Move was in the pipeline for months

RBI board had approved production of Rs. 2,000 denomination notes long ago, say officials

The government’s move to scrap nearly 23.2 billion high-value currency notes of Rs. 500 and Rs. 1,000, was in the pipeline for several months but was kept tightly under wraps, with just a handful of officials in the know.

The Reserve Bank of India’s central board had approved the production of the Rs. 2,000 notes several months ago and even began production of the new Rs. 500 and Rs. 2,000 notes, which are to be issued from November 10 a few months ago.

System ready

“The timing [of the announcement by the Prime Minister] was appropriately chosen as we should be ready with adequate number of notes to replace the existing ones. We had ramped up production in the past few months of the new notes, and hence, it was decided to do it now as we can provide more of them in the weeks and days to come,” said RBI governor Urjit Patel at a briefing on late Tuesday night.

Officials said that the plan was okayed at the highest level about six months ago.

“This is a surprise for everyone and even within the government, a very limited number of people were aware of the move. The Reserve Bank of India board had taken the decision long back to introduce Rs. 2,000 notes,” said Economic Affairs Secretary Shaktikanta Das.

Security concerns

The case for introducing new notes followed prolonged deliberations within the top echelons of government, based on inputs from security agencies and the central bank.

“There’s been no breach of security features of our notes. But for ordinary citizens, it is often difficult to tell a genuine note from a fake. There’s now a confluence of thought between the government and the Reserve Bank of India. Multiple objectives can be met so this led us to withdraw the legal tender character of Rs. 500 and Rs. 1,000 notes,” Mr Patel pointed out.

Mr. Das said the bold and decisive step to fight black money and the use of fake currency notes to finance terrorism was backed by analysis of India’s currency trends.

‘Disproportionate rise’

“Statistics show that high denomination currency in circulation has risen sharply between 2011 and 2015. When all currency notes grew 40 per cent, Rs. 500 notes in circulation rose by 76 per cent and Rs. 1000 notes went up by 109 per cent. But during this period, the economy expanded by 30 per cent so the circulation of such notes had gone up disproportionately,” he said.

“The long shadow of the ghost economy has to go for the real economy to grow. This will add to our economy’s strength,” Mr. Das stressed.