New Delhi, Jan 10: Prime Minister Narendra Modi led government has been insisting that the move of demonetisation of Rs 500 and Rs 1000 was suggested by the Reserve Bank of India. But the RBI, in its report to a Parliamentary panel, admitted that it was the Modi government that advised the central bank to consider ban on old 500-rupee and 1000-rupee notes. The RBI, agreeing with the Modi government’s rationale behind the demonetisation, gave its nod to the withdrawal of 500-rupee and 1,000-rupee notes barely two and a half hours before PM Modi’s speech on November 8.
“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. The parliamentary panel is 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 after the Modi government suggested ban on old Rs 500 and Rs 1000 on November 7, and decided to recommend the scrapping of old banknotes. “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to Central Government that the legal tender status of the banknotes in the high denominations of Rs 500 and Rs 1000 be withdrawn,” stated the RBI note.
The RBI also agreed with the Modi government that the demonetisation was necessary to eliminate black money and usage of Fake Indian Currency Notes (FICN) for financing of terrorism and drug financing. “Elimination of black money will eliminate the long shadow of the ghost economy and will be positive for India’s growth outlook. They also observed that in the last five years, there has been an increase in circulation of Rs 500 and Rs 1,000 notes with an increasing incidence of counterfeiting of these notes,” said the RBI note.
“There have been widespread reports of the usage of Fake Indian Currency Notes (FICN) for financing of terrorism and drug financing. The FICN have their origin in neighbouring country and pose a grievous threat to the security and integrity of the country. Hence the Government has recommended that the withdrawal of the legal tender character of these notes is apposite. GoI advised the Bank to place these matters of immediacy before the Directors of the Central Board of the Reserve Bank of India for consideration…” the note said further.
Prime Minister Narendra Modi, on November 8, addressed the nation and announced the decision to withdraw the old Rs 500 and Rs 1000 notes effective midnight. Days after the announcement, 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.