Macro

Money & Banking

Medium

DEMONETISATION

Demonetisation was a initiative taken by the Government of India in November 2016 to tackle the problem of corruption, black money, terrorism and circulation of fake currency in the economy. Old currency notes of Rs 500, and Rs 1000 were no longer legal tender. New currency notes in the denomination of Rs 500 and Rs 2000 were launched. The public were advised to deposit old currency notes in their bank account till 31 December 2016 without any declaration and upto 31March 2017 with the RBI with declaration.

Further to avoid a complete breakdown and cash crunch, notes government had allowed exchange of Rs 4000 old currency the by new currency per person and per day. Further till 12 December 2016, old currency notes were acceptable as legal tender at petrol pumps, government hospitals and for payment of government dues, like taxes, power bills, etc.

This move has had positive impact also. It improved tax compliance as a large number of people were bought in the tax ambit. The savings of an individual were channelised into the formal financial system. As a result, banks have more resources at their disposal which can be used to provide more loans at lower interest rates. It is a demonstration of State's decision to put a curb on black money, showing that tax evasion will no longer be tolerated. Tax evasion will result in financial penalty and social condemnation. Tax compliance will improve and corruption will decrease. Demonetisation could also help tax administration in another way, by shifting transactions out of the cash economy into the formal payment system. Households and firms have begun to shift from cash to electronic payment technologies.

Which of the following is incorrect about the relaxations given by the government to reduce cash crunch immediately after demonetization?

Old currency notes were acceptable as legal tender at petrol pumps.

Old currency notes were acceptable as legal tender at government hospitals.

Exchange of Rs 10000 old currency by the new currency per person and per day.

Old currency notes were acceptable as legal tender for payment of government dues, like taxes, power bills, etc.

✅ Correct Option: 3

Option 1 -> Old currency notes were accepted at petrol pumps - This was a correct relaxation.

Option 2 -> Old currency notes were accepted at government hospitals - This was a correct relaxation.

Option 3 -> Exchange limit was Rs 10,000 per person per day - This is INCORRECT as the actual limit was Rs 4,000 (later revised to Rs 4,500).

Option 4 -> Old currency notes were accepted for government dues - This was a correct relaxation.

Hence, Option 3 -> The exchange limit of old currency notes at bank counters was initially set at Rs 4,000 per person per day, which was later revised to Rs 4,500. It was never Rs 10,000 per day. While higher amounts could be deposited into bank accounts, the direct exchange limit remained at Rs 4,000/4,500 throughout the demonetization period -> correct

Question 46

When was the most recent demonetization undertaken by the government of India?

Question 47

What was the negative impact of demonetization?

Question 48

Currency of which denomination were newly launched during demonetization?

Question 49

What was the immediate impact of demonetization on the economy?

Which of the following is incorrect about the relaxations given by the government to reduce cash crunch immediately after demonetization?

Solution

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