The impact of demonetization on banking

Demonetization is the act of withdrawing a currency unit of its status as a legal tender. It occurs whenever there is a change of national currency: The current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins. A country may completely or partly replaces the old currency with new currency. The Indian Government launched a “Surgical strike” on November 8, 2016 against black money in the economy. The Honourable Prime Minister of India, declared on November 8, 2016 at 20: 15 Indian Standard Time (IST) addressing the nation in an unscheduled live that all the INR 500 and INR1000 bank notes will be banned, past midnight. An announcement was made along with for the issuance of new INR 500 and INR 2000 banknotes of the Mahatma Gandhi New Series in exchange for the old banknotes. By exchanging new denomination notes of INR 2000 and not INR 1000 it helped to curb the conversion of black money. The main reasons of Demonetization were to crack down on black money in the country and to stop the funds allegedly used for terrorism through current banknotes. Therefore, this paper dedicates on the Demonetization, the basic understanding of what the word means, when and how the demonetization of Indian Currency was brought into effect and what are its positive and negative impacts on banks.