RBI says demonetisation was proposed by Modi government

Posted on 11 Jan 2017 by Admin     
RBI says demonetisation was proposed by Modi government

By Cartoonist Avinash

Contrary to popular belief, it was the Modi government which had ‘advised’ the Reserve Bank of India (RBI) to junk Rs500 and Rs1,000 notes on 7 November and the board of the central bank the very next day recommended demonetisation.

In a 7-page note to Parliament’s department-related committee of finance headed by Congress leader M. Veerappa Moily, RBI stated that the government had on 7 November 2016 ‘advised the Reserve Bank that to mitigate the triple problems of counterfeiting, terrorist financing and black money, the central board of the Reserve Bank may consider withdrawal of the legal tender status of the notes in high denominations of Rs500 and Rs1,000.”

The RBI’s central board met the very next day to ‘consider the government’s advice,” and after “deliberations,” decided to “recommend to Central government that the legal tender status of the banknotes in the high denominations of Rs500 and Rs1,000 be withdrawn.”

The Union cabinet headed by Prime Minister Narendra Modi met within hours of that recommendation on 8 November and banned the circulation of old Rs500 and Rs1,000 notes. Some ministers have thus far maintained that the government had only acted on RBI’s recommendation of demonetisation.

In the note to the panel, RBI said it had been in the last few years working on the introduction of a 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.

“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,” RBI said.

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