Question

Choose the incorrect statement with respect to demonetization:

• A. The two largest denomination notes of ₹ 500 and ₹ 1000 were demonetized with immediate effect, ceasing to be legal tender except for buying properties.
• B. The aim of this step was to curb corruption and accumulation of black money.
• C. It led to the tax administration channelizing savings into the formal financial system.
• D. Restrictions were placed on the convertibility of domestic money and bank deposits.

Hint:

Demonetization aimed to reduce black money — but it never restricted the convertibility of legal money within the domestic system.

Answer 1

The Correct Option is D

Demonetization in India (announced on November 8, 2016) was a historic step involving the withdrawal of ₹500 and ₹1000 currency notes from legal tender. Let us evaluate each option:

• Option (A): Correct — The ₹500 and ₹1000 notes were withdrawn with immediate effect. However, they were not allowed for use in property transactions; rather, temporary exemptions were given only for emergency services for a few days.
• Option (B): Correct — One of the primary goals was to curb black money, corruption, and the use of counterfeit notes.
• Option (C): Correct — Due to demonetization, large cash reserves had to be deposited in banks, increasing savings in the formal economy.
• Option (D): Incorrect — No restrictions were placed on convertibility of domestic money (rupees) into other rupees or bank deposits. People were allowed to deposit their old currency and withdraw new notes.

Therefore, the statement in option (D) is factually incorrect and does not represent a feature of demonetization.
Final Answer: (D) Restrictions were placed on the convertibility of domestic money and bank deposits.