Old 500 and 1000 notes are no more - all about Demonetization

What is the meaning of demonetization? The government of India has taken a bold step to make it a clean economy and to curb the black money by making a decision to demonetise the old 500 and 1000 notes. They are no more a legal tender. Demonetization is necessary whenever there is a change of national currency. The old notes will be replaced by new ones. This article provides information on the demonetization of the currency.

What is Demonetization?

It is a process by which a series of currency will not be a legal tender. The series of currency will not be accepted as a valid currency. The same thing happens with the 500 and 1000 denominations.

What happened on Demonetization?

On the evenings of 8th November 2016, Prime Minister Narendra Modi announced a big shock to the country, which paved the way for whatsapp jokes and memes. The NDA government was under pressure to do something to curb the black money as promised in 2014 election campaign. Modi told that, people can change the old 500 and 1000 denominations from the banks and post offices till 30 December 2016.

This step of demonetisation has been taken as much with an aim to curb terrorism through the proceeds of fake Indian currency notes. One of the most important reasons was to lower the cash flow in the country, which makes way to corruption in our country.

History and Background in India

This is not the first time that India is demonetizing its currency. The first instance was in 1946 when Rs500, 1000 and 10,000 notes were taken out of circulation. These notes were again reintroduced in the year 1954 and the second in1978 when the Janata Party coalition government took a similar measure with the notes of Rs1000, 5000, 10,000 to curb the fake notes and corruption.

Some Important facts about Indian currency and Demonetisation

  • This is the first time that Rs 2000 currency note is being introduced.

  • In the year 1980, the legend Satyameva Jayate- 'truth alone shall prevail' was incorporated under the national emblem for the first time.

  • The Mahatma Gandhi Series 2005 notes were issued in the denomination of Rs 10, Rs 20, Rs50, Rs100, Rs500 and Rs 1000.

  • The Rs 50 and Rs 100 notes were issued in August 2005, and Rs 500 and Rs 1000 in October 2005

  • Pros of Demonetisation

    • Black Money holders: People who have huge amounts of black money in hard cash are in trouble. If the black money holders wants to deposit money in bank account he/she has to show ID proof. There will be 200% penalty on Income tax amount.

    • Fake currency Rackets
    • : Most of the fake currencies are in the denomination of Rs 500 and Rs 1000, by banning the these notes all the black money and corrupted money will become useless.
    • End of funding Terrorism: Huge denominations was used to fund Islamic terrorists, naxalites and other non state actors. Now the terrorist and other organisations suffer from shortage of funds. Most of the terrorist used these funds to buy weapons. Buying weapons and arms will not be difficult for them and they can't act fast.

    • End of huge Donations: Huge amount of donations that is taken by private colleges, hospitals will be stopped. The money minded people who run these institutions now can't make huge money and this applies for real estate sector too.

    • Cashless Economy: Modi ji is making our economy more digitized because of the cash in the economy will decrease. There will be more use of credit and debit cards. People will go for online payments, they use online payment companies as there are many available.

    • End of Hawala Transactions: Most of these type of transactions are carried out with Rs 1000 and Rs 500. With this ban they can't trade anymore using these denominations and that will be an end.

    Cons of Demonetisation

    • Stock Market: The currency being taken out of the market, the mood at the stock market was bearish. Sensex lost 1600 points at open.

    • Crowd at Banks: Banks will be flooded with people. People will forget everything and run to the places where old notes being officially exchanged. People who get daily wage and their needs suffer a lot.

    • Short term Inflation: Due to shortage of money in the market inflation will occur, prices of gold will become very high. The vegetables and fruits price will increase causing a great suffer to people.

    Effects on GDP

    The GDP could be impacted by this measure with reduction in consumption demand. This impact on GDP may not be significant and re-enter the stream once the cash starts to flow.

    Effects on Demand

    The consumer goods, Real estate, Gold and luxury goods are expected to be affected.

    Online Transactions effect

    People will start to search for online payments and transactions. Digital transaction e-wallets and apps, Net banking, credit and debit cards will see an increase in demand. This will bring more transparency in the system.


    This initiative of the government is expected to make it extremely difficult for law breakers and tax evaders and money laundering. The success of this war against corruption cannot be scaled as of now as it totally depends on its implementation.


    No responses found. Be the first to comment...

  • Do not include your name, "with regards" etc in the comment. Write detailed comment, relevant to the topic.
  • No HTML formatting and links to other web sites are allowed.
  • This is a strictly moderated site. Absolutely no spam allowed.
  • Name: