The minutes of the Reserve Bank of India (RBI) meeting held on November 8, 2016, a few hours prior to the public announcement of the demonetisation drive, have vindicated critics of this controversial move. That the central bank, despite its approval to demonetisation, had rejected claims that the move would curb neither counterfeiting nor black money in the country.
While the finance ministry had pointed out that close to Rs 400 crores worth of Rs 500 and Rs 1000 denominations were counterfeit, in the RBI meeting held at 5:30pm that day, the directors noted, “While any incidence of counterfeiting is a concern, Rs 400 crores as a percentage of the total quantum of currency in circulation in the country is not very significant.”
Likewise, to the government’s claim that demonetisation would help in restricting black money, the RBI stated, “Most of the black money is held not in the form of cash but in the form of real sector assets such as gold or real-estate and this move would not have a material impact on those assets.”
The RBI had also pointed out that the government’s claim that the growth in the Indian economy had led to an increase in the circulation of the higher denomination currency was also inaccurate. It stated, “The growth rate of economy mentioned is the real rate while the growth in currency in circulation is nominal. Adjusted for inflation, the difference may not be so stark. Hence, this argument does not adequately support the recommendation.”
In conclusion, at the end of the meeting, the RBI noted, “The Board was assured that the Government will take mitigating measures to contain the use of cash. The Board considered the memorandum and after detailed deliberations concluded that in larger public interest, the balance of advantage would lie in withdrawal of legal tender status of Rs 500 and Rs 1,000 currency notes currently in circulation.”
Also read: Demonetisation: People Waiting to Punish PM Modi, Claims Shiv Sena