Demonetization is the process of turning something that used to be money into no longer being money . It happens occasionally with bank notes and stamps , but usually is something that governments tend to try to avoid . It can happen when a country switches currencies or reforms their currencies like when the British switched to a decimal system from their old system where twelve pence made a shilling , and twenty shillings made a pound or when Turkey decided to make their money easier to handle by striking of the last three zeros of the face value or when all the Eurozone countries switched to the Euro . When it is well planned and announced in advance and people get plenty of chance to exchange all their cash for the new currency there is little issue . One side effect is that if some criminal for example has a million buried in his backyard from a bankrobbery and wants to wait a decade or so until the heat dies down , a switch in the currency can ruin their day . They have to bring all their money to the bank at once to exchange it for the new money because after the deadline it will be worthless . If they come with a few duffel bags of money to the nearest bank , question might be asked that they wouldn ' t want to answer . It also negatively affected any criminals who spent time and effort to create techniques to forge the old banknotes . It also didn ' t help others who had been hoarding money without telling the tax agencies about their fortune . What had previously been real money that nobody knew about suddenly had to come to light . Most countries have rules where banks have to report transactions above a certain value to the government . So if you want to exchange your fortune for new still valid banknotes you suddenly create a papertrail . A paper trail is not a good thing to have when you don ' t want the government to know about the money . In previous orderly currency switches where the old notes were declared no longer valid after the deadline , the destruction of ill gotten gains of criminals was just a slight minor side effect and not something anyone especially looked to do . With the recent switch in India it was actually the main goal . The PM basically went on TV in a completely unscheduled announcement that caught many people even high up in the government itself completely by surprise and told the world that 500 and 1000 banknotes would become worthless at midnight and that people had to go to the banks with the notes they had to exchange their money . The once hardest hit from that were obviously the ones who had large amounts of these banknotes lying around and no good way to explain where they came from if anyone asked . The poor who did not have much cash were less affected and the very rich who had their money in legal accounts at banks were less affected . The ones who have a lot of cash were the ones who were hit the hardest . Taxdodgers and criminals have a real problem . It also caused real problems for a lot of innocent people who had cash for valid reasons and disrupted the entire country to a degree . One side effect was that since there was an exception that allowed the payment of outstanding taxes with the old notes , suddenly the taxcoffers of the regional governments were fuller than ever before . All in all the reaction to the move has been surprisingly positive despite the disruptions and the chaos it caused . It hurt a lot of people and groups that were unpopular a lot and many felt that was a good thing .