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Demonetisation an Idea and Implementation!!
Legal tender :
Legal tender is a medium of payment recognized by a legal system to be valid for meeting a financial obligation. Paper currency and coins are common forms of legal tender in many countries. Legal tender is variously defined in different jurisdictions. Formally, it is anything which when offered in payment extinguishes the debt. Thus, personal cheques, credit cards, and similar non-cash methods of payment are not usually legal tender. The law does not relieve the debt obligation until payment is tendered. Coins and banknotes are usually defined as legal tender. Some jurisdictions may forbid or restrict payment made other than by legal tender. For example, such a law might outlaw the use of foreign coins and bank notes or require a license to perform financial transactions in a foreign currency.
Generally, designation of a particular form of money as legal tender means “that the designated money is valid payment for all debts unless there is a specific agreement to the contrary.” In some jurisdictions legal tender can be refused as payment if no debt exists prior to the time of payment (where the obligation to pay may arise at the same time as the offer of payment). For example, vending machines and transport staff do not have to accept the largest denomination of banknote. Shopkeepers may reject large banknotes: this is covered by the legal concept known as invitation to treat. Under the law, United States money as identified above is a valid and legal offer of payment for antecedent debts when tendered to a creditor. By contrast, Federal statutes do not require that someone who is not a pre-existing creditor must accept currency or coins as payment for goods or services. Private businesses may formulate their own policies on whether to accept cash unless state law requires otherwise.
The right, in many jurisdictions, of a trader to refuse to do business with any person, means a purchaser may not insist on making a purchase and so declaring a legal tender in law, as anything other than an offered payment for debts already incurred would not be effective.
Demonetisation (Withdrawal and replacement of legal tender):
Coins and banknotes may cease to be legal tender if new notes of the same currency replace them or if a new currency is introduced replacing the former one. Examples of this are:
The United Kingdom, adopting decimal currency in place of pounds, shillings, and pence in 1971. Banknotes remained unchanged (except for the replacement of the 10 shilling note by the 50 pence coin). In 1968 and 1969 decimal coins which had precise equivalent values in the old currency (5p, 10p, 50p - 1, 2, and 10 shillings respectively) were introduced, while decimal coins with no precise equivalent (½p, 1p, 2p equal to 1.2d (old pence), 2.4d, 4.8d respectively) were introduced on 15 February 1971. The smallest and largest non-decimal circulating coins, the half penny and half crown, were withdrawn in 1969, and the other non-decimal coins with no precise equivalent in the new currency (1d, 3d) were withdrawn later in 1971. Non-decimal coins with precise decimal equivalents (6d ( = 2½p), 1 and 2 shillings) remained legal tender either until the coins no longer circulated (1980 in the case of the 6d), or the equivalent decimal coins were reduced in size in the early 1990s. The 6d coin was permitted to remain in large circulation throughout the United Kingdom due to the London Underground committee's large investment in coin-operated ticketing machines that used it. Old coins returned to the Royal Mint through the UK banking system will be redeemed by exchanging them for legal tender currency with no time limits; but coins issued before 1947 have a higher value for their silver content than for their monetary value.
The successor states of the Soviet Union replacing the Soviet ruble in the 1990s.
Currencies used in the Eurozone before being replaced by the euro are not legal tender, but all banknotes are redeemable for euros for a minimum of 10 years (for certain notes, there is no time limit).
Individual coins or banknotes can be demonetised and cease to be legal tender (for example, the pre-decimal United Kingdom farthing or the Bank of England 1 pound note), but the Bank of England does redeem all Bank of England banknotes by exchanging them for legal tender currency at its counters in London (or by post) regardless of how old they are. Banknotes issued by retail banks in the UK (Scotland and Northern Ireland) are not legal tender, but one of the criteria for legal protection under the Forgery and Counterfeiting Act is that banknotes must be payable on demand, therefore withdrawn notes remain a liability of the issuing bank without any time limits.
In the case of the euro, coins and banknotes of former national currencies were considered legal tender from 1 January 1999 until 28 February 2002 (in some cases). Legally, those coins and banknotes were considered non-decimal sub-divisions of the euro.
When the Iraqi Swiss dinar ceased to be legal tender in Iraq, it still circulated in the northern Kurdish regions, and despite lacking government backing, it had a stable market value for more than a decade. This example is often cited to demonstrate that the value of a currency is not derived purely from its legal status (but this currency would not be legal tender).
This is also true of the paper money issued by the Confederate States of America during the American Civil War. The Confederate currency became worthless by its own terms after the war, since it could only be redeemed a stated number of years after a peace treaty was signed between the Confederacy and the United States (which never happened, as the Confederacy was defeated and dissolved).
Demonetisation is currently prohibited in the United States and the Coinage Act of 1965 applies to all US coins and currency regardless of age. The closest historical equivalent in the US, other than Confederate money, was from 1933 to 1974, when the government banned most private ownership of gold bullion, including gold coins held for non-numismatic purposes. Now, however, even surviving pre-1933 gold coins are legal tender under the 1964 act.
Withdrawal from circulation
Banknotes and coins may be withdrawn from circulation, but remain legal tender. United States banknotes issued at any date remain legal tender even after they are withdrawn from circulation. Canadian 1- and 2-dollar bills remain legal tender even if they have been withdrawn and replaced by coins, but Canadian $1,000 bills remain legal tender even if they are removed from circulation as they arrive at a bank. However, Bank of England notes that are withdrawn from circulation generally cease to be legal tender but remain redeemable for current currency at the Bank of England itself or by post. All paper and polymer issues of New Zealand banknotes issued from 1967 onwards (and 1- and 2-dollar notes until 1993) are still legal tender; however, 1- and 2-cent coins are no longer used in Australia and New Zealand.
Sometimes currency issues such as commemorative coins or transfer bills may be issued that are not intended for public circulation but are nonetheless legal tender. An example of such currency is Maundy money. Some currency issuers, particularly the Scottish banks, issue special commemorative banknotes which are intended for ordinary circulation. As well, some standard coins are minted on higher-quality dies as 'uncirculated' versions of the coin, for collectors to purchase at a premium; these coins are nevertheless legal tender. Some countries issue precious-metal coins which have a currency value indicated on them which is far below the value of the metal the coin contains: these coins are known as "non-circulating legal tender" or "NCLT".
History of Demonetisation in India:
The Indian rupee is the de facto legal tender currency in India. The Indian rupee is also legal tender in Nepal and Bhutan, but the Nepalese rupee and Bhutanese ngultrum are not legal tender in India. Both the Nepalese rupee and Bhutanese ngultrum are pegged with the Indian rupee.
The Indian rupee used to be an official currency of other countries, including the Straits Settlements (now Singapore and parts of Malaysia), Kuwait, Bahrain, Qatar, and the Trucial States (now the UAE).
In 1837, the Indian rupee was made the sole official currency of the Straits Settlements, as it was administered as a part of India. In 1845, the British replaced the Indian rupee with the Straits dollar after administration of the Straits Settlements separated from India earlier in that same year.
After partition of India and Pakistan in 1947, the Pakistani rupee came into existence, initially using Indian coins and Indian currency notes simply overstamped with the word "Pakistan". New coins and banknotes were issued in 1948.
The Gulf rupee, also known as the Persian Gulf rupee (XPGR), was introduced by the Government of India as a replacement for the Indian rupee for circulation exclusively outside the country with the Reserve Bank of India Amendment Act of 1 May 1959. This creation of a separate currency was an attempt to reduce the strain put on India's foreign reserves by gold smuggling.
Two states, Kuwait and Bahrain eventually replaced the Gulf rupee with their own currencies (the Kuwaiti dinar and the Bahraini dinar) after gaining independence from Britain in 1961 and 1965, respectively.
Some other counteries who have also Chosen Demonetisation are:
United States, United Kingdom, Thailand, Taiwan, Switzerland and Liechtenstein, Singapore and Brunei, Norway, New Zealand, France, Republic of Ireland etc.
On 6 June 1966, India devalued the rupee. To avoid following this devaluation, several of the states using the rupee adopted their own currencies. Qatar and most of the Trucial States adopted the Qatar and Dubai riyal, whilst Abu Dhabi adopted the Bahraini dinar. Only Oman continued to use the Gulf rupee until 1970, with the government backing the currency at its old peg to the pound. Oman later replaced the Gulf rupee with its own rial in 1970.
On November 8, 2016, Prime Minister Narendra Modi announced that existing INR 500 and INR 1000 banknotes would no longer be accepted as legal tender, with a view to curb counterfeiting, tax evasion, and the parallel economy, and outlined a scheme for holders of such banknotes to either deposit them into their bank accounts for full, unlimited value, or to exchange the banknotes for new INR 500 and INR 2000 banknotes, subject to a cap.