Impact on cashless economy by Demonetization & Legal protection on the cashless transactions.

Indian Legal Solution


Impact on cashless economy by Demonetization & Legal protection on the cashless transactions


Author: YashSoni

Btech+LLb (Cyberlaw)

University of Petroleum & Energy Studies, Dehradun.



8th November, 2016 was the day when the journey of India’s National Currency Note of Rs.500 and Rs.1000 had come to an end, where Rs.500 note survived till 29 years(1997-2016) and Rs.1000 for the same till 16 years (2000-2016). This day became very harsh for the Indians to realize that the pockets with the multiple banknotes willno more beworthy enoughfrom the day onwards, it will become worthless piece of paper in couple of hours. A live unscheduled NEWS flashed got viral over the televisions’ media by our Hon’ble Prime Minister Mr. Narendra Damodardas Modi who made the announcement regarding demonetization of all 500Rs. and 1000Rs. banknote in a battle against the corruption. This prominent step taken by our Prime Minister was to bring the change in our developing country by dematerializing the corruption, track all the fake currency,layoff the supply line money, arms and immunizations for terror funding,to bring tax evasion to halt,to unearth and curb the black money, also to curb illegal and unethical business activities such as, the black marketing, food adulteration. More importantly, transformation of Indian economy into cashless economy which is driving the growth of country towards digitization i.e Digital India.



Demonetization is the act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change of national currency, the current form or forms of money is pulled from circulation and retired, often to be replaced with new notes or coins. Sometimes, a country completely replaces the old currency wit new currency.[1]

Ghana was the 1st country in the world which implemented the concept of demonetization in 1982. Ghana cutoff the lifeline of 50 Cedis note in order to tackle the situation of tax evasion and pour out the excess liquidity.

In 1984 Nigeria introduced the new currency by banning the old one under the ruling government of Muhammadu Buhari. However, the economy of the country collapsed as the debt-ridden and inflation hit country did not take the change well.

In 1987, Myanmar’s military invalidated around 80% value of money to curb black market. This led to mass protests that killed many people by the economic disruption.

Zimbabwe used to have $100,000,000,000,000 note. A one hundred trillion dollar note! The Zimbabwean economy went for a toss when President Robert Mugabe issued edicts to ban inflation through laughable value notes. After demonetisation, the value of trillion dollars dropped to $0.5 dollar and were also put up on eBay.

In 2010, demonetization took place in North Korea by Kim-Jong II, he introduced the reform that strikes off two zeroes from the Nation’s currency. This left the country with no food and no shelter.

In 2016, Prime Minister of India, Mr. Narendra Damodardas Modi took the eminent step against the corruption and for the promotion of cashless economy by demonetization whichturned out to be one of his best attempts towards the development of the Country. It was not at all easy for the citizens to accept the cash-less transactions where the whole country is running on cash as their part of routine buying and sellings. So let’s discuss first about the cash-less transactions and its impacts in the society.




We all are aware that our country is in the developing stage and our Prime Minister is trying hard for the best output towards the Digitalization of the country in which one of the most important aspect is the cash-less transactions.

It was launched on 1st July 2015 by Prime Minister Narendra Modi, with a vision cash-less economy i.e “Faceless, Paperless”[2] butmajor shift was seen in later 2016, when the government took steps to demonetize the country.Due to which today even small retailers and shopkeepers are using cashless modes like Paytm for routine transactions. This minimizes the circulation of liquid money (paper currency).

In cashless economy all transactions are made by using various modes such as credit/debit cards Net banking, India QR code, digital wallets (Paytm, PayPal, Google-Tez), physical coupon, UPI (Unified Payment Interface), E- coupons, AEPS (Aadhaar Enabled Payment System), Med-Health Cards, Gift/Forex Cards.



We all know that “change is what everyone is afraid to face” this is the general human tendency, in which if we talk about the Indians they are specially known for carrying on anything as a tradition for a long term until and unless it is the necessity to bring the change. Similarly, in this case of cashless transactions on July 2015, when our Prime Minister took the initiative of shifting the liquid currency transactions towards the cash-less transaction, people of the country felt mockingly shocked as if how the traditional liquid currency running for so long can be replaced by some online-virtual currency, which is intangible or deprived of senses against that of the banknotes. This turns out to be very painful phase for our government, as discussed above the people of the country were in dilemma regarding the usage of the virtual money or any kind of cash-less transaction as they were revolving around too many questions for the same, such as how difficult is it to switch towards the technology for routine jobs(many of the retailers avoid using smart phones or the technological gadgets), what are the modes of transactions, what credentials do we need to have for the same, how much time will it take for the transaction, where our money will be transferred, will this be secure enough for our bank accounts, how the billing will be done, how much extra expense will be add on for the internet connection, who will be liable for any kind of deceit, who is the authority to take care of all these, etc.

But later in the financial year of 2016-17, there were a total of 865.9 crore digital transactions across all banking platforms. Within a period of 3 years, the amount of digital transactions has more than tripled. Recently, Niti Aayog principal advisor Ratan Watal shared similar statistics, stating that digital payments grew 55 per cent in volume and 24.2 per cent in value in 2016-17 over 2015-16.[3]

The above statistics shows how the people started adapting the technology and shifted towards the cash-less transactions, in the Metropolitan cities about 60-70% of the shop owners, grocery stores, local vendors and even the small tea stall owners use Paytm for the payment. This has also minimized the problem of spare change of which the sellers took the advantage by either giving a chocolate or by asking to buy something to make a round figure or procrastinating the amount for next purchase(which hardly happens), but this issue is resolved here as the exact amount of payment (including decimal figure) can be done using the virtual money transactions.

The adult population with a bank account has increased to 65 percent with the financial inclusion reforms in India over the last 5 years.

The cash-less economy transaction has helped out to give the tremendous increase in GDP (gross domestic product) rate of our country.

If we talk about the rural areas the effect of demonetization results out to be harsh as the sudden news of banning of Rs.500 and Rs.1000 banknotes made the situation chaotic. More than 90% of the rural people do the transaction in cash and there are limited access to the banks, in this moment they had faced so much problems, even some of them faced the day for survivals.

Therefore, it is not at all easy for them to get involve in the cash-less payment mode but this brought the change as by the stats of telecom companies states that till 2012 only 13% of the rural people subscribed for the internet but in 2016 this figure has reached to about 58% which is sought to be a big change.[4]



There are two directions where the law plays very important role in making the boundation for the crime to take place in cash-less transactions, i.e regarding the privacy and the other is the assurance of data of the users.As of now, there is no such law specifically deals with these two issue. The question arises, if there is no such law regarding the cash-less transactions, then why the liquid-money transaction user will trust in the cash-less transaction scheme of the government. Rather there are laws that governs the online activities of the user, i.e Information Technology Act, 2008 (Cyberlaw), under Section 43A of the Act the security and privacy of the online data is protected, and for any kind of malicious activity, tempering or misuse of data is covered under Section 65 of the said Act. Also if there any kind of unauthorized transaction takes place without user’s knowledge then the user is limited liable under customer protection-guidelines of RBI.

On July 6, 2017, the RBI issued a notification, Customer protection – limited liability of customers in unauthorized electronic banking transactions. The good news is that the onus is on the banks to prove that a fraud has taken place, but customers should inform the bank as soon as possible to avoid being penalized.[5]

Also there are cyber-cells which are engaged by the police when the FIR is done and there is the need of tracking of cyber-footprints the court grants the permission under its jurisdiction, than the investigation is done accordingly which is one of the legal solution but in many cities the influence and working mechanism is not that equipped enough for the investigation process. Also there is the myth that it is very lengthy and the slow process. Therefore, very few people try to opt for this option. But more or less it is the effective process nowadays.

Although there is no such specific law for these types of issues but the above discussed handful of security assurances by our government are helpful in getting relief and remedies, therefore we can have fearless online transactions on our daily usage by keeping complete precautionary measures in mind.