Demonetization: Is it the high time for demonetization in Bangladesh?

 
Demonetization

With the number of money related crimes that took place recently, a question raised “Is it the high time for Bangladesh to step forward for demonetization?” Though the concept is not new in the history of the world it is new for many of us. History says it was previously used by Soviet Union, North Korea, Zaire, Myanmar, Nigeria and most recently in India.

The term demonetization is referred to the discontinuation of any sort of currency, it could be a coin or any type of note or other precious metal like gold, and demonetization ensures the termination of that to be used further as a legal tender.The  process demonetization takes place when the government of a country decides to make a change in the national currency. The circulations of the targeted currency units are retired by the government, and often new units like coins or banknotes are introduced as part of the process.

Now, why not we take a look at the demonetization of Indian notes,the case that took place in the year 2016? In November of that remarkable year, the Modi government in India declared that the 500, as well as 1000 rupee notes of the series of Mahatma Gandhi, will be demonetized then and there. New Rs. 500 and Rs. 2,000 notes would be introduced in place of  those decommissioned notes. The then PM Narendra Modi thought this action to decrease the shadow economy, diminishing the utilization of the illegal as well as counterfeit money that is used to finance the demoralized activities like criminal behaviors and terrorism, etc. The decision was criticized by many of the renowned economists. As it not only gives troubles to the wealthy tax dodgers, but also hammering the poor, the working class and small business people during the transition.

It is worthy to ask whether the move by Modi government was effective.  And, can we do the same thing to our economy as well? Regardless of our high pace of financial development, our rural economy is still underdeveloped and the percentage of unbanked people is one-third of the whole economy. They mainly use cash as a mode of exchange and savings. This rural economy is a big portion, so it will hamper their lifestyle if the country goes for demonetization. Apart from that, we are moving toward a cashless economy which is not yet established properly. Before taking such a decision, the central bank has to identify the portion of indented demonetized money to the whole money flow.

Even if we go for demonetization a large portion of black money will be stayed untouched, if the government do not provide any significant financial incentive for cash hoarders to return the black money. Though, it is expected that, tax compliance will be the long term impact of demonetization. If that money doesn’t return into the financial system, the liabilities of the central bank will get down. A lower liability means that central bank will have more money to give back to the government, for whom it is the money manager.

Demonetization can assist Bangladesh by increasing taxpaying population, keeping a tight rein on corruption as well as reeling in the advantages of a more digital socio-economic culture. But, we have to consider the negative impact of the demonetization and take proper steps toward timing.

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