By Isaac Asabor
According to Investopedia, an online media platform, “with the mission of simplifying financial decisions and information to give readers the confidence to manage every aspect of their financial life”, “Demonetization is the act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change in national currency. The current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins. Sometimes, a country completely replaces the old currency with a new currency.”
A throwback to countries that have demonetized their economies showed that on the evening of November 8, 2016, Prime Minister Narendra Modi of India proclaimed that Rs 500 and Rs 1,000 currency notes would no longer be regarded as legal tender. The move came in the wake of the promise he made to curb black money.
In 1982, in order to reduce tax evasion, curb corruption and manage liquidity, Ghana demonetized its 50 cedi currency note. The move backfired, with the public losing faith in the banking system and switching over to physical assets and foreign currency.
In a similar vein, an anti-corruption crackdown conducted by the military government led by President Muhammadu Buhari in 1984 issued new currency notes with new colors so that old notes would be rendered unusable within a limited time frame, and at the end, the goal to fix a debt-ridden and inflated economy at the time was not achieved.
Also, in Myanmar in order to curb the black market, the country’s military invalidated 80 percent of the currency in 1987, and the first-ever student demonstration in the country at the time was held against the move.
Against the foregoing backdrop, it is expedient to ask, “Are there possible benefits derivable from the demonetization of the economy?” Yes, they can lead to an increase in savings, low lending rates, an improved economy, and curbing anti-social activities as well as reducing counterfeit currency notes.
In fact, digital payments witnessed an exponential growth up to 40–70% compared to 20–50% earlier. With further reforms from the government, today a vast majority of the Indian population, both urban and rural are using mobile apps and digital wallets to send and receive cash.
In a similar vein, with post-demonetization, not a few Indians were added to the list as new taxpayers, and the number of individual tax returns has reached in the same vein increased. Also, with more money entering the government’s coffers, there have been increases in the availability of funds for various social and economic development projects.
Additionally, demonetization has helped India to identify individuals who have been evading taxes for years. Again, not a few individuals have been reviewed by the tax department since their tax profiles and the cash deposits made after demonetization were way out of sync.
Not only that, since post-demonetization in India, banks, and other financial institutions have been witnessing a substantial increase in deposits. Nearly, 30 Crore families opened bank accounts for the first time using the Jan Dhan scheme, and zero-balance deposits reduced from a massive 77% to 20% post-demonetization.
All the excess cash in circulation has made its way into official channels. This meant that the interest rate cuts by the central government could be passed on to the borrowers.
This means Indians can now avail of business development loans and other financial products at affordable rates.
In fact, post-demonetization in the foremost Asian country has seen the government shut down companies, which were siphoning black money.
Still, in the same nexus, it is expedient to say in this context that for years, the primary method of savings for Indians was to stockpile cash notes at home or use bank fixed deposits. But today, millions of investors are looking for alternative investment choices, and this has led to a massive spike in the popularity of equities and mutual funds.
By virtue of demonetizing the Indian economy, retail investors are gradually moving away from low-return investments like fixed deposits to high-yield options like mutual funds. Similarly, real estate has become streamlined and reduced cash-based investments significantly. Additionally, life insurance premium collection has gone up to 113% post-demonetization.
Against the foregoing, there is no arguing the fact that Nigeria is bound to reap the positive fruits of the ongoing demonetization, particularly as it is a reform of huge magnitude. Though it is bound to have challenges as has been witnessed by all Nigerians. But, it pays to be prudent and take a look at its outcomes on the economy in the long run. And, that will be hugely positive and boost business growth in all sectors.
Given the foregoing, it is expedient to ask, “Will the Nigerian economy gain from the long-term effects of demonetization? The answer to the foregoing question can be affirmative only when the demonetization policy is well implemented with being politicized.
