In a lightning-swift move which caught the citizens by surprise, Indian Prime Minister Narendra Modi has announced a strategy to take the fight against black money and corruption to a whole new level by demonetizing all the older 500 and 1000 rupee denominations. In his address to the nation, Modi states, ‘this move is a notable step to fight corruption, black money, poverty and terrorism.’ In other words, all the older 500 and 1000 notes are unworthy starting today and introduction of 2000 note is a major move by Reserve Bank of India. The new 2000-rupee note comes with micro nano GPS chip to track the exact location of currency. The move, if hardly unprecedented, have caused much confusion, consternation and inconveniences to the public, and in order to clear up the air and smoothen up the process of ‘transition’ of the now defunct old denominations, the Reserve Bank of India (RBI) have issued a release with Frequently Asked Questions (FAQs) about the demonetization of Rs 1,000 and Rs 500 which states that
the incidence of fake Indian currency notes in higher denomination has increased. For ordinary persons, the fake notes look similar to genuine notes, even though no security feature has been copied. The fake notes are used for antinational and illegal activities. High denomination notes have been misused by terrorists and for hoarding black money. India remains a cash based economy hence the circulation of fake Indian currency notes continues to be a menace. In order to contain the rising incidence of fake notes and black money, the scheme to withdraw has been introduced. The withdrawn old high denomination (OHD) notes of Rs 1,000 and Rs 500 cannot be used for transacting business and/or as a store of value. The OHD notes can be exchanged for value at any of the 19 offices of the Reserve Bank of India or at any of the bank branches or at any head post office or sub-post office. One will get the entire value for the volume of notes tendered at the bank branches/RBI offices and upto ¹ 4000 per person in cash irrespective of the size of tender and anything over and above that will be receivable by way of credit to your bank account. One can use the balance in the bank accounts to pay for other requirements by cheque or through electronic means of payment such as internet banking, mobile wallets, IMPS, credit/debit cards etc.
This is the third instance of the central government pulling back select denominations from circulation. The first was when Rs 1,000, Rs 5,000, and Rs 10,000 notes were taken out of circulation in January 1946, a year and a half before the country won independence from the British. The Rs 10,000 notes were the largest currency denomination ever printed by the Reserve Bank of India, introduced for the first time in 1938. All three notes were reintroduced in 1954 and later demonetized in January 1978.
In the early ’70s, the Wanchoo committee, a direct tax inquiry committee set up by the government, suggested demonetization as a measure to unearth and counter the spread of black money. However, the public nature of the recommendation sparked black money hoarders to act fast and rid themselves of high denominations before the government was able to clamp down on them- thus the secrecy and the swiftness of the announcement.
While many, including RBI governor Urjit Patel applauded Modi’s “very bold step” addressing concerns about the “growing menace of fake Indian currency notes”, a large number of economists are skeptical about the impact of his decision “That’s because people don’t stack black money in cash. Rather, they stash it in undisclosed accounts in Swiss Banks,” said Abhiroop Sarkar, a professor at the Indian Statistical Institute. “So the demonetization won’t affect the biggest fish.” In any case, corruption isn’t only about cash, and until exemplary examples are made of the corrupted, the whole exercise will turn out to be an utterly unnecessary nuisance for the common people.