Functions of Money — Policy Reforms

Entry	Year	Description	Impact
N/A (Policy Decision, not Constitutional Amendment)	2016	On November 8, 2016, the Government of India announced the demonetization of all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series. These notes ceased to be legal tender, meaning they were no longer accepted as a valid medium of exchange for transactions.	This policy decision had a profound, albeit temporary, impact on money's functions. It severely disrupted the medium of exchange function, especially for cash-dependent sectors, leading to a liquidity crunch. It also temporarily affected the store of value function for those holding large amounts of the invalidated currency. However, it significantly accelerated the adoption of digital payment systems like UPI, thereby modernizing the medium of exchange function and pushing India towards a less-cash economy. From a UPSC perspective, it highlights how government policy can directly influence and even temporarily suspend the fundamental functions of money, leading to both challenges and transformative changes in economic behavior.