Demonetization has a long history of devaluing currency. It occurs when a legally tendered currency is withdrawn by a national government. Typically, demonetized currency gets replaced by a new set of currency or bills. With the devaluing of the major bills in India in 2016, a demonetized currency is something all investors should be weary about, even in the United States.
Demonetized Currency Has A History
Dating back thousands of years, many currencies that have lost their tie to a physical commodity, like gold or silver, have lost their value all together. Think about the ancient Romans, Greeks and other eastern civilizations. The value of their money was diminished without a working government or value behind it. Thus, for a currency to remonetized (replaced as legal tender) or demonetized, it must have a sovereign entity and citizens backing it.
The US Demonetized Currency Before
Paying attention to the 2016 demonetization in India, investors are worried about the United States demonetizing their currency as well. In fact, many national leaders of overseas markets around the world have applauded the Indian prime minister. However, there is a surprising fact about the United States currency. It was demonetized before. Under the Nixon administration, the United States Dollar was unpinned from it’s tie to Gold in 1971, making it a free floating currency. As risky as this, it did slow inflation and led to employment and production in the United States.
India’s Demonetization Impact On US Election
Perhaps on of the boldest steps in fiscal policy, the Government of India demonetized their larges notes of 500 INR and 1,000 INR. This accounted for over 8% of the Indian economy. The Prime Minister Modi did this to combat corruption and bring the “off the books” transactions on to the table. Overnight, the cash notes of Indian currency were made worthless. What most people don’t know, this event happened the night before the US election. While most investors were looking at the impact of the election, the Indian economy effected the markets globally.
Financial Advisors To Demonetize Cash
There are some financial professionals and economists that want to eliminate cash entirely, minus some small bills. These economists believe that a United States demonetization of the $100, $50 and $20 bills would lead to better monetary policy. Consequently, the Gold IRA value could rise too. With digital currency taking it’s first steps, demonetization could be the first step to an entirely cashless society.
In Europe, the demonetization was widespread in the early 2000’s. With the introduction of the Euro currency, countries like Germany and France slowly phased out their older currencies. This form of demonetization was done over a set time frame, allowing citizens sufficient time to replace their cash and bills. Looking at the vast change of currencies in Europe, there have been relatively smooth change over of currencies in the past.
Demonetization Will Happen Again
While the most recent demonetized currency events have shaken global economies, we will continue to have demonetization. As Governments continue to adjust their monetary policies, combat corruption and black money, they will need to replace their currency for money control. Thus, in every continent, we can expect to have demonetization again in the future.
These are some uncommonly known facts about the impact of demonetized currency. It has happened in the US, India and European countries. Moreover, the execution of demonetized currency can be done in one day, over night or over the course of several months. It has a long history and will continue to occur in our monetary societies.
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