Scholarly Research Journal for Humanity Science & English Language , Online ISSN 2348-3083, SJ IMPACT FACTOR 2016 = 4.44, www.srjis.com UGC Approved Sr. No.48612, DEC-JAN 2018, VOL-5/25
DEMONETISATION AND GOLD: A STUDY OF INDIA Manpreet Kaur, Ph. D. Assistant Professor, Department of Commerce, Guru Gobind Singh College for Women, Chandigarh (UT) E-mail: manpreet319@yahoo.com
On November 8, 2016, Prime Minister Narendra Modi announced demonetization of Rs. 500 and Rs.1000 banknotes of the Mahatma Gandhi Series. This is required to tackle counterfeiting Indian banknotes, to effectively nullify black money hoarded in cash and curb funding of terrorism with fake notes. The present study examines the impact of demonetization decision on gold prices in India. It is studied by comparing the data of gold prices for 30 days, 15 days and 7 days before and after November 8, 2016. The data consists of daily prices of gold obtained from World Gold Council database. Paired t-test and wilcoxon signed ranks test are used to study the statistical significance of the results. It has been found that demonetization decision has significantly reduced the price of gold in India. It may be due to the reason that after demonetization announcement, income tax department tightened the noose around the jewellers as people rushed to convert their old currency notes (Rs. 500 and Rs. 1000) into precious metal gold. It resulted in dropping the price of gold in India in short run. Keywords: Demonetization, Gold price, Prime Minister Scholarly Research Journal's is licensed Based on a work at www.srjis.com
Introduction Demonetization is a situation where the Central Bank of the country (Reserve Bank in India) withdraws the old currency notes of certain denomination as an official mode of payment. Government of India vide their Notification no. 2652 dated November 8, 2016 have withdrawn the Legal Tender status of Rs 500 and Rs 1,000 denominations of banknotes of the Mahatma Gandhi Series issued by the Reserve Bank of India till November 8, 2016. The same was announced by Prime Minister Narendra Modi at 8.00 pm on November 8, 2016. This is required to tackle counterfeiting Indian banknotes, to effectively nullify black money hoarded in cash and curb funding of terrorism with fake notes. As a result, 86% of currency in circulation in the country was withdrawn (Rowlatt, 2016). This is not the first time that demonetization has been implemented in India as mentioned in an article “Demonetisation” in The Times of India. In 1936, Rs 10,000, which was the highest denomination note, was introduced but was demonetized in 1946. Though, it was re-introduced in 1954 but later, in Copyright © 2017, Scholarly Research Journal for Interdisciplinary Studies