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Demerits of Demonetisation

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Even though Demonetisation has some drawbacks that could make it unfavorable in different ways, it is a process that benefits everyone. However, any demonetisation program should be carefully thought out before it is implemented, and its impact on the poor should be taken into consideration. This way, demonetisation can either be a chance for a fresh start or something that causes a country unnecessary confusion. Even proponents of demonetisation acknowledge that it does have some drawbacks, and not all benefits of demonetisation are positive. Listed below are a few of them.

1. Printing costs go up when older currency notes were taken out of circulation and replaced with newer ones. It is typically paid for by the economy or government of a particular nation.

2. The removal of circulating black moneyis the primary goal of demonetisation. Therefore, individuals who hold the same amount in other types of assets, such as gold, real estate, land, etc., are generally not impacted by this policy, and they are able to avoid it.

3. It causes a lot of chaos in the beginning. The entire nation has to get to the bank, which only has enough people to handle the population. This causes long lines, wastes time, and temporarily damages small businesses.

4. Because even businesses struggle to manage the daily cash that is needed for operations, many people have to deal with problems like wages not being paid on time or not being paid.

5. People speculate that there may not be any cash on the market and, as a result, begin holding it back for themselves, which can lead to cash crunch or liquidity issues for the economy as a whole at times.

6. People tend to spend less during these times, and businesses suffer losses as a result.

7. It's possible that the cashless facility won't always work because not all vendors have the right technology and infrastructure, making it difficult to buy even simple consumables.

8. Limited circulation of cash - Due to the lack of small currency denominations, it is difficult to make small purchases, making cash crunch a major drawback of demonetisation.

9. Burden and disturbance to the general population - Demonetisation can be very inconvenient at times. For instance, the government may at times keep some denominations of bank notes while removing others from circulation. When smaller coins are taken out of circulation and you don't have enough change, it can be annoying. Additionally, it can be inconvenient to wait in line at banks to deposit money or exchange currency.

10. Economic Growth Slowing - At least in the short term, business disruptions will cause economic growth to slow down.

11. Panic - Because not everyone comprehends the fundamentals of demonetisation, such an action is likely to cause panic among a portion of the population.

12. A means of committing fraud and corruption - When exchanging currencies, some individuals are likely to profit from flaws in the financial system by engaging in fraud and corruption.

13. Disruption in Business - Because it takes time for consumers and suppliers to adjust to the new monetary policy, this process may disrupt normal trading.

14. Tradition loss - Individuals can feel connected to their old monetary orders and coins as they can feel that they comprised piece of their custom.

15. Having trouble paying bills - If someone sends some bank notes in the mail to pay a bill or, if there is a significant delay in processing a bill payment, the money set aside to pay the bill may become worthless as a result of demonetisation. This happens more often than you might think in systems with a lot of bureaucracy.

16. Recalibration is required for ATMs - To accommodate the new currencies, ATMs must be recalibrated. Banks will incur additional costs and customers will be harmed as a result.

17. Increase social inequality - The adoption of a new currency that does not perform well could result in a financial crisis for all parties involved. A lot of trouble can result from even a small change in the value of everyday items or even a small amount of uncertainty regarding the validity of a currency. Therefore, demonetisation may, at least in the short term, increase and exacerbate social inequality.

In conclusion, it must be noted that Demonetisation can be a source of confusion and annoyance, particularly for those who are unable to dispose of their old notes in a timely manner.

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