JOIN USThe Reserve Bank of India has said the government sounded it out on the demonetisation of high-denomination notes.
In a note to a parliamentary committee, the central bank said the information came a day before the November 8 note ban. The RBI Board met and felt that “such a proposal could not have come at a more opportune time”.
With Prime Minister Narendra Modi claiming full responsibility for banning Rs 500 and Rs 1,000 notes on November 8, 2016, there is little surprise about the RBI’s assertion before the Parliament’s Standing Committee on Finance headed by Congress leader M Veerappa Moily.
But the sequence of events, as recounted by the RBI in the seven-page note to the panel, shows that the government had “advised” the RBI to scrap 500 and 1,000-rupee notes on November 7. Just a day later, the RBI Board reviewed the proposal. The Union Cabinet met within hours of that recommendation and banned the circulation of Rs 500 and Rs 1,000 notes.
The disclosure supports critics’ arguments that the central bank compromised its autonomy by following the government’s plans to demonetise the notes. The RBI said it concurred with the government’s view that a ban on Rs 500 and 1,000 notes would “mitigate the triple problems of counterfeiting, terrorist financing and black money”.
The central bank said it had, as early as October 7, 2014, suggested to the government the need for introducing 5,000 and 10,000-rupee notes keeping in mind the inflation and the need for “facilitating payments and managing the currency logistics”. The government, it said, concurred with the introduction of Rs 2,000 notes on May 18, 2016.
The RBI further said that it recommended to the government on May 27, 2016, that a new series of banknotes with new designs, sizes, colours and themes, including notes in Rs 2,000 denomination, be introduced. The government gave its final approval on June 7, 2016.
Trailing demonetisaton
The government advised RBI to scrap Rs 500 and Rs 1,000 notes on Nov 7.
A day later, the RBI Board reviewed the proposal and the Union Cabinet met within hours and banned Rs 500 and 1,000 notes.
The RBI said it concurred with the government’s view that the ban would mitigate counterfeiting, terrorist financing and black money.
The disclosure buttresses arguments that the RBI compromised its autonomy by going with the government’s plans to demonetise the notes.