Learn From 7 Countries That Tried Demonetisation and How Successful They Were

In 2016, India announced its second demonetisation, where Rs. 500 and Rs. 1,000 notes were removed from circulation. The primary goal behind this move was to target black money and clean up the economy. While launching the initiative, the government said that demonetisation would bring long-term benefits like a cashless and corruption-free society.

Please note that it is hard to predict the future, but we can look at other countries that have tried similar actions to understand how effective such measures can be. Let’s check out a list of 7 major countries that did currency demonetisation in the past.

• The success of demonetisation varies from country to country.
• Historically, Australia has achieved success, while others, like Ghana and North Korea, faced severe economic consequences.
• Most demonetisation efforts cause short-term disruptions, such as cash shortages and inflation.
• This move negatively impacts key cash-dependent sectors, like real estate and construction.

In 1873, the United States passed the “Coinage Act”. This removed silver as legal money and replaced it with gold. This decision caused the money supply to shrink and led to a 5-year economic depression. Many farmers and silver miners faced financial hardship and pressured the government to bring back silver. As a result, in 1878, the Bland-Allison Act was passed. This act reintroduced silver as money to ease the economic difficulties.

USA did its second demonetisation in 1969 when President Richard Nixon declared all U.S. bills above $100 invalid to fight black money. This move reduced illegal cash and even improved the American banking system.

In 1978, India announced its first demonetisation. In this effort, Rs. 10,000, Rs. 1,000, and Rs. 500 notes were demonetised to fight black money. The then RBI Governor, IG Patel, opposed this move. He believed it was politically motivated. People were given a week to exchange the notes. Since these high-denomination notes made up a small portion of the total money, the impact on the economy was minimal. Also, there was no major effect on prices or the money supply.

Later in 2016, India tried its second demonetisation under PM Modi. This time, it targeted Rs. 500 and Rs. 1,000 notes and caused significant disruptions. Within an hour of the announcement, people rushed to buy gold, and ATMs and banks quickly ran out of cash. India’s cash-dependent economy suffered and several sectors were severely hit, such as:

• Real estate
• Construction
• FMCG

Even retail inflation hit a record low of 3.63% in November 2016.

In 1982, Ghana demonetised its “50 cedi note” to combat tax evasion and excess cash in the economy. However, the effort failed as people began using foreign currencies and investing in physical assets instead. This shift led to a loss of trust in the banking system. To make matters worse, a new black market for currency emerged.

In 1983, the military government led by Muhammadu Buhari introduced new currency notes of different colours. These replaced the old ones and everyone hoped this move would improve Nigeria's struggling and debt-ridden economy. However, this initiative did not succeed and faced significant challenges.

Instead of stabilising the economy, the move failed to address issues like inflation and financial instability. It led to further economic problems rather than the intended improvements.

The military government invalidated about 80% of the money in circulation to combat the growing black market. This action led to widespread protests among students. In response, the government cracked down on the demonstrations the following year. Ultimately, this attempt at demonetisation did not succeed in reducing the black economy and only created more unrest and dissatisfaction among the public.

To enhance security and reduce black money, the Australian government replaced all paper currency with durable “polymer-based notes” of the same value. This change proved successful. New notes lasted longer and were more resistant to damage. Despite the initial expenses involved in producing these polymer notes, the move ultimately made Australia more business-friendly. The improved security features also helped build trust in the currency and supported the economy in the long run.

To stop the black market and boost the economy, Kim Jong-il's government implemented currency changes. However, this effort backfired as the prices of essential goods rose sharply. This caused widespread discontent among the people. The public strongly opposed these changes and the situation escalated thereafter.

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