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Economics

Study Notes

De-Monetisation

Level:
AS, A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

De-monetisation is a process of replacing some or all of the physical stock of notes in an economy

  • De-monetisation can be achieved more rapidly by phasing out high denomination notes (HDNs)
  • Contactless payments and digital wallets are increasing the speed & convenience of settling payments using bank deposits
  • A number of central banks, including the ECB, the Bank of Canada and the Monetary Authority of Singapore have announced plans to phase out their HDNs
  • Ken Rogoff in “The Curse of Cash” argues that the USA’s Federal Reserve should stop printing new $100 bills
  • In the UK, the highest denomination note is a £50 note; the 70bn stock of notes is equivalent to over £1,000 per head
  • In November 2016, the Indian government under Prime Minister Modi announced a surprise de-monetisation policy

De-monetisation of the Indian economy

In November 2016 the Indian government de-monetized 500 and 1,000 rupee notes and introduced new Rs 500 and Rs 2000 notes. This made 86% of cash in circulation in the Indian economy invalid

Aims:

  1. Curb corruption, counterfeiting, funding for terrorism
  2. Increase tax compliance and increase tax revenues
  3. Stimulate digitalisation of economy
  4. Increase flow of savings into formal financial accounts
Gainers
  • E-commerce
  • Banking industries
  • Financial technology
Losers
  • Agriculture
  • Luxury goods (SUVs, gems, jewellry)
  • Real estate
  • Traditional retail (roadside vendors, cab drivers)

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