojana with Rupay Cards. He then gave an opportunity without extension (through the Income Declaration Scheme) to declare the black money and strictly warned of action to be taken by the government against hoarders.
- The Indian Media is the freest media in the world. Media starts protesting for even a small issue. NDTV India received a ban for 24-hours of the Pathankot Attack coverage (later upheld by the MIB till December 5, 2016) on 9th November 2016. All newspapers, journals, TV reporters spoke about this issue as a serious matter diverting the attention of the media from the demonetization. (P.S. Rumours had made the 1978 demonetization drive a culmination)
- The government announced the decision after Diwali, making fewer problems for the general public.
- The Best part: – The announcement was done by Mr.PM at 8 pm IST (ish…) rather by the RBI in the morning. Most of the businesses were shut for the day and people were wrapping up from their day’s work. Banks remained closed for the next day paralysing the country. Black money hoarders couldn’t find a way out to funnel the black money, making it a fool proof plan to nab all the hoarders under the tax radar.
But there is more to be done……..
I hate to do this, but let’s see the political side of this move. Narendra Modi has been in power since May 2014. Why November 8th, 2016 was chosen because after November 15th 2016, media and political parties will start releasing their performance reports on Prime Minister’s 2 ½ year Journey. While he came to power with high hopes thanks to his performance in Gujarat from 2002-2014 despite the earthquake and the riots, he made Gujarat, an industry friendly state. Getting Tata Nano in Gujarat after being moved from West Bengal, Gujarat is posing a threat to Tamil Nadu’s Detroit of the East dream.
Narendra Modi’s performance is good with respect to all other Prime Ministers of India, but our youth is becoming restless. This move got him a lot of perspective points from the laymen who see political parties promising to end corruption but never do it.
But the best fact is black money in cash accounts to only 6% of the total black money in India with the rest being in the form of gold, properties in fictitious names, loss-making fake companies, etc.…
The brightest spot is the end of Hawala racket and rising property prices. Hawala is the way of transferring money from a different country to India in Indian denominations. Although illegal, the people in this racket make their money white through this process in different countries (not necessarily India). To attract more people to remit through this form, they pay a premium over the existing exchange rates (in early 2000s) mostly for remitters from African-based nations. Come 8th November, 2016, the government scrapped all high denominations making the notes lying with the Hawala traders null and void — just a piece of paper. This racket will remain dormant for next six months at-least.
Narendra Modi announced his ambitious dream for every Indian to own a house by 2022. Property prices are sky-rocketing controlled by land-mafia. This move will reduce the prices to an extent (hopefully) to make homes affordable for all.
The government doesn’t want to repeat the same mistakes again, so they are hinting to target benami properties, fictitious gold purchases, and fictitious loan takers from the black money hoarders from January 1, 2017. The government must take serious steps to stop the Hawala to breed again by stringent rules and regulations.
This move will become a success if the government does correct follow-up by not stopping at currency demonetization like the other governments have done in India. The World Bank, Rich Businessmen, Foreign governments, etc… has lauded India for this move as it has helped India get more perspective points which will be visible in the next World Bank’s Ease to do business rankings too.
Special Feature: – Facts about demonetization in different nations across the globe
Country: – Pakistan
Step Taken: – June 2015
The Government of Pakistan has announced the demonetization of Rs.5 and Rs.500 in June 2015 with immediate effect and phase out of all other denominations. The people of Pakistan had one-and-half year time to exchange these notes, after which (December 1, 2016) the notes will be declared null and void.
Status: – Messed Up. One and Half Years for demonetization….. To exchange notes. Can’t curb black money neither counterfeit notes
Country: – Zaire
Step Taken: – 1990
The Dictator Mobutu ran the demonetization drive which led to economic instability in the country which won freedom in 1970 making it more vulnerable to foreign funding at that time. The country recovered in 2000.
Status: – Failed
Country: – Zimbabwe
Step Taken: – 2010
Due to chronic inflation in Zimbabwe, the government started printing notes with a face value of 1 hundred trillion Zimbabwean Dollars’ worth just 40 cents.
Status: – Failed. The country replaced their currency with US Dollars later.
Country: – United States of America
Step Taken: – 1969
Due to black money existence in the nation, the country was losing its sheen built on Silicon Valley and the so-called even today existent American Dream. In 1969, US President Richard Nixon announced all bills above $100 null and void.
Status: – Success. Even today $100 bill is the maximum available for circulation.
Country: – Australia
Step Taken: – 1996
The government to the curb black money crisis and improve security features on the notes, they withdrew all paper-based notes and replaced them with long life polymer-based notes of the same denomination.
Status: – Success. This improved the life of the bills and helped in making Australia a business friendly country, despite the initial costs incurred to manufacture polymer-based notes.
Country: – North Korea
Step Taken: – 2010
The then dictator of North Korea Kim Jong-IL has decided to remove two zeroes from the currency denominations to curb black money menace and tightly control the economy.
Status: – Miserably Failed. Due to bad harvest and high inflation, this move was highly criticized by the International Media, making the dictator to apologize in the public.
Country: – Nigeria
Step Taken: – 1984
The government run by Muhammadu Buhari has announced demonetization of all existing currencies to improve the high-inflation-debt economy
Status: – Failed. He was thrown out of power in 1985-86.
If we have a look on all the other demonetization drives, only the ones done by developed nations have been successful and African nations have suffered a lot because these countries are still a victim of neo-colonialism. We Indians must be happy with the fact that it is only our country that flourished to become an economic power after independence.
A Bit More………
Have a look on how the Indian currency notes has fared over the years.