what is demonetisation?

Demonetization, often referred to as demonetization of currency, is a government policy or action in which a specific denomination of currency is declared no longer legal tender. This means that the affected currency notes and coins cease to be valid for use as a medium of exchange for goods and services in the country's economy.

Demonetization is typically carried out for various reasons, including:

1. Curbing Black Money: Governments may implement demonetization to combat the circulation of "black money" or unaccounted wealth. By invalidating certain high-denomination currency notes, authorities aim to encourage individuals holding such currency to deposit it in banks, where the money can be scrutinized and taxed, thereby bringing unreported income into the formal economy.
2. Reducing Counterfeiting: Another objective of demonetization is to counteract counterfeiting and the circulation of fake currency. By introducing new currency notes with enhanced security features, authorities can render counterfeit notes worthless.
3. Promoting Digital Transactions: Demonetization can also be used as a catalyst to promote digital transactions and reduce the reliance on physical cash. In the wake of demonetization, people often turn to digital payment methods like credit/debit cards, mobile wallets, and electronic fund transfers.
4. Combating Corruption: It is believed that demonetization can help in reducing corruption, as individuals holding large amounts of illicit wealth in cash may find it challenging to convert their unaccounted money into legitimate assets.
5. Encouraging Banking Inclusion: Demonetization can encourage people to open bank accounts and participate in the formal banking system, which can be beneficial for financial inclusion efforts.

Demonetization can have significant economic and social impacts, and its success depends on various factors, including the manner in which it is implemented, the public's response, and the overall economic context of the country. It can lead to short-term disruptions in the economy, including cash shortages and difficulties in conducting transactions, but it is often implemented with the aim of achieving long-term economic and financial goals.

One notable example of demonetization occurred in India in November 2016 when the government invalidated high-denomination currency notes of INR 500 and INR 1,000 as part of an effort to combat black money and promote digital payments.