Demonetisation: Even Pakistan has planned it better
As the Narendra Modi government introduces demonetisation to curb black money in the $ 2.1 trillion Indian economy, we look at other countries that had attempted demonetisation earlier. Not many were successful in eradicating black money.
The Central Bank of Libya (CBL) started withdrawing old currency in early 2012 to restore liquidity after it found vast majority of funds being kept outside banks.
In a report of January 14, 2012, Libya.tv claimed CBL started withdrawing old currency from circulation, apparently to “restore liquidity into the country’s banking system” after it found that the vast majority of funds are being kept outside banks — in excess of 15 billion dinars (or 96% of available money), the CBL governor said. The transition initially started with “fifty dinar banknotes”. The demonetisation followed the killing of longtime Libyan ruler Muammar Gaddafi in October 2011.
A Reuters report on May 8, 2012 said, “The new leadership did not know the size of state assets, how their money was being spent, or what had happened to more than $2 billion transferred from the sovereign wealth fund.”
Zimbabwe went through hyper-inflation in 2008 following which its currency lost value. In June 2015, the Reserve Bank of Zimbabwe said the country had “adopted the multiple currency system or dollarisation in 2009 and it is therefore necessary to demonetise the Zimbabwe $ unit to replace it with the multiple currency system.”
Reportedly, demonetisation for Zimbabwe was critical for policy consistency and for enhancing consumer and business confidence, its central bank had said.
It was at a point of chronic hyperinflation, that the government was printing a currency note with a face value of one hundred trillion dollars. This obviously rendered lesser denominations obsolete, which were taken out of circulation quickly.
In June 2015, Pakistan phased out all currency notes with old designs. Earlier, Rs 5 currency notes and the old designed Rs 500 notes were demonetised and in 2015 the remaining old-designed notes of Rs 10, 50, 100 and 1,000 were announced demonetised by State Bank of Pakistan.
This was done to bring in new designs and security features to its currency. The last day to exchange all old designed banknotes from banks was declared as Nov 30, 2016. All old designed banknotes will cease to be legal tender on Dec 1, 2016 while the last day to exchange all such banknotes is Dec 31, 2021.
After the Gulf War in 1991, due to United Nations sanctions, the previously used Swiss printing method was no longer available so new, inferior quality, notes were produced. The previously produced notes came to be known as the Swiss dinar and continued to circulate in the Kurdish region of Iraq. Even after ceasing to be legal tender in Iraq in 2003, it still circulated in northern Kurdish regions. Interestingly, despite lacking government backing, it had a stable market value for more than a decade.
Due to sanctions placed on Iraq by the United States and the international community along with excessive government printing, the new dinar notes devalued quickly. By late 1995, US $1 was valued at 3,000 dinars in the black market.
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).
Germany has demonetised at least thrice in recent history – from Papiermark to RentenMark; from Reichsmark to Deutschemark to finally from Deutschemark to the Euro.
It has been claimed that Germans are still holding on to billions of deutschemarks, nearly eight years after the currency was phased out, Germany’s central bank said in a 2008 report. The Bundesbank has given an overall figure of 13.6 billion Deutschemarks – worth about 7 billion euros (£6.3 billion), it added.
The Bundesbank had set no deadline for exchanging Deutschmarks for euros and no fee is levied when Germans do so. Nearly DM160 million was exchanged for euros in 2009, said Bundesbank spokeswoman Adelheid Sailer-Schuster in a report earlier.
The Deutschmark ceased to be legal tender on March 1, 2002.
6. European Union-
The creation of a single currency for the European Union over 1998-2000 was the largest demonetisation and currency issue exercise in history.
Reportedly, adoption of Euro resulted in demonetisation across Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus,Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the UK. However, the UK has left the union now.
Authorities first fixed exchange rates for the varied national currencies into euros. When the euro was introduced, the old national currencies were demonetised. Europe’s economy was weakening, meaning governments will be limited in their flexibility to raise tax revenues, making it harder to reach the Maastricht standards.
In 1996, Australia became the first country to have a full series of circulating polymer bank notes after replacing all paper-based notes, which the government systemically made non-tender for legal purposes. To stop widespread counterfeiting, the Reserve Bank of Australia had released the world’s first long lasting and counterfeit-resistant polymer (plastic) banknotes.
The central bank of the Philippines decided to demonetise the New Design Series banknotes issued on June 12, 1985, to “align with the practice of other central banks around the world which change the design of their currency that has been in circulation for over 10 years.”
The “New Design Series” was the name used to refer to Philippine banknotes issued from 1985 to 1993. It was then renamed into the “BSP Series” due to the re-establishment of Bangko Sentral ng Pilipinas from 1993 to 2010. It was then succeeded by the “New Generation Currency” issued on December 16, 2010.
In the latest known information, the existing banknotes were in print until 2013. It had been reported that the existing banknotes will be remaining legal tender until the start of the demonetisation process from January 1, 2015 to December 31, 2016, and on January 1, 2017, will no longer be legal tender.
It had been noticed that Swiss Franc 10 issued in Switzerland stayed reserve notes.
The obverse had Woman from Neuchâtel and the reverse had ornaments. It had been reported that to deter counterfeiting, Switzerland has a reserve series of notes.
A series of Swiss Franc 10 notes were printed by the Swiss National Bank in 1984, but the notes were never issued and the notes are currently still in reserve.
In Fiji, its Reserve Bank said, “demonetisation of the pounds and shillings was necessary as Fiji transitioned to the new decimal currency structure from January 13, 1969.” It added, “Due to limited quantities remaining in circulation, these notes and coins now have collectors’.”
According to details available, on January 15, 1969, the government introduced notes in denominations of 50 cents, $1, $2, $10, and $20; the $5 note was not issued until 1970. The Central Monetary Authority took over the issuance of paper money in 1974, issuing the same denominations, although the 50¢ note was replaced by a coin on March 3, 1975. In 1986, the Reserve Bank of Fiji began issuing notes.
In Singapore, though Japanese “Banana” notes had been in circulation during the Japanese occupation, after the Japanese surrendered, the note was demonetised in 1945.
After the surrender of Japan, the currency became entirely worthless, and to this day the Japanese government has refused to exchange these currencies. The present value of the currency as a collector’s item remains mixed depending on their condition, the presence of serial numbers, the use of woven paper, and their use as specimens. Common notes lacking serial numbers are still worth below their printed value, while rarer versions are worth slightly over or several times their printed value.
12. United States of America-
Paper money was issued by the Confederate States of America during the American Civil War, the reports claimed. It 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 lost and was 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. However, from 1933 to 1974, the government banned most private ownership of gold bullion, including gold coins held for non-numismatic. Now, however, even surviving pre-1933 gold coins are legal tender under the 1964 act.