The supply of notes of all denomination were increased by 40% between 2011 and 2016, the Rs.500 and Rs. 1000 banknotes increased by 76% and 109% respectively in this period owing to counterfeit money.
This was a massive illicit increase, which was used to finance the underground economy and the underworld of terror and finance. As a result, the step of DEMONETIZATION, eliminating the notes was taken by the present PM Mr. Narendra Modi, which people later termed as a Surgical Strike on Black Money.
IMPACT OF DEMONETIZATION
1. Reduction in Inflation and increase of purchasing power: Since, due to demonetization the black money was flushed out of the system and there was a shrunk in the money supply in the economy to some degree. This has reduced inflation rate due to the absence of any open market interventions by the Reserve Bank of India. As value of goods and services are valued against money, with reduction in money the price of the goods or services automatically came down.
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