Central Board recommended note ban after govt advice: RBI to Parliamentary panel

11 Jan 2017 Evaluate

The Reserve Bank of India (RBI), in its 7-page note to the Parliament's Department-Related Committee of Finance headed by Congress leader M Veerappa Moily, has stated that the government, on November 7, 2016, advised RBI to consider withdrawal of the legal tender status of the notes in high denominations of Rs 500 and Rs 1,000 in order to mitigate the triple problems of counterfeiting, terrorist financing and black money. Further, the report said that the RBI's Central Board met the very next day to consider the government's advice and decided to recommend that the legal tender status of the banknotes in the high denominations to be withdrawn.

On the other hand, RBI has said that immediately it might not be possible to replace Rs 500 and Rs 1000 notes fully in terms of both value and volume on one to one basis, within a specific time. However, the stock of Rs 2000 denomination was arriving in RBI offices and was being dispatched to currency chests across the country and that could enable meeting a significant critical portion of the physical demand there from in value terms.

In the note to the panel, RBI also said it had been in the last few years working on introduction of new series of banknotes with improved security features to secure them against counterfeiting. In parallel, the government had been taking steps to curb black money and combat terrorism. Further, it said that there were reports by intelligence and enforcement agencies that availability of high denomination banknotes made it easier for black money hoarders and counterfeited notes in high denominations were being used for terrorist financing.

According to the report, earlier, RBI had suggested to the government the need for introduction of 5,000 and 10,000 rupee notes, keeping in mind the inflation and the need for facilitating payments and managing the currency logistics. It said that the government concurred with the introduction of Rs 2000 notes on May 18, 2016. Government gave their final approval on June 7, 2016 and accordingly, the presses were advised in June 2016 to initiate production of new series notes. The report also revealed that no discussions regarding demonetisation were held during the May 2016, July 7 and August 11 Board meetings.

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