As per reports on Indian Express, the Government has suggested that the decision to withdraw 500-rupee and 1,000-rupee notes came from the Reserve Bank of India. But in its submission to a Parliamentary panel late last month, the RBI, agreeing with the Government’s rationale behind the move, has made it clear that it was the Government which “advised” it to do so.
“Government, on 7th 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 Rs 500 and Rs 1,000,” said the RBI in a seven-page note submitted on December 22 to the Parliament’s Department Related Committee of Finance headed by Congress leader M Veerappa Moily.
According to RBI’s note, accessed by The Indian Express, the RBI 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to Central Government that the legal tender status of the banknotes in the high denominations of Rs 500 and Rs 1000 be withdrawn.” The Government “considered the recommendations” and decided to withdraw the notes. That same evening, Prime Minister Narendra Modi addressed the nation and announced the decision to withdraw the notes effective midnight November 8.
Eight days later, during a debate on demonetisation in the Rajya Sabha, Union Minister for Power, Coal, New and Renewable Energy Piyush Goyal said that the decision to demonetise was taken by the RBI Board.
“Reserve Bank ke Board ne yah nirnay liya. Isko Sarkar ke paas bheja aur sarkar ne is nirnay ki sarahna karte hue, cabinet ne ise manjoori di ki paanch sau or hazar ke purane noton ko radd kiya jaaye, naye notes aaye (The Board of Reserve Bank took this decision, sent it before the government and with the government endorsing it, Cabinet gave its nod to it to demonetise the old currency notes of Rs 500 and Rs 1000 and bring new notes),” Goyal had said.
In its note, the RBI, under the heading “Background” and “Preparations,” said: “It occurred to Government of India and the Reserve Bank that the introduction of new series of notes could provide a very rare and profound opportunity to tackle all the three problems of counterfeiting, terrorist financing and black money by demonetising the banknotes in high denominations of Rs 500 and Rs 1000 or by withdrawing legal tender status of such banknotes…Though no firm decision was taken initially, whether to demonetise or not, preparations still went on for introduction of new series notes, as that was needed in any case.”
The RBI recalled that as early as October 7, 2014, it had suggested to the Government the need for introduction of higher denomination notes of value Rs 5,000 and Rs 10,000, keeping in view inflation and the need for “facilitating payments and managing the currency logistics.”
The Government considered the same and after deliberations, advised on May 18, 2016 their “in-principle decision” to introduce Rs 2000-notes.